Regulating cryptocurrencies has been on the agenda of the European Union for a long time. They have now announced that they are one step closer to the implementation of a complete framework that would help regulate cryptocurrencies in the region. As a matter of fact, the EU has come up with two frameworks for this purpose, which have been named the Digital Operational Resilience Act (DORA) and the Markets in Crypto Assets (MiCA). The Parliament and the European Council have said that they will initiate discussions on the two initiatives before they give their final approval.
The purpose of developing the MiCA framework is to protect consumers as well as investors from any fraudulent dealings. One of the recommendations that have been made by this framework is to ensure that investor funds remain safe, even in the event of a cyberattack like hacking. If the authorities are sure that the digital asset platforms that exist are a challenge to users and investors alike, then it is essential to equip the two of them with proper regulation. While this is an important object of the framework, there is also another and that is to govern the issuance of digital assets like stablecoins.
There has been a great deal of focus on stablecoins in the European Union, particularly after the announcement of Facebook to introduce one named Libra, which would be backed by fiat currencies. The social media giant has had to face a lot of hurdles in its development and has also changed the project name. According to the European Central Bank (ECB), they would develop a number of cultural standards through the new regulations that would help in governing payment service providers for ensuring user safety. The ECB’s latest announcement also highlighted that there would also be provisions included in the framework that will help in managing risks and addressing the company governance.
The MiCA negotiation mandate is spread across 400 pages. It highlighted that the European Union will not relax their stance when it comes to token issuers. It also added that stricter regulatory measures will be applicable to stablecoin issuers as opposed to issuers of other crypto assets. However, they have also made an exception in which the council stated that all tokens that will be given authorization under the EU capital requirements would not have to get authorization under the MiCA framework.
Moving on, the council also talked about non-fungible tokens (NFTs), such as collectibles and digital art as the value of these tokens is derived from the unique features of every asset. It added that these assets will also not fall under the regulations of the MiCA framework either. This particular framework was introduced in September 2020 and the European Commission had launched it in accordance with the digital finance initiative. All of this is another indication of how pervasive the crypto markets have become and countries all over the globe are now looking into regulating this space as well as the innovations that have been made in it.