15 Mar
crypto regulation EU framework

Towards a legal framework for crypto-assets (including cryptocurrencies) in the EU: new rules to boost benefits and curb threats

Cryptocurrencies in the EU: new rules to boost benefits and curb threats. MEPs agreed on draft rules on supervision, consumer protection and environmental sustainability of crypto-assets, including cryptocurrencies such as bitcoins.

On Monday 14 March 2022, the Economic and Monetary Affairs Committee adopted, with 31 votes to 4 and 23 abstentions, its negotiating position on new rules on crypto-assets. They aim to boost users’ confidence and support the development of digital services and alternative payment instruments.

Key provisions agreed by MEPs for those issuing and trading crypto-assets (including  asset-referenced tokens and e-money tokens) cover transparency, disclosure, authorisation and supervision of transactions. Consumers would be better informed about risks, costs and charges. In addition, the legal framework supports market integrity and financial stability by regulating public offers of crypto-assets. Finally, the agreed text includes measures against market manipulation and to prevent money laundering, terrorist financing and other criminal activities.

Cryptocurrencies and EU taxonomy

To reduce the high carbon footprint of crypto-currencies, particularly of the mechanisms used to validate transactions, MEPs ask the Commission to present MEPs with a legislative proposal to include in the EU taxonomy (a classification system) for sustainable activities any crypto-asset mining activities that contribute substantially to climate change, by 1 January 2025.

MEPs stress that other industries (e.g. the video games and entertainment industry, data centres) also consume energy resources that are not climate-friendly. They call for the Commission to work on legislation addressing these issues across different sectors.

Supervision

MEPs want the European Securities and Markets Authority (ESMA) to supervise the issuance of asset-referenced tokens, whereas the European Banking Authority (EBA) will be in charge of supervising electronic money tokens.

About crypto-assets in the EU

Crypto-assets, including cryptocurrencies, are neither issued nor guaranteed by a central bank or a public authority. They are currently out of the scope of EU legislation. This creates risks for consumer protection and financial stability, and could lead to market manipulation and financial crime.

The draft legislation differentiates between crypto assets in general, asset referenced tokens (ARTs), also called “stable coins”, and e-money tokens primarily used for payments.

Mechanisms used to validate transactions in crypto-assets have a substantial environmental impact, particularly for proof-of-work mechanisms, requiring a lot of energy and resulting in a high carbon footprint and generating electronic waste. According to most estimates, the energy consumption of Bitcoin equals that of entire small countries.

By: Estela Martín

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