No Longer the ‘Wild West’ for Crypto: EU Council Endorses Crypto Regulations

The Regulatory and Investigations team at Clyde & Co has been closely monitoring developments in regulation surrounding digital assets. News has just come in that the EU has moved one step forward in its radical attempt to create a rigorous legal and regulatory framework for digital assets: proposals Markets in Crypto-Assets (MiCA) regulation and the Transfer of Funds (TFR) regulation have been endorsed by the EU Council and are due to be voted on shortly by the EU Parliament.

If the new regulations are passed, they will progressively come into effect in stages from end of 2023. Here is an outline of some of the key changes to be expected:

• Supervision of crypto-asset firms by national supervisors with the largest of such firms being overseen by the European Securities and Markets Authority (ESMA).
• New rules to prevent market abuse related to any crypto transaction or service (e.g. market manipulation and insider trading).
• Strengthening of consumer protection by crypto firms.
• Firms involved in crypto activities will have to declare information related to their environmental and climate impacts.
• Tracing of crypto assets: extension of the “travel rule” to all crypto-assets transactions (no minimum threshold nor exemptions for low value transfer). Personal information on the source of the asset and its beneficiary will need to be provided and stored on both sides of the transfer.
• Providers must verify that the source of the asset is not subject to restrictive measures or sanctions, and there are no risks of money laundering or terrorism financing.
• New checks and verifications for transfers from unhosted wallets.

There are concerns about the difficulties in complying with the TFR regulations with some viewing these changes as an unwarranted punishment on crypto holders and exchanges. We intend to work closely with our clients impacted by the new regulations to help them effectively implement the relevant programs and processes to facilitate the transition into the new regime.