Clear Regulations: EU’s Crypto Laws Start New Global Era

The tumultuous cryptocurrency market and business environment over the past several years has pushed issues related to crypto legislation to the forefront of legislative bodies across the world. One of these institutions, the European Union, is leading the charge in crypto regulation as the Markets in Crypto Asset Regulation (MiCAR), published in June 2023, starts to take form in 2024. Paying close attention to industry feedback while outlining laws aiming to strike a balance between consumer protection and fostering an innovative environment, the EU’s MiCAR provides a case study into modern cryptocurrency law development as countries around the world, such as the UK, Dubai, and South Korea strive to create their own clear and comprehensive frameworks for the dynamic industry. Conversely, the United States has somewhat faltered in providing clear and holistic regulation of its own, instead taking a piecemeal approach that could factor into long term plans for crypto business development, as other regions like the EU take a more proactive approach to attract business.  

MiCAR was created with three primary token types in mind, asset referenced tokens, e-money tokens, and utility tokens, with ARTs being digital representations of multiple currencies or commodities, EMTs being stablecoins, and Utility tokens being currency used in a game or online environment.  MiCAR’s rollout process to regulate these tokens is split into two 18-month periods, with the first 18 months encompassing June 2023 to December 2024 and the second extending from January 2025 through July 2026. The first phase primarily featuring consultation packages and industry debate is more of an information sharing and preparatory phase for MiCAR, while the second is the transitional phase to the law’s rollout.  

A key component of MiCAR for crypto asset service providers (CASPs) is the authorization steps. These codify what a CASP needs to do to be authorized and outlines a host of information needed to complete the process, ranging from authoring a white paper, to business model documents, to the anti-money laundering and terrorist financing compliance programs. This is in addition to general policies and procedures any financial institution would need to follow relating to risk, compliance, information technology, and information sharing pertaining to shareholders when necessary.  

Comparing the EU to a European, non-EU country, the UK has made significant strides in authoring their own crypto legislation with the passing of the Financial Services and Markets Act 2023. Set up in a phased approach like MiCAR, the UK specifically targeted crypto marketing and associated fraudulent activity dealing with downplayed risk or deceptive marketing. In the Act, the UK specifies only individuals or firms registered under the Money Laundering Regulations may partake in crypto marketing or promotion.  

Halfway across the world in Dubai, the UAE created the world’s first regulatory body dedicated to virtual assets, the Virtual Asset Regulatory Authority (VARA). VARA regulations are passed on in a series of Rulebooks, set up this way to maintain adaptability with the industry. Compliance with each rulebook is necessary, with each covering different topics or requirements. For AML concerns, VARA takes a thorough approach, demanding both Federal and Financial Action Task Force laws and recommendations be followed. In terms of technology, VARA explicitly outlines policies and procedures to address crypto-specific vulnerabilities.  

In South Korea, the Act on the Protection of Virtual Asset Users was passed in June 2023, unveiling South Korea’s own multi-phased approach to cryptocurrency legislation. The first phase focused primarily on sets of formal rules a Virtual Asset Service Provider (VASP) must meet to ensure customer protection. The second phase, proposed in December 2023, would take effect in July 2024 and focus on more granular details pertaining to consumer protection, in addition to requirements pertaining to cold storage and crypto reserves for VASPs.  

The time it takes to pass quality legislation is vast. MiCAR was first proposed in September 2020, but not fully endorsed and published until June 2023. This showcases the vast amount of research and debate needed to create a framework for crypto regulation that strikes that balance between protecting consumers, combatting financial crime, and fostering an innovative industry. Though the text may be printed, in the case of MiCAR or any of its peer’s it is critical that the regulations can properly evolve with the industry its regulating to stay modern and effective. The success of crypto economies in these countries will depend on it.

The full chapter featured in the Dutch magazine Compliance, Ethics and Sustainability can be found here.