- The European Council has approved the long-anticipated Markets in Crypto-Assets regulation, a final step before it becomes law.
- Crypto tax reporting standards, anti-money laundering rules, a bid for a digital euro and smart contract regulation are among the other laws that may win a nod in the EU.
The European Union’s landmark crypto rulebook just passed its final legislative hurdle.
Member state representatives of the European Council approved the Markets in Crypto-Assets regulation in a unanimous vote.
The rules, known as MiCA, are expected to kick in by June and with new laws on consumer protection, market integrity, and financial stability.
They will “better protect Europeans who have invested in these assets, and prevent the misuse of crypto industry for the purposes of money laundering and financing of terrorism,” said Elisabeth Svantesson, Minister for Finance of Sweden, representing the current Swedish Council presidency.
Companies offering crypto services in the EU will have legal clarity, and MiCA allows them to “passport” their licence from one member state to the rest of the 27-nation bloc. Stablecoin issuers will need to meet capital and reserve requirements, and will face limitations for non-euro denominated stablecoins.
Laws on stablecoins will come into force in mid-2024, while the rest at the beginning of 2025. Until then, European regulators will need to draft up the technical rules on how to implement the legislation.
EU policymakers set out to end the crypto “Wild West” and create a regulatory blueprint for other jurisdictions.
While MiCA is hailed as the first major, comprehensive regulation for crypto assets, it is far from the only one impacting the sector. Here are nine other rules that will shape Europe’s crypto industry.
Crypto’s travel rule
The revised Transfer of Funds Regulation requires identity details to accompany crypto transactions for both the sender and receiver of the funds. It is designed to kick in at the same time as MiCA. The European Council approved the TFR on Tuesday.
‘Today’s decision is bad news for those who have misused crypto-assets for their illegal activities, to circumvent EU sanctions or to finance terrorism and war’— Elisabeth Svantesson
“Today’s decision is bad news for those who have misused crypto-assets for their illegal activities, to circumvent EU sanctions or to finance terrorism and war,” said Svantesson.
This policy aligns with the Financial Action Task Force’s, the global money laundering watchdog, recommendations on crypto assets and anti-money laundering.
In particular, transfers to and self-hosted wallets, which are not owned by a third-party provider, will need to include identifying information for transfers worth over €1,000, or around $1,090. Purely peer-to-peer transactions from self-hosted wallets will not be captured by the regulation.
Anti-money laundering rules
The EU’s anti-money laundering regulation has swept in decentralised finance, NFT platforms and DAOs as obliged entities. MiCA excluded these from its scope — stirring talk of a MiCA II among EU officials — so the AML package picked up the pieces from the cutting room floor.
A major point of discussion for the crypto industry revolves around the limit set on commercial payments involving self-hosted wallets worth over €1,000, or around $1,090. Blockchain advocates are suggesting policymakers to align with measures outlined in the TFR.
Other provisions in the bill include a ban on privacy coins such as Monero or Dash, as well as a ban on anonymous accounts. Negotiations are expected to conclude over the summer.
Smart contract regulation
The Data Act, currently in negotiations between European institutions, includes an article on the regulation of smart contracts used for data sharing. Provisions include the inclusion of a kill switch in smart contracts.
While the regulation is designed to cover smart devices and the internet-of-things, some in the industry worry the scope of the regulation is not defined clearly enough to exclude smart contracts underpinning DeFi based on blockchain.
The Data Act could make it impossible to use public blockchains under such requirements, Marina Markezic, executive director of the European Crypto Initiative, previously told DL News. The trade association has proposed changes to policymakers as they continue their final stretch of negotiations, expected until June.
The Digital Operational Resilience Act standardises network and data security for companies in the financial sector such as credit institutions, investment firms as well as crypto service providers.
New laws will apply from January 2025, requiring companies to set up robust ICT risk management frameworks, report relevant incidents to authorities, and regularly test their digital operations.
“DORA is really a cornerstone of our work on digital finance in the European Union,” Mairead McGuinness, the European Commissioner for finance, said to parliamentarians in November.
“Financial institutions are more and more dependent on technology. More and more people and businesses are managing their finances online. So protecting the financial system from cyberattacks and cyber— fraud is vital.”
The eighth iteration of the Directive on Administrative Cooperation, or DAC8, sets requirements for crypto asset service providers on reporting for taxation. A crypto reporting framework could pump up the EU’s tax revenue by up to €2.4 billion per year, according to a European Parliament briefing.
Companies offering crypto services will need to report their clients’ transactions to national authorities, for both domestic and cross-border transactions, applying from 2026. This may include non-fungible tokens and central bank digital currencies.
For the first time in EU legislation, staking and lending is included under the definition for crypto activity. This has caused a pushback from the industry.
Since this is a directive and not a regulation, EU member states will have more flexibility on how they will implement the rules.
As for all tax-related policies, the European Council, which gives member states direct representation, will take charge of decision making. The Council released its version of the text on Monday, and it can await an optional consultation from the European Parliament before adopting the text.
Tokenised markets sandbox
The DLT Pilot Regime is a regulatory sandbox allowing both traditional financial players and market newcomers to experiment with tokenised financial instruments and innovative markets based on decentralised technologies. The project was launched in March, and will carry on for three years.
The European Securities and Markets Authority will play a role overseeing the pilot, and will write up a report on its findings in March 2026. Once submitted, the European Commission is expected to come out with a legislative proposal.
DLT Pilot Regime is part of the Digital Finance Package that the European Commission put forward in 2020, alongside MiCA and DORA.
Bid for a digital euro
The European Central Bank is in the final leg of its design phase for a central bank digital currency. While it is meant to make a decision on whether to move forward with implementation in October, the European Commission is due to come out with a legislative proposal in June.
A digital euro will most likely rely on intermediary platforms like private banks to provide wallets for users, giving the central bank itself no access to data collection.
“The use of the digital euro can help increase the international role of the euro,” said Commissioner for Economy at a Eurogroup finance ministers meeting on Monday, adding that the CBDC can help strengthen monetary sovereignty.
Metaverse and virtual worlds proposal
The European Commission released its proposal on virtual worlds in April, and was open for feedback until earlier in May. Industry and experts responded to the consultation, which the EU institutions will take into consideration for the next publication of the text.
The EU’s proposal is meant to regulate nascent metaverses “based on respect for digital rights and EU laws and values,” according to the release.
European officials are weary of antitrust issues that could arise, like tech giant Meta’s vision of creating a single metaverse.
Digital identity framework
The EU has proposed a digital ID that would give citizens a personal wallet with which they can access public services. The legislation includes zero-knowledge-proof technology — which reveals only the necessary data in a given transaction — as a way to protect users’ privacy.
The industry has pushed back on the Parliament’s removal of electronic ledgers as a possibility for the technological foundation of the framework, which is currently in inter-institutional negotiations.
‘Removing this concept from the regulation would create many downstream problems’— International Association for Trusted Blockchain Applications
“Removing this concept from the regulation would create many downstream problems, where electronic ledgers are now widely used as a key component of trust architectures,” reads an open letter from the International Association for Trusted Blockchain Applications.
“Electronic ledgers are essential in building European digital infrastructures that are robust against cyberattacks, for the benefit of European enterprises and consumers alike.”