Cryptocurrency experts have voiced their concerns regarding the proposed European-wide crypto regulations known as the Markets in Crypto-Assets (MiCA), saying the regulations do not meet a technology-neutral approach that would be needed to prevent the stifling of innovations in the industry. They say that the regulation will only add uncertainty in crypto sectors like NFT or non-fungible tokens.
The Council’s presidency and the European Parliament met on Thursday last week and reached a provisional agreement on MiCA crypto regulations. The proposals will establish stricter regional-wide measures on crypto transactions and usage if passed into law. The committees say these measures will establish market integrity, market order, and financial stability, and safeguard investors and crypto users in the region. Among many other requirements, the regulations require crypto asset service providers and stablecoin issuers to obtain operational licenses and implement stricter anti-money laundering and customer identification measures.
But according to Enjin Chief Legal Officer Oscar Franklin, the NFT clauses in the regulation will introduce some uncertainties that could unintentionally stifle creators. He said it is impossible to understand how Article 13(1) — which requires that NFT issuers should act honestly, fairly, and professionally – would apply across the entire industry. For instance, it is unclear how it would apply to all NFTs like art, music, and videos, and how the same standard would be applied to both children minting simple NFTs and large corporations such as Nike and Adidas.
“MiCA provides comprehensive financial regulation and needs to clearly distinguish NFTs as non-financial products that are not subject to the same financial regulation,” he said. “Without clear lines being drawn on what is and what is not covered, creators would be stifled by vague regulatory teems without receiving meaningful consumer protection.”
He said the regulation should have recognized NFTs as a very broad category of unique and non-fungible digital items that do not need to fall under any regulation.
“For example, many people are familiar with article NFTs fall under financial regulation (whether due to error in drafting or uncertainty in application) while other forms of digital or physical art are exempt. Applicable regulation here should apply to art general, not the token format used.”
Chief Growth Officer at ThorWallet DEX — a non-custodial DeFi wallet service — Pedro Isaac Lopez, said the regulation will succeed in putting an end to the difficulties and challenges crypto startups and entrepreneurs have to navigate when setting up due to crypto regulatory uncertainties and regulatory differences across the European Union countries.
He said the regulations stand a chance to solve risks associated with crypto through proper risk disclosure measures and requiring large players to maintain capital reserves. However, he said, such regulations need to adopt a cautious approach to avoid stifling innovation. Risks are intricate to all innovations, he said.
“We must also not forget that we are in the early stages of development for this technology and that entails risks. Innovation does not come without risk, as such, regulators should prioritize minimizing bad actors and limiting systemic risks while leaving an open framework that encourages rethinking financial problems with a new perspective.”
“Furthermore, regulators should maintain a technology-neutral approach that allows the market to decide the winners and losers. Moreover, legislation needs to be drafted with the consideration of the new world without outdated rules. If these requirements are met, the EU will likely become a highly attractive area for blockchain companies around the world.”
According to agreements for the new regulations, crypto-asset service providers will seek and can be denied (in case AMLs are not adhered to) authorization by a resident director in each country. They will need to adhere to more AML rules when facilitating transactions from and to un-hosted wallets. Advertisements and promotions will have to feature consumer warnings about crypto risks. The regulation will discourage insider trading and manipulation in the market.
Asset-backed stablecoin issuers will now legally be required to maintain financial reserves to cover all claims and provide redemption rights to the holders. This covers stablecoins managing at least 200 million euros of daily transaction volume and those widely used for purposes of payment.
The new crypto sheriff in the EU’s town will be the ESMA (European Securities and Markets Authority) with mandates to prohibit, direct, intervene, and restrict service providers and token issuers whenever a token is deemed as a financial threat to consumers and investors. It will have the mandate to register third-country crypto service providers in the region.