The EU and UK Announce Major Regulatory Reforms to Safeguard Crypto-Assets
EU implements unified crypto-asset regulations, MiCA, and incorporates Travel Rule to secure crypto-assets; The UK proposes similar regulations.
To ensure consistent rules for crypto-assets, the European Union has implemented a unified regulatory framework across its member states. Similarly, the United Kingdom is actively working to develop a comprehensive regulatory system and sought feedback on its proposals in March 2023. The draft legislation is yet to be published by the UK.
From the EU, Markets in Crypto-Assets Regulation (MiCA) was published on June 9th in the EU’s Official Journal. Although these regulations will commence in the EU and its member states on June 30th 2023, most of the provisions will only come into force on December 30, 2024, marking a lapse of 18 months. Following Brexit in 2020, the UK is no longer a member of the EU states. Henceforth, these regulations do not apply to it. The regulatory proposals put forth by the UK government hold significant similarities to the EU’s MiCA regulations. Given the differences in the geopolitical and financial landscape of the regions, both reforms will differ in the scope of mandated activities. Reports indicate that a major difference will be in the regulation of stablecoins.
The regulatory landscape for crypto-assets within EU member states is currently fragmented. Regarding AML, the Fifth Anti-Money Laundering Directive (5MLD) establishes a framework requiring exchanges and custodian wallet providers to register with relevant local regulatory authorities. However, member states vary in their interpretation and application of 5MLD, resulting in significant disparities.
To unify this approach, a complete implementation of the MiCA reforms is needed, which hinges on the creation of regulatory technical standards that outline the specific details of certain elements of MiCA. Alongside MiCA regulations, the EU enforced the Transfer of Funds regulation incorporating the “travel rule.” Coming into effect on December 30th 2024, this rule necessitates the inclusion of originator and beneficiary information in cryptocurrency transactions, irrespective of the transaction value.
In February 2023, the UK released a consultation outlining a regulatory framework for overseeing crypto-asset activity. The approach presented in the consultation resembles MiCA, but formal legislation has not been put forward. Subsequent consultations and draft rules are expected to emerge later this year. Furthermore, the UK has proposed integrating the travel rule for crypto-assets by amending its money laundering regulation.
The establishment of these regulatory frameworks, despite the variations in approach, is encouraging news for both the crypto industry and consumers.
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