LONDON, July 1 (Reuters) – Cryptocurrency firms will need licensing and customer safeguards to issue and sell digital tokens in the European Union under groundbreaking new rules the union has agreed to tame the volatile “Wild West” market.
Globally, crypto assets are largely unregulated, with national operators in the European Union only required to demonstrate anti-money laundering controls.
Representatives from the European Parliament and EU countries concluded a deal late Thursday on the Crypto Asset Markets Act (MiCA).
“Today we are setting up a system in the Wild West for crypto assets and setting clear rules for a harmonious market,” said Stefan Berger, a center-right German lawmaker who led the negotiations.
“The recent decline in the value of cryptocurrencies shows us how dangerous and speculative these currencies are, and that it is necessary to act,” Berger said.
Cryptocurrency markets have plummeted this year as investors worried about rising interest rates, which led to the collapse of the terraUSD stablecoin and the freezing of withdrawals and transfers by major crypto firms Celsius Network and Voyager Digital.
Bitcoin, the largest token, has fallen nearly 70% since its November record of $69,000, sending the overall market down.
EU countries said the landmark regulation underscores the EU’s role as a standard-setter for digital issues.
They added, “Crypto-asset service providers will have to respect strong requirements to protect consumers’ wallets and become responsible in the event that their crypto assets are lost to investors.”
The new law would need an official rubber stamp by the European Parliament and EU countries to become law, followed by an implementation period.
It grants crypto-asset issuers and related service providers a “passport” to serve clients across the European Union from a single base.
Holders of stablecoins – a type of cryptocurrency designed to hold a fixed value – will be offered a claim at any time and free of charge by the issuer, with all stablecoins overseen by the block’s banking watchdog.
Robert Kubis, general secretary of Blockchain Lobbying Group for Europe, which includes major exchanges Binance and Crypto.com, said the rules were a “mixed bag,” adding that the group feared that “stablecoins will have no way to profit.”
However, Coinbase Global Inc, a major global cryptocurrency exchange, said in a blog post on Friday that the comprehensive new framework was “exciting,” providing regulatory certainty to the market, and raising industry standards.
“One coordinated set of rules for the entire European Union will enable us to invest, accelerate and scale our growth efforts across the entire bloc.”
The AFME, a body that specializes in the financial markets industry, said the rules would reduce fragmentation and support the development of a strong, well-functioning market.
However, more clarity is needed to ensure that custodians of crypto assets are in trouble only in cases of negligence or misconduct, and not for events outside their control, such as a nation-state hack, AFME reported.
Many countries have long opposed the inclusion of non-fungible tokens (NFTs), digital assets that represent things from art to videos.
But under pressure from EU lawmakers, Thursday’s settlement anticipates excluding NFTs “unless they fall under existing crypto asset classes.”
Brussels will assess within 18 months whether there is a need for stand-alone rules for NFTs.
National regulators will be responsible for licensing crypto companies, but will have to keep the European Union’s securities watchdog ESMA informed of the big operators.
ESMA will set standards for crypto companies to disclose information about their environmental and climate footprint.
The United States and Britain, two major cryptocurrency centers, have not agreed to similar rules.
Circle, the company behind the major US dollar stablecoin, described the rules as an “important milestone.”
“While no comprehensive set of rules is perfect…they do provide practical solutions to issues that other jurisdictions are just beginning to deal with,” she wrote in a blog. (Additional reporting by Francesco Guaracchio in Brussels and John O’Donnell in Frankfurt; Editing by Mark Potter, Jonathan Otis, Gareth Jones, Paul Simao and David Gregorio)