Regulation
How the EU’s ‘total mess’ of stablecoin regulation risks being delisted as MiCA deadline approaches – DL News
- A double definition of electronic money tokens in MiCA prompts experts to sound the alarm.
- Stablecoin laws come into effect on June 30.
- New regulations could solve the problem.
There are only two months left before the much-anticipated European rules on crypto-asset markets, or MiCA, come into force.
And the European crypto industry and legal experts are sounding the alarm.
Experts fear the regulations will be so burdensome and confusing that they will drive out some stablecoins starting June 30, when the laws take effect.
It will be a “total waste,” said Victor Charpiat, a lawyer at Kramer Levin Naftalis & Frankel, an international law firm.
Cryptographic confusion
The problem lies in a dual definition of what are called electronic money tokens, or EMT. These are stablecoins linked to a currency, such as the euro or the dollar.
Two popular stablecoins in this category dominate the crypto markets. Tether’s USDT has a market value of $110 billion, and Circle’s USDC has $33 billion, according to CoinGecko.
This confusion comes from the fact that “crypto platforms do not understand how they should manage EMT and opposing interpretations come from different national regulators,” Charpiat said. DL News.
The worst-case scenario would be to resolve the issue in the European Court of Justice, he said.
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The term electronic money token is defined twice in the MiCA text, which became law almost a year ago. The first defines EMT as a type of crypto asset.
The second definition implies that e-money tokens are equivalent to e-money – a term used since 2000 to refer to digital money.
Delistings may occur if the rules are not clarified.
“Like many other cryptocurrency exchanges, we have mitigation plans in place to delist coins if issuers are not regulated by June 30,” said a spokesperson for the Bitstamp crypto exchange. DL News.
An industry letter sent to EU regulators and lawmakers seen by DL News warned that the current text could “lead to a significant decline in economic activity around EMT in the EU”.
Icy effect
Financial institutions that handle electronic money are subject to stricter regulations when it comes to payment services, even more so than crypto asset service providers.
The dual definition of MiCA could create “a chilling effect on the development of e-money tokens in Europe,” said Mark Foster, head of European policy at the Crypto Council for Innovation.
“If EU rules are so burdensome that a viable commercial business case cannot be made, businesses will naturally look to other jurisdictions, undermining the value of the EU regime,” he said. declared. DL News.
European crypto advocates are rallying for near-term clarity from regulators and a longer-term solution under the EU bill revising rules for payment services, which lawmakers of the European Parliament moved forward in a vote on Tuesday.
Regulation of payment services
The Payment Services Regulation Bill, or PSR, was voted on in plenary to move to the next phase of negotiations.
In the text, the legislators wrote: “To avoid redundant requirements, it is important [to] clearly set out the cases in which electronic money tokens should instead be subject to this Regulation.
Another amendment to the bill states that “payment transactions used for the execution of trading and settlement services using electronic money tokens” – those defined as crypto assets – are excluded from the PSR.
This could be a relief for the industry.
Negotiations will continue with finance ministers after the European elections in June. And the text signals that the EMT issue will be resolved.
Three-year gap
“The industry is encouraged that Parliament has understood the importance of clarity for EMTs,” Foster said.
But this regulation, if adopted following negotiations between Parliament and finance ministers at the Council of the EU, will not come into force before at least 2027.
This leaves about a three-year gap between the PSR and the MiCA.
“We hope to have some clarity before MiCA applies,” Foster said.
Otherwise, once the laws come into effect, crypto platforms may be unsure whether they need to comply with payment services laws or crypto asset laws to hold and transfer EMT.
Investors would have different tax implications on their EMT holdings, and this would determine how they can use their EMT funds.
As crypto companies and investors engage with lawyers and regulators, they will reach opposing conclusions, Charpiat said.
This could give rise to litigation. National regulators may give different interpretations to the financial companies that manage the EMTs they supervise.
The European Banking Authority, responsible for implementing and supervising stablecoin laws, said DL News it “takes steps to promote convergence in the application of MiCA” in collaboration with the European Commission.
The European Commission, which first drafted MiCA, stated that “EMT issuers can only be electronic money institutions and credit institutions.”
They would need to be “licensed either under the Electronic Money Directive or have a banking license,” a spokesperson said.
Electronic money token issuers
“There is a dual regime that applies because an e-money token is both a crypto asset and also e-money,” said Patrick Hansen, senior director of European strategy and policy at Circle, during from a conference in Frankfurt in February.
For global stablecoin players like Circle, which issue e-money tokens in other jurisdictions, including the US, issuing such a stablecoin in the EU means navigating “complex and difficult dual-issuer constructs” , did he declare.
It is not clear for which activities – from commerce to payments – which definition would apply.
Circle has applied for an electronic money establishment license in France.
Tether, which is in the regulatory crosshairs, is also busy analyzing MiCA’s “complexities” when it comes to e-money definitions and EU requirements, a spokesperson said.
Tether is “working to review the impact of these provisions.”
Jon Egilsson, president and co-founder of Euro-backed stablecoin issuer Monerium, is more optimistic.
“We are MiCA compliant today, that’s not a problem,” Egilsson said. Indeed, Monerium has been a licensed e-money institution since 2019. But that comes with a high regulatory cost that other companies will have to start facing once MiCA comes into effect.
“We have to be audited, we have to submit reports on a regular basis – it costs a lot of money to operate,” he said. DL News.
Until now, “other players with whom we compete are allowed to operate without any license.”
Egilsson and others argue that the rules for payment services were not designed with blockchain technology in mind.
These laws are designed to protect the customer if an institution transfers funds on behalf of a customer, using a third party for settlement.
“In Web 3, the transaction is the settlement,” he said. “This means that the blockchain network is the payment rail.”
Inbar Preiss is a regulation correspondent based in Brussels. Contact her at inbar@dlnews.com.