MiCA and TFR an opportunity or a scourge for Europe?

Is crypto regulation an opportunity or a scourge for Europe? This question was addressed today by the “2. Blockchain Roundtable”. The invitation of the FDP parliamentary group followed representatives from the crypto industry, BaFin and the Federal Ministry of Finance (BMF) to debate the regulatory status quo in Europe.

Frank Schäffler, spokesman for FinTech and Blockchain for the Liberals, told BTC-ECHO about the “very open discussion” between politics and industry. The latter was able to show where regulation was going too slowly or wrongly, the member of the Bundestag continued.

“MiCA a long process”

The mammoth MiCA project is in a “decisive phase”, said Florian Toncar, Parliamentary State Secretary of the BMF. A release is planned for January 2023. The United States, which is also currently working on its own set of crypto rules, is following the developments closely. That is why it is all the more important with your own legislature to avoid a evasive movement by your own industry.

“MiCA is just the first step in a long process,” explains Oliver Fußwinkel from BaFin, who has been involved in the regulation from the start. Regulation is both a scourge and an opportunity for the still young industry. Basically, the Markets in Crypto Assets (MiCA) should give the European crypto sector a regulatory framework and place it under the care of the authorities. The so-called principle of subsidiarity applies here, whereby national authorities should have priority over European authorities when it comes to supervision. However, there are exceptions for stablecoins and crypto service providers, which have more than 15 million customers. ESMA and EBA are responsible for supervision here. However, this could lead to staff shortages, warned individual industry representatives.

In addition, cryptocurrencies from DeFi projects are also covered by the MiCA, says Fußwinkel. However, the infrastructure of the decentralized finance area is not affected. A separate regulation will follow in the future. The focus should be on staking and lending.

There was disagreement on the subject of NFTs. Actually, the digital collectibles should not fall under the regulation. Most recently, however, it became known in the finalized MiCA version that NFTs could under certain circumstances be seen as securities if they were issued in large numbers. Several representatives described a keen interest from the traditional financial sector to enter the NFT business. However, the current regulation raises question marks within the industry.

Toncar and Fußwinkel tried to placate. The “function-over-form” approach applies. An individual check, in which the legal status is decided on a case-by-case basis.

Industry praises compromise on TFR

Aside from the MiCA, it was primarily the Transfer of Funds Regulation, or TFR for short, that occupied the crypto sector. Basically, the European Union wants to introduce comprehensive measures to combat money laundering and terrorist financing for the crypto sector from 2024.

After the EU Parliament wanted to oblige crypto service providers to report every transaction and verify the identity of those involved, there were protests from the industry.

The federal government was also critical of the draft and wanted to stand up for the industry. The result: All transactions must be reported, verification only takes place from 1,000 euros. In addition, crypto service providers may use blockchain analysis tools to assess the risk of transfers and to take risk-adequate measures.

Some industry representatives complained that the threshold was still well below that of the traditional financial sector. However, there was general praise for the compromise.

Open construction sites

In addition to NFTs and DeFi, it has not yet been finally clarified how companies that are already regulated in Germany via the crypto custody license can “upgrade” to MiCA in order to benefit from the advantage of so-called “passporting”. This allows providers to operate across the EU if they are licensed in one member state. In Germany, four companies have received a license so far, and around 20 more are still being processed.

Both the BaFin and the BMF assured that they are working on transitional regulations. However, it remains unclear when these will come. Fusswinkel’s conclusion: “There is a lot to do.”