Cryptocurrency regulation in Europe enters a new phase

Until a few years ago, legally speaking, cryptocurrencies were somewhat common in many European countries.

“There were no regulations,” Nicolette Kost De Sèvres, a partner at Mayer Brown in Paris, told International. “It is rare that one sees such gray areas in the legal field.”

That’s about to change.

In 2020, the executive body of the European Union proposed a set of new rules to fill the legal void surrounding cryptocurrency service providers. With its Crypto Asset Markets Regulation (MiCA) – part of a larger legislative package aimed at regulating fintech – the European Commission wants to protect investors and ensure market stability by requiring cryptocurrencies to comply with the same terms of transparency, disclosure, licensing, compliance, authorization and monitoring. conditions than other financial products, while harmonizing the legal framework for cryptocurrency in the 27 member countries of the bloc.

The new EU-wide regulations will help the cryptocurrency market build credibility, said Olivier Van den broeke, senior partner in the Antwerp office of Baker McKenzie. “If it’s better regulated and better supervised, there will be more confidence from investors [and] financial markets in particular. This will help everyone involved in the market.

The new regulation will also introduce a new European “passport” that would allow non-European cryptocurrency platforms and other service providers to apply for a license that will allow them to operate in all 27 member countries.

At the moment, that’s not possible, said Christian Hissnauer, an attorney in the Frankfort office of Clifford Chance. Major crypto-asset trading platforms from the United States and Asia are “very interested in accessing the European market and in particular the German market, but the problem they have is [that] they have to look at various national regimes and check if there is any sort of regulation,” he said.

This is why the new EU-wide license is “a major game changer”, Van den broeke said. “Because it will really open up European markets and help existing players to grow and expand into other member states.”

Most attorneys interviewed for this article said the bill, often referred to as MiCA, strikes a reasonably good balance between consumer protection and market intervention.

“MiCA, I would say, is positive in the sense that it gives a clear framework without being extremely limiting on the use and fundamentally the existence of cryptos,” said Kost De Sèvres of Mayer Brown.

But as in other parts of the world, the ultimate effectiveness of regulation will depend on its ability to keep up with the fast pace of the cryptocurrency world, lawyers have said. The EU bill was first proposed in 2020 and will likely enter into force in 2024.

“There is certainly a risk that as soon as the regulation comes into force, there will be things that fall outside the scope of the MiCA regulation because everything is changing so quickly when it comes to cryptocurrencies,” said Van den broeke, adding that it is possible. European lawmakers will immediately need to amend the MiCA regulation.

A boon for a law firm

Regardless of the effectiveness of the new regulations, lawyers said the MiCA will certainly generate a lot of work for law firms in the years to come.

“When MiFID II and MiFID II were introduced, it really brought many, many, many work,” said Pien Kerckhaert, a partner in Dentons’ banking and finance practice group in Amsterdam, referring to the passing of two previous pieces of legislation regulating financial instruments in the EU. “It will be the same [for] Mica.”

Although the EU has only recently proposed cryptocurrency regulation, some Western European countries have already tried to control cryptocurrency providers at the national level. Countries like the Netherlands and, more recently, Belgium, for example, have used existing EU anti-money laundering rules to introduce a registration requirement for virtual currency service providers. “These are almost disguised licensing requirements for these virtual currency service providers,” Van den broeke said.

Germany, meanwhile, has been something of an exception, with cryptocurrencies already subject to strict requirements, Hissnauer said. Under German banking law, companies that want to offer cryptocurrency trading or custody services, or intermediaries between cryptocurrency investors and sellers, need a German banking license and are essentially subject to the same requirements as investment firms.

“Germany is, when it comes to crypto-assets and cryptocurrencies, a fully regulated country,” he said.

The interest of law firms in cryptocurrencies also varies from country to country. In France, Kost de Sèvres said cryptocurrencies are still a niche market in the legal market, with demand for legal expertise outweighing the number of companies with a genuine digital finance offering. But she expected it to quickly become a “much bigger area for law firms” in the coming years.

“Those [lawyer] teams that see [that shift] and are ready will be the winners,” she said. “Because they will move as fast as the market.”

In Germany, on the other hand, most international law firms have understood the importance of cryptocurrencies, Hissnauer noted. Since many international crypto custody and trading platforms wanted to access the German market and required a license to do so under the country’s national rules, they contacted German law firms for advice.

“The big international law firms – whether it’s the UK’s Magic Circle, the US law firms or the big German law firms – all have some sort of expertise in fintech or crypto-assets, or at least try to build it,” he said.

It’s something customers demand, Hissnauer said. And it’s not just traditional cryptocurrency platforms that need their services. Their traditional customers want to use crypto assets as a sort of commodity to “tokenize” certain assets, which means they want to convert assets into a token that can be saved on a blockchain, he explained.

Given the varied nature of cryptocurrency legal work, major firms have taken a multidisciplinary approach.

“What we see and do at Clifford Chance, and what I see at other companies as well, is you really try to combine different levels of expertise into one group,” Hissnauer said, noting that the he company had recently created a fintech group. “It’s something that all large law firms, but also small law firms, seek to do.”

In Belgium too, most international firms have noticed this.

“I haven’t seen many local law firms offering anything around cryptocurrencies. But the most prominent international law firms in Belgium have definitely focused on this particular area of ​​law,” said said Van den broeke “Financial services lawyers and fintech lawyers have expanded their knowledge and abilities to this particular area.”

Most legal work related to cryptocurrencies is currently regulatory advisory work – ensuring that a cryptocurrency player’s activities comply with the rules already in place or those likely to be adopted in the future. future, and also advising non-European clients on national regulations. will apply to their activities.

It is also a typically cross-border and transversal subject. Advising on cryptocurrencies requires knowledge of various investment services regulations, banking regulations and knowledge of other EU financial regulations and customer due diligence rules, said Kerckhaert de Dentons.

“You can read the MiCA regulation and interpret it, but to really grasp it, you would need to know about other regimes as well,” she said. “Otherwise it won’t be solid advice.”

About Charles D. Goolsby

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