CRYPTO LEGISLATION

• The MiCA law seeks to address concerns like money laundering, protection of consumers and investors, accountability of crypto firms, stablecoins, and the environmental footprint of crypto mining.
• It would regulate the wild west of crypto assets and provide legal certainty for those issuing crypto assets while ensuring high standards for investors and consumers.
• It also excludes non-fungible tokens, but the EU may make horizontal legislation for NFTs in 18 months, after a separate assessment.

3. Why Regulation

• Having a comprehensive framework like MiCA for 27 countries in Europe not only harmonizes the crypto industry but also gives the EU a competitive edge in its growth compared to the U.S. or the U.K. which lack regulatory clarity.
• More importantly, 2022 saw some of the biggest failures and wipeouts in the crypto industry involving bankruptcies and fraud scandals, be it the collapse of the crypto exchange FTX and its spat with Binance or the failure of the Terra LUNA cryptocurrency and its associated stablecoin.
• The liquidity shortage caused by these shocks led other crypto-lending platforms to halt customer transfers and withdrawals before filing for bankruptcy.

4. What kind of Assets will MiCA cover?

• The MiCA legislation will apply to ‘crypto-assets’, which are broadly defined in the text as “a digital representation of a value or a right that uses cryptography for security and is in the form of a coin or a token or any other digital medium which may be transferred and stored electronically, using distributed ledger technology or similar technology”.
• This definition implies that it will apply to traditional cryptocurrencies like Bitcoin and Ethereum and newer ones like stablecoins. 
• As for the assets that will be out of MiCA’s scope, will not regulate digital assets that would qualify as transferable securities and functions like shares or their equivalent and other crypto assets that already qualify as financial instruments under existing regulation.
• It will also, for the most part, exclude nonfungible tokens (NFTs).
• MiCA will also not regulate central bank digital currencies issued by the European Central Bank and digital assets issued by national central banks of EU member countries when acting in their capacity as monetary authorities, along with cryptoassets­related services offered by them.

5. Importance of New MiCA law?

• The MiCA law aims to address issues like money laundering, investor and consumer protection, crypto company accountability, stablecoins, and the environmental impact of mining for cryptocurrencies.
• It will control the wild world of crypto assets, and give legal clarity to those producing crypto assets, and uphold high standards for consumers and investors.
• Additionally, non-fungible tokens are excluded;
• However, the EU may pass horizontal legislation for NFTs in 18 months following a separate European Commission (EC) evaluation.

6. What are the new rules?

• MiCA will impose compliance on the issuers of crypto assets, who are defined as the “legal person who offers to the public any type of crypto assets”.
• It will apply to crypto asset service providers (CASPs) providing one or more of these services the operation of a trading platform like CoinBase, custody, and administration of crypto­assets on behalf of third parties (customers), the exchange of crypto­assets for funds/other crypto­assets, the execution of orders for crypto­assets, the placing of crypto­assets, providing transfer services for crypto ­assets to third parties, providing advice on crypto assets and crypto­portfolio management.
• The regulation prescribes different sets of requirements for CASPs depending on the type of crypto assets.
• The base regime will require every CASP to get incorporated as a legal entity in the EU.
• They can get authorized in any one member country and will be allowed to conduct their services across the 27 countries.
• They will then be supervised by regulators like the European Banking Authority and the European Securities and Markets Authority, who will ensure that the companies have the required risk management and corporate governance practices in place.
• Another legislation passed with MiCA requires crypto companies to send information of senders and recipients of crypto assets to their local anti­money laundering authority, to prevent laundering and terror financing activities.

7. Regulation of Crypto in India

• India is yet to have a comprehensive regulatory framework for crypto assets. Draft legislation on the same is reportedly in the works. 
• A full­fledged regulation aside, the Indian government has taken certain steps to bring cryptocurrencies under the ambit of specific authorities and taxation.
• In the Union Budget for 2022, the Finance Ministry said that cryptocurrency trading in India has seen a “phenomenal increase” and imposed a 30% tax on income from the “transfer of any virtual digital asset.
• In March this year, the government placed all transactions involving virtual digital assets under the purview of the Prevention of Money Laundering Act (PMLA).

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