The New EU Legal Architecture in Crypto-Assets: An Assessment of the Regulatory Strategies and Cross-Border Implications

Abstract

The conventional understanding of assets has been transformed by terms such as virtual currency (VC), cryptocurrency, tokenization and blockchain-based securities which have entered mainstream vocabulary. The virtual asset industry has been evolving since its origination in early 2000. New classes of assets, products and services has been produced, shaping a new tokenized economy. The ongoing intensive development in the crypto system has resulted in the creation of new crypto assets, new types of crypto-related services and new service providers. Following this rapid evolution, classification challenges come across as being the leading challenges for regulators. The financial innovation and the role of financial and fintech regulation and supervision are intricately related but not always go hand in hand. Regulators are increasingly taking issue with responding fast and appropriately to provide consumer and investors’ protection from crypto-related risks. They also aim to provide legal certainty, to ensure market integrity and financial stability and address the risks themselves and still promote technological advancement in this area. In many jurisdictions of the world and more precisely addressing the focus of this analysis in our area of interest, in the European Union (EU), there are many crypto regulatory flaws contributing to more legal ambiguity and national fragmentation. Given the cross-border nature of crypto assets, the absence of global standards, the lack of common taxonomies and reliable and consistent data on markets, create a patchwork environment in regulation, supervision, and enforcement which is particularly challenging.The EU is endeavouring to achieve a solid framework based on the compliance with the most demanding international standards on the exchange of crypto assets to prevent the criminal activity and to pose difficulties in circumventing Anti-Money Laundering rules via cryptocurrencies but the inclusion of crypto-exchanges and “crypto-asset providers” (CASPs) under the area of responsibility of Anti- Money Laundering and Countering the Financing of Terrorism (AML/CFT) regulation and supervision has still evidenced the necessity of a more resilient regulatory approach. Some recent market events have furtherly strengthened the reasoning behind the necessary attention of regulation on the way of offsetting risks posed by 'stablecoins' growth. The public confidence on the entire sector was impacted by showcase events of misconduct of crypto-related business models. The crypto-asset market could become systemically relevant at some point in the future (European Systemic Risk Board; 2023).The very first jurisdiction in the world to introduce a regulatory framework aiming to create and maximize a harmonization approach for the crypto industry is exceptionally the European Union. The Markets in Crypto-Assets Regulation, abbreviated as” MiCAR”, entered into force at the end of June 2023. We are at the point where the regulation of “crypto-assets” (CAs) and related services is about to be unified across the European Union.