The provisional agreement includes measure to expand the list of obliged entities to new bodies. The new rules will cover "most of the crypto sector, forcing all cryptoasset service providers (CASPs) to conduct due diligence on their customers. This means that they will have to verify facts and information about their customers, as well as report suspicious activity."

According to the agreement, "CASPs will need to apply customer due diligence measures when carrying out transactions amounting to €1000 or more. It adds measures to mitigate risks in relation to transactions with self-hosted wallets."

The Council and Parliament also introduced specific enhanced due diligence measures for cross-border correspondent relationships for cryptoasset service providers.

The regulatory framework protects investors and preserves financial stability, while allowing "innovation and fostering the attractiveness of the cryptoasset sector." 

Regulating the risks related to cryptoassets

MiCA will protect consumers against some of the risks associated with the investment in cryptoassets, and help them avoid fraudulent schemes. At present, consumers have limited rights to protection or redress, especially if the transactions take place outside the EU. With the new rules, cryptoasset service providers will have to respect requirements to protect consumers wallets and become liable in case they lose investors’ cryptoassets. MiCA will also cover any type of market abuse related to any type of transaction or service, notably for market manipulation and insider dealing.

Actors in the cryptoassets market will be required to declare information on their environmental and climate footprint. The European Securities and Markets Authority (ESMA) will develop draft regulatory technical standards on the content, methodologies and presentation of information related to principal adverse environmental and climate-related impact. Within two years, the European Commission will have to provide a report on the environmental impact of cryptoassets and the introduction of mandatory minimum sustainability standards for consensus mechanisms, including the proof-of-work.

MiCA does not duplicate the anti-money laundering provisions set out in the newly updated transfer of funds rules agreed on 29 June. However, MiCA requires that the European Banking Authority (EBA) will be tasked with maintaining a public register of non-compliant cryptoasset service providers. Cryptoasset service providers, whose parent company is located in countries listed on the EU list of third countries considered at high risk for anti-money laundering activities, as well as on the EU list of non-cooperative jurisdictions for tax purposes, will be required to implement enhanced checks in line with the EU AML framework. 

A framework for stablecoins 

MiCA will protect consumers by requesting stablecoins issuers to build up a sufficiently liquid reserve, with a 1/1 ratio and partly in the form of deposits. Every stablecoin holder will be offered a claim at any time and free of charge by the issuer, and the rules governing the operation of the reserve will also provide for an adequate minimum liquidity. Furthermore, all stablecoins will be supervised by the EBA, with a presence of the issuer in the EU being a precondition for any issuance.

The development of asset-referenced tokens (ARTs) based on a non-European currency, as a widely used means of payment, will be constrained to preserve the EU's monetary sovereignty. Issuers of ARTs will need to have a registered office in the EU to ensure the proper supervision and monitoring of offers to the public of asset-referenced tokens.

EU-wide rules for cryptoasset service providers and different crypto assets:

Under the provisional agreement, cryptoasset service providers (CASPs) will need an authorisation in order to operate within the EU. National authorities will be required to issue authorisations within three months. Regarding the largest CASPs, national authorities will transmit relevant information regularly to the European Securities and Markets Authority (ESMA).

Non-fungible tokens (NFTs), i. e. digital assets representing real objects like art, music and videos, will be excluded from the scope except if they fall under existing cryptoasset categories. Within 18 months the European Commission will be tasked to prepare a comprehensive assessment and, if deemed necessary, a specific, proportionate and horizontal legislative proposal to create a regime for NFTs and address the emerging risks of such new market.

This agreement forms the Council’s negotiating mandate for trilogue negotiations with the European Parliament. 

The purpose of MiCA is to create a "regulatory framework for the cryptoassets market that supports innovation and draws on the potential of cryptoassets in a way that preserves financial stability and protects investors."

DORA aims to create a "regulatory framework on digital operational resilience whereby all firms ensure they can withstand all types of ICT-related disruptions and threats, in order to prevent and mitigate cyber threats."

According to the statement, stablecoins may present opportunities in terms of cheap and fast payments, especially cross-border ones.

However, they also pose multifaceted challenges and risks in respect of consumer protection, taxation, privacy, cybersecurity and operational resilience, money laundering, terrorism financing, market integrity, governance and legal certainty.

Concerns are also amplified are stablecoins that could have a global potential and "new potential risks to monetary sovereignty, monetary policy, the safety and efficiency of payment systems, financial stability, and fair competition can arise".

Global stablecoins projects and arrangements should therefore not "begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed".

The Commission and Council also said that they would "tackle the challenges raised by these initiatives" based on an EU common understanding and co-ordinated approach.

"These initiatives should not undermine [the] existing financial and monetary order as well as monetary sovereignty in the European Union," the two bodies said.

The statement also called for legal clarity about the status of stablecoins and invited entities that intend to issue them in the EU to give "full and adequate information urgently" to allow for a proper assessment against the applicable rules.

"Tackling the challenges raised by 'global stablecoins' requires a co-ordinated global response. The risks raised by 'stablecoin' arrangements should be subject to clear and proportionate regulatory and oversight frameworks," the statement said.

As noted by the European Central Bank (ECB) recently, the Commission and the Council also commented that the emergence of stablecoins shows that payment arrangements need to evolve to meet market and consumer demand for fast, convenient, efficient and inexpensive payments, especially cross-border ones.

The two bodies also welcomed the move by the ECB and other central banks and national competent authorities to explore further the ongoing digital transformation of the payment system and the consequences of initiatives such as stablecoins.

"We welcome that central banks in cooperation with other relevant authorities continue to assess the costs and benefits of central bank digital currencies as well as engage with European payment actors regarding the role of the private sector in meeting expectations for efficient, fast and inexpensive cross-border payments," the Commission and the Council concluded.

The draft statement acknowledges that "technological innovations" can result in great economic benefits for the financial sector, and stablecoins may present opportunities in terms of cheap and fast payments, especially cross-border ones.

However, stablecoins also pose "multifaceted challenges and risks", including in respect of consumer protection, privacy, taxation, cybersecurity and operational resilience.

"When a stablecoin initiative has the potential to reach a global scale, these concerns are likely to be amplified and new potential risks to monetary sovereignty, monetary policy, the safety and efficiency of payment systems, financial stability, and fair competition can arise," the draft statement said.

Further, global stablecoin projects should not start to operate in the EU until all of the legal, regulatory and oversight challenges are identified and addressed.

Legal clarity about the status of stablecoin arrangements should also be obtained.

For example, according to the two EU institutions, some recent global projects provided only sparse information on how they intended to manage risks and operate their business.

"This lack of information makes it very difficult to reach conclusions on whether and how the existing EU regulatory framework applies," the note said.

The draft statement also called for a co-ordinated global response to tacking the challenges raised by global stablecoins, arguing that the risks they pose should be subject to "clear and proportionate regulatory and oversight frameworks, established on a sound evidence base", and based on principles that would apply to all stablecoins.

The Council and the Commission also said that they are willing to act swiftly, co-operating with the European Central Bank, with national authorities as well as with the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority.

This co-ordinated approach should include consultation and development of the evidence base before potentially developing new legislation for a common EU approach to cryptoassets, including stablecoins.

"All options should be on the table, including any measures to prevent the creation of unmanageable risks by certain global stablecoins," the statement said.

The draft statement also notes that the emergence of stablecoins highlights the importance of continuous improvements to payment arrangements to meet market and consumer expectations.