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With today’s vote on the Artificial Intelligence Act, the European Parliament has yet again set the ball rolling towards what could become the world’s first comprehensive AI regulation framework. It’s news that put the EU well on course to releasing comprehensive regulatory frameworks for two of the hottest trends in the world – AI and crypto.

On May 16 this year the EU Council formally endorsed MiCA, or the Markets in Crypto Act rules, paving way for the Act to become law. It means Europe’s crypto framework is the most advanced in the world.  

As with most of the EU, German crypto investors and entrepreneurs are looking forward to the Act’s implementation, which will take effect after a transitional period of 18 months.

While the rules will apply in Germany, including with some profound changes, some of the Act’s provisions are already in play. Even then, the echo from the German crypto industry was mostly positive. 

The Digital Association By battle described the regulation as a milestone in a press release:

“Europe is a real pioneer with this new technology. With the MiCA regulation, Europe is setting a global standard for crypto regulation and will help to ensure a level playing field for crypto service providers across Europe and promote trust in the industry.”

However, while the outlook towards the regulation is mostly positive, there has been criticism from some quarters. This includes Patrick Breyer, MEP of the Pirate Party, who said the restriction of anonymous payments as a problem for NGOs and whistleblowers. Money laundering could also be combated without this regulation.

A central point of the MiCA regulation is that crypto service providers will need a license in the future to operate in the EU. 

The so-called MiCAR License must be issued by a member state and is valid throughout the Community. In Germany, a permit has long been required for companies that store or manage crypto assets. Anyone who already has such a permit from Bafin will probably not have to submit a separate application for a MiCAR license. The German permit should entitle the company to do business throughout the EU in the future.

Conversely, a MiCAR license does not entitle you to every type of crypto business in Germany. A Bafin license will therefore still be required for some business models in Germany, possibly in addition to the MiCAR license. What is new in Germany is that companies that bring crypto assets to the market in the form of money tokens or asset-referenced tokens now also require a license.

The Travel Rule is also an important part of the MiCA regulation. It serves to combat money laundering and requires financial service providers to document the origin of crypto transfers. 

To do this, they must collect and verify information such as the sender’s name, address, and date of birth. In Germany, the Travel Rule has been in effect since October 2021 as part of the Crypto Value Transfer Ordinance. Many German crypto companies already meet the MiCA requirements. Since MiCA makes the German set of rules superfluous, the Crypto Value Transfer Ordinance will no longer apply as soon as MiCA finally comes into force.

Also notable is that the obligation for crypto issuers to publish a white paper is completely new. Such a regulation has not yet existed in Germany either. 

Basically, the white paper fulfills the function of a securities prospectus, even if it is not quite as extensive. It contains detailed information about the issuer itself as well as how the cryptocurrency works. 

So far, Germany has been the exception as a location for ICOs. According to a study from 2018, only around two percent of all ICOs worldwide are in Germany. At that time, the USA took first place in crypto issuance with almost 20%. Other EU countries hardly played a role.

But that could change. Because in the US, the climate for cryptocurrencies is becoming increasingly hostile. Like the portal coin-update reports, the SEC is currently waging a real campaign against crypto companies: They recently filed lawsuits against the exchanges Binance and Coinbase for violating securities regulations. 

Against this background, Europe and Germany in particular are becoming more and more interesting as a crypto location. The legal certainty created by the MiCA regulation could also attract issuers. The obligation to submit white papers could result in emissions in Europe offering an image advantage for companies in the future.

Finally, the MiCA regulation introduces a public registry for crypto service providers. A comparable system has never existed in Germany before. However, the register is not kept at the state level, but at the European level. 

The register will be publicly accessible and will contain all crypto assets white papers, token issuers and crypto service providers operating in the EU. In addition, there should be a blacklist of companies that do not have permission for the European market. However, the register is not yet operational. It is therefore still unclear whether German companies have to observe any special reporting obligations.

The MiCA regulation introduces extensive obligations for companies in the crypto industry throughout Europe. In return, it creates legal certainty and combats Wild West conditions, some of which still prevail. The bottom line is that the crypto economy benefits from MiCA. German companies are already well prepared. Because they already fulfill many points of the regulation due to national laws.

The post What does the MiCA regulation mean for Germany? appeared first on Invezz.

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