The future of the EU’s cryptoeconomy is entering a critical phase: Here’s what policymakers need to get right. | by Coinbase | Jun, 2022

By Faryar Shirzad, Chief Policy Officer

Tl;dr: As negotiations on the EU’s crypto rules enter a critical phase, we’re sharing four key pillars that should be taken into consideration. The potential for the EU is enormous and Coinbase is working to inform the process and drive towards positive policy outcomes.

Leading the charge for a tailored crypto regime

The Markets in Crypto-Assets Regulation (MiCA) and Transfer of Funds Regulation (TFR), which are in the final stages of negotiation, aim to facilitate the safe and responsible use of crypto across the EU. MiCA, in particular, will be one of the first comprehensive regulatory frameworks for crypto assets globally, and will provide important legal and regulatory certainty to the market, which is so important in order for firms to invest and innovate in Europe. MiCA includes a number of important elements. The authorisation and supervisory regime, as well as the prudential, risk management, market integrity and governance requirements for CASPs, will signal to consumers which operators meet certain minimum standards. Regulation of this kind will encourage the growth of a legitimate and trusted industry of DASPs.

We believe that if well-designed and appropriately implemented, MiCA could put the EU at the forefront of the digital finance revolution and the advent of web3. However, if there are systemic flaws in the execution of the framework, it could push this uniquely innovative and empowering financial ecosystem outside the region, and deny EU regulators the ability to provide appropriate oversight over how their citizens engage with these transformational products and services.

Here are four pillars that EU policymakers should be thinking about as they debate and discuss the implementation of MiCA and TFR across the region.

1. Create common sense liability standards

There are three key provisions under consideration which will significantly raise the liability placed on Crypto Asset Service Providers (CASPs). The liability is disproportionately applied to CASPs to such an extent that they will need to decide whether they can reasonably accept such liability in order to do business in the EU. These provisions undermine the important steps the EU is taking to create a competitive, pro-innovation and tech-neutral regulatory framework for crypto assets.

Custodial liability

MiCA should ensure that CASPs are only liable for events that are in their control. Current texts imply much broader liability for events…