In a recent report, the European Parliament suggested that crypto assets should be treated as securities by default. It also advocates for legal status to be given to autonomous organizations in the decentralized finance (DeFi) sector.
According to a study commissioned by lawmakers at the European Parliament, cryptocurrencies should be classified as securities. The report also stated that decentralized autonomous organizations (DAOs) should be granted legal status.
Notably, the report comes as the European Union (EU) finalizes its Markets in Crypto Assets (MiCA) regulation, and considers whether a sequel will be needed to cover extra areas like DeFi, staking, and non-fungible tokens (NFTs).
The report states that all crypto assets should be deemed transferable security. This implies they would fall under the EU’s tough governance and authorization rules that apply to traditional stocks and bonds – unless a national regulator says otherwise. Further, it stated that the default rule “shifts the onus of gathering the technical facts and arguing the scope of regulation” from regulators to industry.
Sources reveal that the report was drafted by a panel of academics from universities in Luxembourg, Sydney, and Hong Kong, on request from the European Parliament’s Economic and Monetary Affairs Committee.
In the document, the committee stated that in its current form, the lawmakers are not sure of the benefits that the MiCA will bring to the table. It added that MiCA has 10,000 crypto protocols vie for the lightest possible regulation. However, the report’s findings aren’t a formal position of the European Parliament. Quoting a phrase from the report:
We are skeptical that MiCA will have positive short-term effects given the difficulties of enforcing its rules in an opaque cross-border context.
With MiCA signed into law on Wednesday, European law enforcement agencies responsible for banking and securities markets are now poised to set out the detailed rulemaking to put it into effect. Simultaneously, lawmakers signed into law another regulation that aims to curb money laundering by mandating firms to verify the identities of clients when transferring funds.
While MiCA has received wide-scaled appreciation, some have deemed it to be insufficient in efficiently regulating the sector and have called up a follow-up to it. Some suggest that the European Systemic Risk Board, an EU panel responsible for monitoring financial stability risks, was one of the first to call for further laws to fill in what MiCA leaves out.
It is important to note that the classification of crypto assets has been a gray area for regulators across the globe and something they wish to clarify at the earliest. The crypto industry has been plagued by a lack of clarity on whether rules designed for traditional financial securities apply to digital assets.
The two primary regulators in the United States have been in constant feud over this. The chief of the United States Securities and Exchange Commission has often reiterated how appropriately cryptocurrencies tick boxes to be regulated as securities. However, a large sum of people deny his theories and accuse him of being anti-crypto.
Simultaneously, U.K. experts have also been studying the legal status of DAOs. In a report, authorities cited a potential precursor to regulation of a sector calling it a “Wild West” of “fraudsters and thieves.”
Nonetheless, it is important to note that the EU’s classification of crypto assets could have a large impact on the global industry. Additionally, if the lawmakers decide to term it “security,” it could have a possible impact on the region anticipated to rise as the crypto hub.