EU Elects New Parliament Soon. What Does This Mean for Crypto?

Source: DLNews; Compiled by: Baishui, Golden Finance

• The election of 720 new MEPs could mean changes to the EU's carefully crafted crypto regime.

• Important crypto legislation awaits new members of the European Parliament.

• As the industry implements new laws, the focus could turn to blockchain technology.

EU elections begin on Thursday. For cryptocurrencies, this means that key lawmakers could lose their seats in the new 720-member parliament, and the industry's policy agenda will enter a turbulent period.

While cryptocurrency has become an issue in the U.S. presidential election, it remains a cold topic in European campaigns.

Nevertheless, over the past five years, the EU has methodically responded to the challenges of crypto assets by adopting a comprehensive regime called MiCA. Meanwhile, European leaders have also created a small but symbolic body to oversee the rollout of blockchain infrastructure.

A delicate balance

But how the new parliament will take over from the previous one remains an open question until the dust settles this weekend. Cryptocurrency experts are closely watching how lawmakers handle the delicate balance between regulation and innovation.

“There seems to be a recognition that while regulation is important and can play a role, it can also go too far and be seen as a hindrance,” noted Mark Foster, head of EU policy at the Crypto Innovation Commission.

The cryptocurrency industry will be watching to see who will take on several key roles in the new parliament.

For example, the parliamentary committee on economic and monetary affairs has played a crucial role in revising and developing crypto legislation over the past five years.

It developed MiCA (Markets in Crypto Assets Regulation) as well as rules to prevent money laundering.

Each parliamentary committee has a chairperson who coordinates the work of dozens of groups of lawmakers focused on specific areas.

The chairs also wield a subtle influence in the so-called trilateral negotiations, the final and most delicate part of jointly drafting laws between EU institutions.

The Civil Liberties Committee, the Justice and Home Affairs Committee, and the Internal Market and Consumer Protection Committee have influence over crypto legislation.

Parliament is key

Other key positions are the coordinators of parliament's political parties, which cover the political spectrum.

The coordinators assign legislative presentations within the group and decide who will lead negotiations on bills.

While experts expect a shift to the far right in the upcoming election, the center-right European People's Party still holds the largest share in the polls.

The European People's Party is the most vocal party in the polls, with the European People's Party leading the way.

The European People's Party is the most vocal party in the polls, with the European People's Party leading the way.

The European People's Party is the most vocal party in the polls, with the European People's Party leading the polls ...

The left-wing Socialists and Democrats group, whose MEPs have historically posed a challenge to crypto industry advocates, is the second largest.

Unfinished draft laws

There are still some unfinished draft laws before the election. These bills need a rapporteur, a parliament-appointed chief negotiator.

The digital euro, a digital currency operated by the ECB, also needs a new parliamentary leader if German MEP Stefan Berger cannot come back to complete the process.

Other payment services and financial data legislation also need a new MEP to take the lead.

The Payment Services Regulation will be crucial in determining whether issuers of fiat stablecoins or e-money tokens need to comply with more onerous measures than those proposed in MiCA.

And the newly formed legislators in the Commission can redraft the work done in the previous legislative session to their liking.

DeFi and Tokenization

The European Commission will report on progress on decentralized finance and NFTs and assess any risks the ecosystem may pose to consumers and markets.

The MiCA framework largely excludes both features of the crypto industry and focuses on service providers. Instead, the Commission will decide whether additional legislation is needed based on its findings.

The DeFi and NFT report, due in December, will include insights from Europe’s financial markets and banking regulators.

But potential policy action on DeFi could be stymied by another trend engulfing the sector: tokenization.

“If we have large banks and market infrastructures moving into the tokenization of securities, debt instruments and deposits, then the right frameworks need to be in place,” Foster said.

Crypto legislation in Europe

MiCA, which covers licensing requirements for stablecoin issuers as well as cryptocurrency companies to protect markets and consumers, will go live in phases from the end of June.

Financial institutions, including cryptocurrency service providers, will also need to comply with enhanced IT security requirements from 2025 under the Digital Operational Resilience Act.

The DLT pilot is another project in the European Commission’s digital finance package. It was designed to allow market participants to experiment with tokenized financial instruments, but it hasn’t had much success.

Separately, Europe has developed crypto-focused anti-money laundering rules to collect data on senders and recipients of transactions under the Funds Transfer Regulation.

A separate anti-money laundering regulation also covers crypto services, as these entities must comply with the EU’s latest regime for the private sector.

Now, top officials are calling for a slower pace of regulation to give the tech and financial sectors a chance to implement a raft of new laws targeting them.

Blockchain, not crypto

“Over the next five years, in this legislative cycle, we will be focusing more on DLT and the underlying technologies,” said Forster.

This could cover decentralization, digital identities and wallets, or revamping financial market infrastructure to provide features such as instant settlement to eliminate intermediaries.

In addition, these lawmakers will need to approve the next head of the European Commission, Europe’s executive body.

EU budget

The next head of the European Commission will be nominated by EU member states and then elected by the European Parliament. This process will take place after the summer.

The new European Commission president (most likely to remain the current president, Ursula von der Leyen) and the commissioner who leads the finance and technology sectors will be in charge of any new legislation that could affect cryptocurrencies or blockchain.

The Commission also plays an important role in allocating the EU budget to achieve its long-term goals for digitalization or sustainability.

This includes projects such as the blockchain infrastructure designed to underpin European governments, known as Europeum.

It also includes other initiatives to update internet infrastructure and digitize services or businesses.

“This is an important element in enabling citizens to use Web 3 and crypto products and services,” Foster said.