The EU is finalizing far-reaching rules for the Wild West” crypto industry

Europe has reached a landmark deal to regulate trading of crypto assets in the bloc in a bid to curb what lawmakers are calling the “wild west” of financial markets.

EU member states and the European Parliament late Thursday set out the terms of rules aimed at protecting consumers while allowing the emerging market to thrive.

The rules, known as Regulation on Markets in Crypto-assets (Mica), represent the first attempt to enforce standards across the bloc, rather than a patchwork of national regulations.

It comes after a major market crash in the prices of tokens such as Bitcoin and Ether, which has dealt a major blow to lending platforms, exchanges and fund managers. Since November last year, the value of popular crypto tokens has fallen by more than 70 percent, and the size of the market itself has fallen by two-thirds to less than $1 trillion.

“Recent developments in this rapidly evolving sector have confirmed the urgent need for EU-wide regulation,” said Bruno Le Maire, French finance minister.

The standards mean that a crypto asset service provider will need approval from one of the EU's national market regulators to allow its services to pass through the bloc. Local regulators will share information with the pan-European regulator Esma.

“We will have a new crypto sheriff in the EU,” said Spanish MEP Ernest Urtasun. The union was moving “from the Wild West of unregulated and risky digital assets to a safer crypto sphere,” he added.

Regulated companies will not only face stricter standards to protect consumers, but will also be liable if they lose investor funds. The industry, which has often come under fire for its significant carbon footprint, must also disclose information about its environmental impact.

Stablecoin issuers must have a presence within the EU and have a “sufficiently liquid reserve”. They are monitored by the European Banking Authority. A stablecoin is a type of cryptocurrency pegged to assets such as the US dollar and acts as a bridge between existing financial markets and the crypto world.

Non-fungible tokens, digital tokens that represent unique works such as artwork, have been exempt from the rules unless they fall under existing categories of crypto assets. The European Commission will re-evaluate the proposals over the next 18 months.

“This will provide regulatory certainty, reduce fragmentation and underpin the development of a robust and well-functioning market,” said James Kemp, managing director at AFME, a lobbying group for investment banks. However, he added that lawmakers need to clarify some points, such as the legal requirements for crypto asset custodians.

The landmark regulation comes a day after authorities agreed on the Transfer of Funds Regulation (ToFR), which imposes new compliance standards on crypto players to tackle money laundering risks in the industry.

Valeria Cusseddu, policy advisor on the European Parliament's Economic and Monetary Affairs Committee, said that under ToFR, crypto companies would also have to "adopt internal policies and procedures to comply with targeted financial sanctions."

"The crypto sphere is full of risks and open to abuse and attacks. We want to ensure that investors have guarantees to protect their assets and privacy, and we avoid cases like the recent crypto crash where retail investors lose all their money due to poorly designed products or fraud," Urtasun added.