Financial Crime World

Portugal’s Crypto Regulation: A Guide to 2023 and Beyond

As Portugal continues to establish itself as a hub for cryptocurrency innovation, the country is also taking steps to provide clearer rules and regulations for the sector. In this article, we’ll delve into the current state of crypto regulation in Portugal, the new EU-wide rules that will come into effect in 2024, and what it means for businesses operating in the space.

EU-Wide Crypto Rules: MiCA Regulation

Overview

In 2022, the European Union approved the Markets in Crypto-Assets (MiCA) regulation, which aims to provide legal clarity, prevent misuse of cryptoassets, and encourage innovation. The regulations are set to come into effect before the end of 2024 and will have a significant impact on businesses operating in the EU.

Key Provisions

  • Energy Consumption: Significant crypto asset service providers (CASPs) will be required to publish their energy consumption levels on their websites and share this information with national authorities.
  • Stablecoin Regulation: The European Banking Authority (EBA) will assign supervision of stablecoins, requiring issuers to build up a sufficient liquid reserve with a 1:1 ratio, partly in the form of deposits.

Monitoring Non-Compliant CASPs

The EBA will maintain a public register and conduct enhanced AML/CFT checks on businesses classified as non-compliant CASPs. These are crypto businesses whose parent companies are registered in countries that the EU considers third countries posing high-risk in relation to anti-money laundering activities, or non-cooperative jurisdictions for tax purposes.

Portugal’s National Legislation

While Portugal does not have a robust crypto regulatory framework, general legislation may still be applicable. Every individual case requires an individual assessment, taking into consideration the purpose and characteristics of particular cryptocurrencies.

Token Classification

  • Utility Tokens: Subject to consumer protection legislation
  • Security Tokens (Investment Tokens): Tied to a securities offering and represent a share in the company issuing the tokens. Such tokens are subject to complex securities regulations.

EU-Wide Regulatory Sandbox

The EU has finalized the directive for the Pilot DLT Market Infrastructure Regulation (PDMIR), which will provide a legal framework for the trading and settlement of transactions in cryptoassets that under Markets in Financial Instruments Directive 2 (MiFID 2) are classified as financial instruments. The pilot will be applicable from March 2023 and will present opportunities for eligible businesses to experiment with blockchain-based trading facilities and settlement systems for financial instruments.

Conclusion

Portugal’s crypto regulation is set to become more stringent in the coming years, with the EU-wide MiCA regulations coming into force before the end of 2024. Businesses operating in the space must be aware of these changes and take steps to optimize their operations in accordance with the new requirements. With a clearer regulatory framework in place, Portugal is poised to establish itself as a hub for cryptocurrency innovation and growth.