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Cryptocurrency after the European Union’s MiCA regulation
Disclosure: The views and opinions expressed herein are solely those of the author and do not represent the views and opinions of the crypto.news editorial.
THE Markets in cryptocurrency regulation (MiCA) marks a significant milestone in the European Union’s journey to regulate the rapidly evolving cryptocurrency market. Its timing and provisions are of enormous importance to both crypto businesses and investors. As we approach key dates, starting with the implementation of stablecoin provisions from June 30, 2024 and the full implementation of MiCA on December 30, 2024, the cryptocurrency landscape is undergoing a transformation.
In the next two years
The staggered deadlines and transitional periods of MiCA, which extend until 30 June 2026, imply a period of fragmented implementation across the EU and the European Economic Area (EEA). Jurisdictions such as Ireland (12 VASPs), Spain (96 VASPs) and Germany (12 VASPs) will grant a 12-month transition period. In contrast, other jurisdictions will offer more extended periods, such as France (107 VASPs) with 18 months, while Lithuania (588 VASPs) will likely only grant five months. This transitional phase will favor market consolidation as not all existing service providers will secure MiCA licenses. Many will look to take advantage of this transitional period before closing operations.
The race among EU/EEA jurisdictions to become the leading hub for cryptocurrency activity is intensifying, with jurisdictions such as France, Malta and Ireland competing for the top spot. However, regulators’ readiness and compliance for crypto-asset activity pose significant challenges. Regulators are going through an adjustment period to upskill their staff to process MiCA applications, particularly in jurisdictions with high volumes of applicants. The complexity of the various business models, which include numerous products unfamiliar to regulators, exacerbates this challenge. The general lack of expertise to authorise and supervise this sector requires significant training efforts.
Challenges for Cryptocurrencies
MiCA, together with the wide range of related Level 2 measures (many of which are yet to be finalised) and other applicable EU instruments such as anti-money laundering laws, the Digital Operational Resilience Act (DORA) and the Electronic Money Directive (EMD), create a complex regulatory framework. Some will find it difficult to understand which provisions apply to each entity type and what documentation needs to be implemented.
The removal of cryptocurrencies, particularly stablecoins, from EU exchanges due to their issuers’ failure to obtain timely licenses will pose significant obstacles and limit the availability of certain assets to consumers.
Adapting to MiCA will challenge many entities and require substantial investments in technology infrastructure. THE Travel rulea requirement that information must be shared between VASPs with every crypto transaction also comes into effect at the same time as MiCA. The Travel Rule requires CASPs to transfer a substantial amount of originator information. This includes your address, personal identification number and customer identification number. In rare cases, it may even require disclosure of the originator’s date and place of birth. This adds an additional layer of complexity, further highlighting the need for harmonization within the EU and solutions to comply with the Travel Rule that are interoperable and enable secure data sharing while preserving user privacy.
Cryptocurrency Market Key Findings
Despite the challenges, MiCA instills confidence in EU entities by increasing regulatory oversight, promoting investor protection, and attracting mainstream institutional participation. Improved consumer protection measures mitigate risks such as fraud and hacking, promoting trust among retail customers.
MiCA reporting requirements will provide regulators across the EU with more data, enabling them to monitor market activity effectively. The ability to freely transfer activities across the EU will facilitate cross-border operations and reduce regulatory fragmentation, while broadening market reach.
The prescriptive nature and all-encompassing regime of MiCA has set a precedent for global regulatory frameworks. Other jurisdictions are already observing and may replicate some of MiCA’s provisions and approach, contributing to regulatory harmonization worldwide. However, concerns remain that it will stifle growth and innovation and whether companies will seek to move to more permissive and less restrictive jurisdictions.
Steps after MiCA
MiCA’s shortcomings in regulating emerging areas such as true defi (the provision of financial services or the issuance of financial assets without identifiable intermediaries and without a single point of failure), lending and NFTs require ongoing and further policy discussions regulatory measures. Reports on these aspects will inform future regulatory developments, potentially leading to a second iteration of MiCA at least in the next four to five years or additional measures.
MiCA marks a new era of regulation in the cryptocurrency market, aiming to balance innovation with investor protection and market integrity. While challenges remain, MiCA lays the foundation for a more transparent, safe and inclusive crypto framework in the EU and beyond. As the cryptocurrency landscape continues to evolve, regulatory regimes must adapt to emerging trends and technologies, ensuring sustainable growth and fostering investor confidence.
Ernesto Lima
Ernesto Lima is a founding partner of XReg Consulting and a qualified lawyer with over 17 years of experience in financial services regulation. As XReg’s Head of Legal and Regulatory Policy, he has extensive experience in designing, developing and implementing crypto legislative frameworks that meet both global and local policy objectives. At XReg, Ernest leverages in-house expertise on European Crypto Markets Regulation (MiCA) to advise European clients or those looking to enter the European market. He also leads the dialogue with European public sector officials and national competent authorities in their transition to MiCA compliance. Ernest has also spoken at industry conferences and trained international regulators on European MiCA regulation and how it will shape the future of the international crypto regulatory landscape. He also sits on the Financial Markets Law Committee to address issues arising from the use of cryptocurrencies and DLT.