The Regulation on Markets in Crypto-assets (MiCA) reached EU political agreement in June and it will have a wide-ranging impact. In this analysis, James Burnie and Charles Kerrigan provide their initial thoughts on how the changes will affect the cryptoasset space.
James Burnie, Partner, Gunner Cooke
It will be interesting to see how the international crypto community reacts to MiCA. The broad approach under the regulation is to follow the general framework of the Markets in Financial Instruments Directive (MiFID) – the existing framework that regulates securities – and tends to apply this to cryptoassets. The advantage of the MiCA approach is in the harmonized handbook that enables passporting, and it is indeed a traditional sale of the European Union.
What is different about cryptoassets, however, is the fact that they have existed for such a short period of time compared to other asset classes regulated at the European level. The fast-moving nature of cryptocurrency arguably requires the ability of regulators to change their approach quickly, and this runs counter to the concept of a deep-coordinated regime.
An interesting contrast here will be with countries such as the UK, which tend to regulate in a piecemeal way, for example focusing on stablecoins and financial promotions, rather than creating a full regime at the outset.
Also, it is worth noting that while agreement has been reached on a comprehensive framework, the devil is in the details for the core regulations under MiCA. We can expect much more debate as the new regime is finalised, and the debate becomes more challenging given the continuously evolving sector. For countries such as Mauritius – which is currently in the process of finalizing its basic regulations – this represents an opportunity to build while uncertainty in Europe remains.
Charles Kerrigan, Partner, CMS
Although the new regulation mentions MiCA, most comments relate to its focus on harming consumers. Issuers and service providers are subject to high standards of consumer protection – including liability if they lose investor funds.
It’s important to keep in mind when considering policy around cryptoassets that they fall into two broad categories: crypto-natural assets (such as Bitcoin) and digitized versions of traditional securities (such as bonds).
The common feature is that they work on the blockchain. But those are completely different things. The opportunity for cryptoasset markets is to enable the digitization of traditional finance (TradFi) as much as to regulate decentralized finance (DeFi).
MiCA aims to enable the market to flourish and is explicitly concerned with raising capital for SMEs. The advantages of the positive side deserve as much attention as the regulation of the negative side.
Mark Aruliah, Senior Policy Advisor, EMEA, Elliptic
EU regulation will tend to follow acquis – a set of common rights and obligations binding countries in the bloc. We can already see that MiCA is a mix of MiFID. These include the Capital Requirements Regulation (CRR) – the imposition of capital requirements and prospectus regulation – the application of public offer obligations, custodial obligations from the EU collective investment scheme regulation, as well as market abuse regulation.
MiCA has an investor protection focus and, as mentioned, is similar to other EU trustee laws. It imposes liability obligations on custodians for loss of property – subject to certain exemptions.
My opinion on MiCA is that it will change the EU crypto industry quite fundamentally. The role of the normal AML/CTF compliance officer will now change and there may be a division of responsibilities as it moves into regulatory enforcement – ​​but also prudential and market manipulation. It also hopes to improve risk assessment and stress testing of innovative products.
I also think that companies need to start looking at the MiCA obligations – especially SMEs, as a number of changes will be required.
Finally, having spent many years dealing with EU legislation and processes, I can say that once regulation begins, there is usually no going back. More will no doubt come in the future.
To see another piece of updated analysis regarding MiCA, check out Mark Aruliah’s latest feature.
EMEA regulation