The Impact of MiCA on Global Crypto Regulation
The regulations on markets in crypto-assets known as “Markets in Crypto-Assets” or “MiCA” is considered the world’s first comprehensive set of rules aimed at regulating the largely unregulated cryptocurrency markets. It forms part of a broader digital finance package called the Digital Operational Resilience Act (DORA). This package intends to safeguard the financial services sector from fraudulent activities and is expected to become law in July 2023.
The MiCA proposal was introduced by the European Commission on 24 September 2020 and has now been officially adopted as a regulation on 16 May 2023, marking the final stage of the legislative process. The rules outlined in MiCA are set to take effect gradually, with full implementation scheduled for January 2025.
While the United States grapples with defining digital assets, the European Union has taken a different approach. With MiCA at the forefront, the EU focuses on how to regulate the crypto space rather than determining who will regulate it. This approach could have a transformative impact on the industry.
How will MiCA influence the European crypto market?
The EU Council, representing 27 member states, has unanimously approved MiCA, making it the first major jurisdiction worldwide to establish a crypto licensing regime. The positive response to the EU’s robust regulatory framework stems from its avoidance of a “regulation-by-enforcement” approach. As a result, other markets and jurisdictions are looking to MiCA as a precedent to maintain competitiveness globally. Countries like the UK, Australia, and Hong Kong are following suit.
The primary goals of this regulatory framework are to safeguard investors, maintain financial stability, promote innovation, and enhance the appeal of the crypto-asset sector.
MiCA will enhance investor and consumer protection by implementing a comprehensive framework that ensures transparency and compliance with anti-money laundering regulations. The framework covers various types of tokens, including utility tokens, asset-referenced tokens, and stablecoins, as well as service providers such as trading venues and crypto-asset wallets.
Furthermore, MiCA establishes a standardized regulatory framework across the European Union. This harmonization is a positive step forward, considering the global nature of crypto markets, as it replaces the current situation where some member states have their own separate legislation.
Experts have offered insights on how MiCA could shape the broader crypto industry’s regulatory landscape. MiCA’s focus on consumer protection sets a high standard, benefiting customers by creating a more reliable and trustworthy crypto market. Increased customer confidence has the potential to boost participation in the crypto economy.
MiCA’s introduction is expected to act as a catalyst, attracting startups and established businesses and fostering healthier competition. Laura Chaput, head of regulatory compliance at Keyrock, highlights that governance rules will enhance transparency, stablecoin issuer regulations will instill confidence in token reserves and redemption, and safeguards against market manipulation will strengthen market integrity.
Addressing Market Manipulation and Abuse
There are valid speculations regarding how incidents of alleged malpractice, such as those at FTX, could have been prevented with the implementation of MiCA. Could a global adoption of MiCA as a regulatory standard have averted such disasters?
MiCA introduces rigorous measures to foster a secure, transparent, and fair crypto market. These measures include disclosing inside information, prohibiting insider dealing and unlawful disclosure of inside information, as well as combating market manipulation.
Obtaining authorization under this regulatory regime will not be an easy task, as competent authorities will exercise ongoing controls and demand substantial compliance efforts from crypto service providers. MiCA aligns with the EU’s existing Market Abuse Regulation (MAR) and mandates that Crypto Asset Service Providers (CASPs) and other participants in the EU crypto market have adequate controls to prevent and detect market abuse and manipulation.
MiCA will be implemented in two stages: the initial 12-month phase will focus on stablecoins, followed by an 18-month period covering the rest of the industry. The emphasis now lies on the implementation of MiCA, which aims to provide comprehensive rules for the crypto market.
Author: Shernaz Jaehnel, Attorney at Law, CDPO/CIPP/CIPM, Compliance, ESG & Risk Manager