What’s in scope?
The EU regulation Markets in Crypto Assets (MiCA) was published in the Official Journal of the European Union in June 2023 and will come into force in 2024. Compared to other financial centers (the US, for instance), the EU has become a first mover in crypto asset regulation.
So, what exactly will be in scope of MiCA? Crypto currencies, stablecoins and certain tokens, with MiCA regulating both issuers of crypto assets as well as crypto service providers. The regulation clearly defines different types of tokens like asset-referenced tokens (ARTs) and e-money tokens (EMTs).
And out of scope? Security tokens and those popular digital property certificates – aka non-fungible tokens (NFTs). While not currently in scope, they may be regulated at a later stage as MiCA II will undoubtedly extend the scope.
A harmonized regulatory framework – what are the pros?
Despite the additional burden that inevitably comes with the regulation of any industry, feedback from the market in Europe has been very positive so far. How come? Well, mainly because market participants can properly plan their set-up and strategy thanks to a common understanding. Essentially, they know what to expect as MiCA provides a harmonized European framework.
What’s more, the passporting of crypto services across the EU is possible – once you’re authorized in one EU member state, you automatically gain access to all European customers. This is a clear advantage over other financial centers that are currently reluctant to implement clear rules.
Let’s talk KYC, AML and ESG
- With MiCA in place, you know who is buying and selling crypto currencies
- Crypto exchanges will need to identify traders and ensure KYC principles are respected
- MiCA will implement further principles to prevent money laundering
- MiCA will regulate the exchange from fiat into crypto, while direct transfers between wallets will be out of scope
Additionally, MiCA will require crypto service providers to measure the environmental impact of their activities and energy consumption which may, in turn, influence consensus algorithms with a shift from proof of work to proof of stake.
It’s MiCA’s timing that makes it a clear first-mover advantage for the EU. Needless to say that all eyes will now be on other financial centers to see how they plan to adapt and regulate crypto assets.