MiCA – Crypto regulations for Europe

MiCA forms part of the EU’s digital financial laws which include the Digital Resilience Act and the Pilot Regime on Distributed Ledger Technology. Thanks to this robust set of policies that promote efficient and stable technology use across the region’s financial industry, the Eurozone consumer is now highly immune to situations like the FTX failure that happened in 2022. As is the case with bank transactions, crypto transfers may now be traced and any suspicious activities curbed by service providers in the region.

“Consumers will be protected against deception and fraud, and the sector that was damaged by the FTX collapse can regain trust. Consumers will have all the information they need and all underlying risks around crypto-assets will have to be monitored.” Stefan Berger, Member of the European Parliament who spearheaded the negotiations.

MiCA was first proposed as a bill in 2020, and could only be passed by the EU Council, the main representative of member states. In the spirit of EU’s harmony, it will offer a blanket licensing and regulatory framework across the entire region without requiring individual nations to discuss it afresh. Crypto assets, such as e-money tokens, asset-referenced tokens, utility tokens, and other digital assets offered to the public yet not previously covered by any laws all fall under the regulation.

The Markets in Crypto Regulation aims to achieve four main goals:

1. Provide a sound framework for virtual currency assets usage
2. Promote safe innovation for the development of related assets
3. Raise market integrity to protect consumers from crypto asset risks.
4. Support financial stability across the region

MiCA excludes some aspects of digital assets like decentralized finance (DEFI), and non-fungible tokens (NFTs) which are presumed to already have an aspect of regulation, or require further discussions.

“MiCA leaves several components of the digital asset world outside its scope.” María José Escribano, a member of BBVA’s Digital Regulation team. “All these variables either already have their own regulation in accordance with their nature, as in the case of security tokens, or they have such specific features that legislators need to carry out further analysis to configure a regulatory framework that suitably addresses the risks.”

Following the EU Council’s formal approval, MiCA will be published in the region’s official journal and become effective 20 days later. It will be executed in two phases where the first one concerned with stablecoins will take effect after 12 months, and the second one regarding Crypto-Asset Service Providers (CASPs) will become operative within 18 months—2024 Q2 and Q4 respectively.

As preparations for the implementation of this pioneering legislative term begin, it’s undoubted that other jurisdictions globally will follow suit in making similar efforts to protect consumers by curbing risks in the cryptocurrency sector. The US is likely to be next.