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MiCA legislation approved - a significant milestone for digital assets

In May, the European Union's leadership council approved a comprehensive new regulatory framework for cryptocurrencies, set to become law across Europe and take effect in 2024. This marks a significant step towards establishing a holistic regulatory framework for cryptocurrency operations, something stakeholders within and outside the industry have long called for. The framework, called Markets in Crypto Assets (MiCA), establishes a foundation for companies operating in this space within Europe and promotes industry development and investment.

One primary driver of innovation and competitiveness across markets is the clarity of the regulatory framework. A predictable regulatory environment is key to ensuring the participation of investors and companies in the industry. With the introduction of the MiCA framework, Europe is laying the groundwork to attract pioneers and investors from around the globe.

The MiCA framework requires all companies operating in this space to register and comply with various rules, including those against money laundering and consumer protection regulations. MiCA also provides a structure for the issuance of stablecoins.

The Purpose of MiCA

The MiCA framework, developed by the European Union, has several fundamental driving forces in mind:

  • Firstly, it aims to provide a robust legal framework for cryptocurrencies that fall outside the scope of existing financial service legislation, such as MiFID, thereby promoting legal certainty. 
  • Secondly, it seeks to stimulate the growth of the cryptocurrency market by creating a safe and fair regulatory environment that supports innovation and fair competition. 
  • Thirdly, the framework aims to protect consumers, investors, and the market's integrity by addressing potential risks associated with cryptocurrencies. 
  • Finally, it seeks to ensure financial stability by implementing security measures to manage potential threats to the financial system. 

In addition, MiCA provides clarity and predictability for companies and institutions looking to participate in the cryptocurrency market, with extensive guidelines for various activities, from token issuance to service providers conducting transactions, custody, and other cryptocurrency-related services.

Key Elements Addressed by MiCA

Here's an overview of the main elements the MiCA framework addresses:

  • Registration with authorities: Crypto companies need to register with the financial regulator in their country. They are then subject to the European Banking Authority and the European Securities and Markets Authority (ESMA) oversight. Once companies have registered in their home country, they receive a license to operate in all European Union countries. 
  • Money Laundering Measures: Crypto companies will be subject to the exact requirements as financial companies and must comply with anti-money laundering (AML) regulations. This will help prevent the use of cryptocurrencies for criminal purposes. 
  • Consumer Protection: Crypto companies must provide consumers with clear and comprehensive information about the risks associated with investing in cryptocurrencies. This ensures that consumers are aware of the risks involved. 
  • Stablecoins: MiCA provides a framework for issuing stablecoins, cryptocurrencies linked to traditional currencies like the euro or the US dollar. This will help ensure the stability and reduce the risk of these coins. 
  • Market Abuse: MiCA will include measures to prevent market abuse in cryptocurrency markets. This will help ensure that cryptocurrency markets are efficient and transparent. 
  • Environmental Impact: MiCA will require cryptocurrency companies to disclose the environmental impact of their operations, creating incentives for environmentally friendly practices. 

There has been considerable discussion worldwide about the necessity of a comprehensive cryptocurrency regulatory framework. Many companies have operated in uncertainty, and authorities need to provide more guidance on how operations should be conducted in this field. An example is the legal environment in the United States, where the rules are not clear enough. Despite repeated requests from cryptocurrency companies in the country for guidance and interpretation, financial authorities (SEC) have remained hands-off, opting to apply lawsuits instead of shaping regulations in consultation with companies already operating in the industry.

By approving the MiCA framework, Europe shows its willingness to lead in this field and thereby attract more companies to the cryptocurrency industry, with the associated value creation for the region. It will be interesting to see how other regions of the world react.

Today, more regulations are being prepared in Europe that will build on the MiCA framework, and examples can be seen in the link below: https://www.dlnews.com/articles/regulation/mica-is-not-the-only-crypto-law-in-the-eu/

Further Reading Coinbase's coverage of MiCA, where it is discussed that Europe is leading other countries in the cryptocurrency industry by being the first to approve a comprehensive regulatory framework for the sector: https://www.coinbase.com/blog/europe-is-winning-will-the-us-catch-up

Patrick Hansen's impressive coverage of the MiCA framework: https://paddihansen.substack.com/p/the-eus-mica-framework

Daði KristjánssonManaging Director - Founding Partner