Markets in Crypto Assets (MiCA) is hailed as the world’s first comprehensive set of rules that aims to bring largely unregulated cryptocurrency markets under government regulation.
It is part of a broader digital finance package, aka ‘Digital Operational Resilience Act (DORA),’ which aims to protect the financial services sector from fraudulent activities and is likely to become law in July 2023, which sets the wheels in motion for the rules. which will take effect in January 2025 in stages.
While the United States is mired in the struggle to define what digital assets are, the European Union, with MiCA in the picture, is doubling down on how to regulate, rather than who will regulate the space – an approach which could prove to be a game-changer.
But the big question is how MiCA will affect the European crypto market.
Alleviating European Exit Concerns
The Council of the EU – representing 27 member states, unanimously approved MiCA, becoming the first major jurisdiction in the world to have a crypto licensing regime.
The positive reception received by the EU’s strong regulatory framework can be attributed to the fact that legislators generally avoid adopting a “regulation-by-implementation” approach. Therefore, many other markets and jurisdictions are starting to look at MiCA as a standard to stay competitive in the global market. Following in its footsteps are countries like the UK, Australia, and Hong Kong.
Many experts have weighed in on how MiCA will shape the regulatory landscape of the broader crypto industry.
Banxa’s Director of Compliance, Brinda Paul, for one, believes that MiCA sets a high standard for consumer protection, which will benefit customers from a more reliable and trustworthy crypto market. In a conversation with CryptoPotatothe exec further added that “increased customer confidence has the potential to increase participation in the crypto economy.”
Its introduction is often expected to serve as a catalyst by attracting startups and prominent businesses, setting the stage for healthier competition.
As for end-users, Laura Chaput, head of regulatory compliance at Brussels-based market-maker Keyrock, said that the governance rules will increase transparency, the rules for stablecoins issuers will provide more “confidence that their tokens are properly allocated and redeemable, and safeguards against market manipulation increase market integrity.
But the changes will not be significant or noticeable for regulated entities that already implement strict KYC and AML procedures. But users of unregulated or non-compliant exchanges may encounter withdrawal issues and will likely be asked to provide additional information about their identity and source of funds, according to Zonda’s Przemyslaw Kral.
Addressing Market Manipulations and Abuses
There is legitimate speculation as to how the alleged FTX malpractices could have been prevented if MiCA had been implemented earlier. In fact, the member of the economic committee of the European Parliament, Stefan Berger, previously stated that the adoption of MiCA as a global set of regulatory standards will prevent such a disaster from happening.
In the aspect, Banxa’s Paul noted that MiCA introduced strict measures to promote a safe, transparent, and fair crypto market, including disclosure of inside information, strict prohibition of insider dealing, illegal disclosure of inside information, and market manipulation.
Therefore, it is safe to say that obtaining approval under the regulatory regime is not an easy task, and the continuous controls carried out by the competent authorities will create a lot of repetitive activity in compliance with the providers of crypto service.
Tiana Whitehouse, Chief Compliance Officer at CLC & Partners, further explained,
“MiCA is broadly compatible with the existing Market Abuse Regulation (MAR) of the EU, which applies to securities and derivatives. Under the new legislation, CASPs and other participants facilitating trades in crypto-assets in the EU must have adequate controls to prevent and detect abuse and market manipulation.
Bone of Contention
MiCA is scheduled to be implemented in two phases. The first 12-month period of the period deals with stablecoins and the next 18-month period for the rest of the industry. Currently, the focus is on its implementation, which includes offering a broad set of rules for the crypto market.
In general, the regulation seeks to manage the issuance and provision of services related to crypto-assets and stablecoins. But it leaves many components of the digital asset industry outside its scope. One of them is non-fungible tokens.
Despite being excluded from the clear requirements of the MiCA white paper, the NFT sector is likely to still feel the regulatory influence, according to Yuriy Brisov, Co-Founder and Chief Legal Officer of IOGINALITY NFT Marketplace. He added,
“Indirectly affecting the NFT markets by imposing AML/CTF rules, MiCA can contribute to more transparency and trust in the emerging world of digital art, collections, and more, which in finally elevated the NFT space.”
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