Unpacking the proposed EU “MiCA” Regulations – a step forward for the cryptosphere?
Let’s face it. The international community has yet to wrap its arms around any consistent framework for digital currencies. Over the past year, we’ve seen countries such as India, Australia, Switzerland and the United States issue new or revised guidance on cryptocurrencies with varying degrees of oversight. The World Economic Forum tried to take the lead earlier this year in announcing a consortium that would craft guidelines for crypto governance.
Well now, the European Union has weighed in with its own proposed legislation which one Coindesk contributor says could “turn the EU into the largest and most significant regulated space for cryptocurrencies anywhere in the world.”
So what’s it all about? Let’s unpack this juicy piece of proposed cryptocurrency regulation.
First, the official facts: the European Commission is the governing body of the European Union. It helps shape the EU’s strategy and policy, proposes new laws and regulations, and monitors their implementation. Over the past decade, the Commission has been active in assessing the digital currency landscape and issued a “FinTech Action Plan” in 2018. It has recognized the promise of crypto assets and the underlying blockchain as well as the risks involved, most notably the volatility of digital assets.
Late last week, the Commission released its “Digital Finance Package ,” which includes proposed regulations titled “Markets in Crypto Assets” (MiCA) that are designed to “provide legal clarity and certainty for crypto-asset issuers and providers.” Forbes calls MiCA a “far-reaching and harmonized regulation on the European level for crypto assets, including many related services.” The regulations, if approved, are expected to be in place by 2022.
One of the first items of business in MiCA was categorizing various types of crypto assets, with a new focus on stablecoins which the Commission sees as a potential gamechanger. “A relatively new subset of crypto-assets – the so-called ‘stablecoins’ – has recently emerged and attracted the attention of both the public and regulators around the world,” the Commission states. “While the cryptoasset market remains modest in size and does not currently pose a threat to financial stability, this may change with the advent of ‘stablecoins’, as they seek wider adoption by incorporating features aimed at stabilising their value and by exploiting the network effects stemming from the firms promoting these assets.”
The focus on stablecoins is significant in this piece of legislation, which proposes new and more complicated disclosure requirements for all who issue crypto assets or other crypto offerings.
“Compliance with all these requirements will be supervised by national competent authorities (NCAs), or the EBA in the case of asset-referenced tokens, to reduce the risk of plain fraud.” Meaning, more paperwork and hoops for crypto businesses to jump through in bringing their coins or services to market.
But, the Commission is sensitive to the impact these regulations could mean. “One of the strategy’s identified priority areas is ensuring that the EU financial services regulatory framework is innovation-friendly and does not pose obstacles to the application of new technologies,” it said. So it’s making it easier for small and medium-sized crypto issuers and service providers to navigate the new regulations by exempting them from publishing the more detailed “Whitepaper.”
However, the potential consequences for smaller startups is noted.
“Established FinTech startups should find it easier to cope with the new regulatory requirements. Smaller FinTech startups, however, face high regulatory hurdles in the future,” Forbes said.
The International Association of Trusted Blockchain Applications (INATBA) issued a cautious response to the proposed legislation. “While the proposed regulation is well conceived, some members express concern that it could, in its present form, overburden a young and innovative industry with costly and complex compliance and legal requirements that are disproportionate to the policy objectives it pursues.”
Well now, how it all shakes out remains to be seen. Questions remain as to the impact of MiCA on how crypto does business in the EU. Will it open the door wider to the use of digital currencies and the related services? Or will, in its attempt to build a framework – much like that in the traditional financial markets – that becomes a cumbersome yoke for the crypto market to bear?
One thing is for sure – stablecoins, which have the potential to disrupt the current financial systems, have captured the attention of the EU. Now, we’re talking.
Joyce Pavia Hanson