EU’s MiCA crypto regulation is a ‘balancing act’: Paris Blockchain Week 2023

Regulators and industry players highlighted a number of implications and potential impacts of the EU’s Markets in Crypto-Assets (MiCA) regulation at Paris Blockchain Week 2023.

A panel entitled ‘MiCA: How is the EU Regulating Crypto?’ delved into the proposed MiCA regulation which is expected to come into effect in 2024. The 400-page regulatory guideline for cryptocurrencies and digital assets has been a major talking point across the continent.

Gundars Ostrovskis provided insight into the development of the MiCA documentation, given his involvement as team leader in the Digital Finance Unit of the European Commission. Working alongside colleagues who drafted the MiCA regulations, Ostrovskis highlighted his belief that the legislation will benefit companies and users in the cryptocurrency ecosystem:

“We clearly expect it to be useful in terms of strengthening the industry by providing regulatory certainty, which is one of the things that is important for companies’ strategic planning, and protecting customers in the industry while ensuring market integrity.”

MiCA has been under development for a couple of years and has involved talks with various countries and industry players. Ostrovskis highlighted that the implementation of MiCA will require adjustments in states where regulatory frameworks for the cryptocurrency industry already exist.

Related: European Parliament committee adopts MiCA crypto framework in landslide vote

Janet Ho, Head of EU Policy at Chainalysis, believes that the success of MiCA will depend on a number of factors. Firstly, a sufficient understanding of the requirements of the legislation will be required followed by robust feedback and reworking of certain parts of the documentation:

“Legislation is not a static process. It is not always a perfect set of regulations. We know there will be reviews and improvements.”

Ho proposed that the European Commission should review the implementation of obligations taking into account feedback from public regulators and industry participants and the initial impact of MiCA.

Hubert de Vauplane, partner at the law firm Kramer Levin Naftalis & Frankel LLP, also provided food as an advisor to European and French legislators in a number of areas, including FinTech, financial and digital payments.

De Vauplane was particularly concerned about the impact of MiCA on existing cryptocurrency and Web3 regulations in specific EU countries:

“Some countries like France have local rules. It is important to remember that these regulations will disappear, potentially completely.”

Hubert noted that newer industry phenomena such as non-fungible tokens (NFTs) and DeFi products and platforms not currently included in the MiCA documentation may well continue to fall under country-specific laws:

“That means there is no room for local regulation covered by MiCA, particularly for the definition of digital assets.”

Nadia Filali, director of the Caisse des Dépôts Group’s blockchain program, emphasized the importance of governments, regulators and industry participants working together, highlighting the development of regulation in France as an example:

“For me, the regulation is something that can help innovation and can contribute to the popularity of the technology.”

Ostrovskis remained convinced that the European Commission has provided a good balance of regulatory parameters for certain aspects of the cryptocurrency ecosystem, while leaving other areas more open to unfettered development:

“It will provide a solid regulatory framework for many activities in the crypto-asset ecosystem, while we also have this centralized financial space (CeFi), which will remain unregulated to some extent.”

Ostrovskis emphasized that CeFi and DeFi is an area where the European Commission wants to promote innovation, so that new ideas can be tested as the space evolves:

“These activities are still of a limited scale, which also has some characteristics that allow us to, let’s say, leave it on its own for the time being before it possibly endangers financial stability.”

A final vote on the EU’s MiCA regulation is set for April 2023. The expected final decision on the legislation was postponed in January 2023 due to technical problems related to the translation of the document into the 24 official languages ​​of the EU.