High hopes for the EU’s MiCA law with a final vote imminent

Supporters of the EU’s upcoming Markets in Crypto Assets (MiCA) regulation say it will have an effect beyond its limited scope – and the race to seize the bloc’s cryptocurrency has begun even before a final vote on the law.

After several years of consultations and haggling by legislators, a final text of MiCA is due to be voted on by the European Parliament later this month. The law is likely to come into effect in July, with major provisions coming in between 12 and 18 months later.

On paper, MiCA aims to regulate issuers of cryptoassets and ensure that investor information white papers are honest. Providers of related services – such as crypto managers, advisors or exchanges – must apply to one of 27 national authorities for a license to operate across the entire block.

Beyond its limited scope, the hope is that it will also offer a wider halo of credibility to a sector that badly needs it after a year of market turmoil. Both industry and authorities certainly talk about MiCA’s importance.

“A crypto-asset service provider, a CASP, will be a brand in the EU … a kind of seal of approval for the sector,” Rok Žvelc, an EU Commission official who was part of MiCA’s drafting team, told an event in Brussels on March 30 “Investors will know that if they turn to CASPS, they will have all the protections that MiCA provides.”

Companies that are directly affected, such as stablecoin operators, are also positive.

“MiCA is an incredibly positive stop and global regulatory landscape for cryptoassets,” said Teana Baker-Taylor, vice president of policy and regulatory strategy at Circle, which hopes to use the new regulation as a springboard for its Eurocoin (EUROC), denominated in EU currency.

Policymakers in the European Union — first alarmed by Facebook’s Libra initiative, then by the dramatic collapse of terraUSD — said cryptocurrencies pegged to other assets such as fiat should have adequate reserves, with limited trading volume if pegged to a foreign currency.

Despite these limitations, the new law is welcome, Baker-Taylor said.

“Just having clarity around what the rules of the road are … is incredibly beneficial for the industry and for these market participants,” Baker-Taylor told CoinDesk. “Equally, I think it’s incredibly beneficial for Europe’s competitiveness.”

Much recent debate has focused on what MiCA does not cover – cryptolending and staking, decentralized finance and non-fungible tokens, all of which will be handled by additional regulations if at all. It doesn’t go far enough to deal with big players like Binance, the European Central Bank’s Elizabeth McCaul warned in a recent blog.

Nevertheless, it still represents a significant step: as the first time a large jurisdiction, comprising around 450 million people, implements a stable framework aimed at the sector. Its benefits could be felt widely.

SettleMint – a Belgian company that offers blockchain platforms as a service to other businesses – is not directly affected by MiCA’s regulations. But the law could encourage potential customers, such as banks, to try out innovations like tokenized bonds, CEO Matthew Van Niekerk told CoinDesk.

“What’s holding them back is regulatory uncertainty,” both in the areas MiCA covers, and related issues such as personal data protection, he said, adding that Europe is “moving in the right direction” toward offering that greater clarity.

MiCA could also be the hook for countries looking to introduce additional measures – such as France, whose recently proposed restrictions on social media influencers would ban publicity for any crypto company that doesn’t have a license.

With so much at stake, EU member states are in a race to see which of them can become the crypto hub of choice. In principle, MiCA sets a consistent level of rules to be followed across the block; in practice, national authorities may end up differing in how they implement and enforce.

It’s a race not everyone is trying to win. Dutch regulators have already said they are not prepared to cut corners in a bid to win business. There could also be more than one winner as different countries play to their strengths: the likes of Belgium could end up betting on business-to-business blockchain services instead of, say, crypto for the retail market, Van Niekerk said.

But for now there appears to be a clear leader – France, recently chosen by Circle as its European home, and whose existing regime known as PSAN has already registered some 66 crypto companies, including Binance, eToro and Societe Generale.

Although not the only EU country to anticipate MiCA – Malta, Estonia and Germany are among those with national regimes – France struck the right balance between attracting investment, protecting consumers and stabilizing markets, Baker-Taylor believes. The similarities of PSAN and MiCA mean there will be less of a bumpy landing for companies and regulators when moving from one regime to the other.

In other parts of Europe, the industry is wondering if they shouldn’t follow suit – like in Portugal, a country that attracted a significant crypto audience thanks in part to a sympathetic tax regime, but may now start to lose out.

“We have urged the authorities to anticipate the effects of MiCA,” Hugo Volz Oliveira, secretary and founder of industry group Instituto New Economy, told CoinDesk.

Oliveira’s concern is with the regulators who, in principle, need to put their heads together and decide on administrative procedures for companies to convert existing registrations into a MiCA license.

Spokespeople for both the Portuguese Securities Commission and the central bank told CoinDesk that they were preparing for MiCA, but that further details would only follow once the rules are formalized.

Still, the longer crypto companies are left in the dark, the more they – and the economy at large – will suffer, Oliveira worries.

“Portugal will very likely lose the race” to become a crypto hub, he said, meaning fewer applications for regulators to process. “It’s good for bureaucrats, but bad for the country.”