Changes to the UCITS directive and the MiCA crypto regulation are coming

Despite the new EU crypto regulation, the so-called MiCA, having already come into effect in part, changes have been requested that specifically concern the UCITS directive.

In particular, it was the largest European issuer of crypto ETPs, the Swiss 21Shares, to request greater clarity.

Crypto regulation: the possible changes to the OICVM and MiCA directive

The new crypto regulation of the European Union, Markets in Crypto-Assets (MiCA), started to come into effect this year, even though it has not yet been fully adopted by the various EU countries. 

What 21Shares has requested is to create a unified regulatory framework to include cryptocurrencies in UCITS funds (undertakings for collective investment in transferable securities). 

The Direttiva OICVM in turn is precisely the Directive on Organismi di Investimento Collettivo in Valori Mobiliari, also known as the Undertakings for Collective Investment in Transferable Securities Directive (UCITS). 

In fact, 21Shares points out that at present, the rules regarding the inclusion of cryptocurrencies in OICVM/UCITS funds are inconsistent across Europe.

Although 21Shares is a Swiss company (Switzerland is not part of the EU), it operates on all European markets, and especially in those of the EU countries. 

In particular, in this case, it specifically refers to the new crypto regulations of the EU, highlighting, for example, that in countries like Germany and Malta there are UCITS funds that can hold cryptocurrencies, while in other countries like Luxembourg and Ireland, this is not the case. 

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The confusion

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The problem is that in a geographically and politically coherent area, such as the European Union, such discrepancies create confusion. 

21Shares points out that in this way it becomes difficult for investors to understand and compare the various options among themselves, and that the lack of a common approach can lead to gaps in investor protection. 

For this reason, it asks ESMA (the European Securities and Markets Authority) to intervene to establish clear and consistent guidelines on indirect exposure to cryptocurrencies, and that they apply in the same way to all EU member states. 

However, the company also emphasizes that for crypto ETPs, of which it is the largest issuer in Europe, there would be no need for further configurations, and therefore its request concerns only institutional investors and the directive for UCITS funds. 

If the requests of 21Shares were accepted, a unified framework would align the EU with other major markets, such as the USA and Hong Kong, which have already approved spot ETFs on Bitcoin and Ethereum.

The call of ESMA 

For its part, ESMA in May of this year launched a Call for Evidence specifically on the revision of the UCITS directive.

However, this consultation already concluded in August and sought the contribution of stakeholders in the sector, including fund managers, institutional investors, and trade associations.

The fact is that the OICVM Eligible Assets Directive (EAD) dates back to 2007, and the call from ESMA was precisely to understand if there was a need and opportunity to update the current regulations. In particular, the goal was to determine if it was necessary to include, among others, cryptocurrencies and ETPs as eligible investments within OICVM funds. 

Since 2007, financial markets have evolved significantly, and new asset classes have emerged, such as crypto. In fact, last year the European Commission tasked ESMA with conducting a review of the EAD and providing new recommendations.

Now the ESMA is evaluating the feedback received, and it might take measures to amend the UCITS regulation. 

The possible changes to the MiCA crypto regulation and the UCITS directive

The new EU crypto regulations are not liked by everyone. 

On one hand, it is true that they have finally created a more solid and, above all, clearer legal framework, but on the other hand, they have received a lot of criticism. 

Furthermore, if the UCITS directive has been in force for 17 years now, the MiCA is brand new, so it makes sense to start analyzing what is not working well, or what can be improved. 

From this point of view, however, there are still no clear and explicit requests like that of 21Shares on the UCITS AIFM directive, perhaps also because the MiCA has not yet fully come into force. 

For example, although the new regulations on stablecoins officially came into effect in June, there is still time until the end of December to comply. 

In fact, Tether, which must adapt if it wants USDT to continue to be present in the EU markets, has announced that next month it will reveal the solution it is adopting to try to become compliant with MiCA. 

While for the amendments to the UCITS Directive EAD the European Commission already took action last year, and ESMA has even completed the Call for Evidence, for MiCA instead it will be necessary to at least wait for its full entry into force to be able to seriously start thinking about modifications. 

So while the changes to the OICVM EAD directive could arrive within a few months, for those to the MiCA it might be necessary to wait even more than a year.