Breaking news for the blockchain industry: European Union finance ministers recently voted unanimously to adopt the crypto markets regulation called MiCA.
What will happen next? Below are all the details on the matter.
EU adopts regulation on crypto assets: MiCA
As anticipated, the European Union’s Economic and Financial Affairs Council, which includes the finance ministers of all member states, adopted the regulation on cryptocurrency markets (MiCA) after a vote on 16 May.
Specifically, finance ministers from 27 member states voted in favor of the MiCA bill and amendments to several regulations and directives related to the new legislation.
In conjunction with the adoption of the MiCA, two other pieces of legislation were also adopted by the European Parliament, including the regulation on information accompanying transfers of funds and certain cryptographic assets.
In addition, the European Parliament formally adopted the MiCA legislation on 20 April, paving the way for final approval by the European Council before the regulatory parameters enter into force.
We see that the legislation establishes clear guidelines and regulatory requirements for the use of cryptocurrencies, related services and activities throughout the European Union. The scope of the legislation covers a range of cryptocurrencies, digital assets, utility tokens and stablecoins.
However, the next step for MiCA to become EU law requires that the bill be published in the Official Journal of the European Union. MiCA will come into force within a year, which means the regulations will finally become law in mid-2024.
What does the MiCA legislation provide for the crypto industry?
As we know, the European Commission first proposed the MiCA in September 2020, and since then it has faced numerous obstacles and delays in its legislative path.
However, after that, the legislation was widely welcomed by cryptocurrency service providers and supporters alike, as its purpose is to create a single market environment across Europe in terms of regulatory requirements and operational procedures.
Specifically, key components of the MiCA legislation include registration and licensing requirements for cryptocurrency issuers, exchanges and wallet providers.
In addition, stablecoin issuers must meet certain security and risk mitigation requirements, while cryptocurrency custodial services must ensure sufficient safety and security measures to address potential cyber and operational security issues.
Not only that, the legislation also provides a framework to prevent market abuse, insider trading and manipulative behavior in the cryptocurrency space. In other words, the main purpose of the MiCA regulation is to minimize the negative consequences of incidents in the future similar to the FTX insolvency.
Furthermore, in determining whether a business will be subject to MiCA regulations, there are several factors to consider, such as scope.
The latter, specifically, includes: asset-referenced tokens, e-money tokens, utility tokens, and activities outside the scope, such as NFTs subject to European Securities and Markets Authority (ESMA) guidelines and DeFi subject to European Banking Authority (EBA) guidelines.
The impact of the MiCA on the EU cryptocurrency and blockchain market
As we know, the MiCA regulation represents a significant development for the cryptocurrency industry in the European Union. Before the MiCA, cryptocurrency companies had to comply with 27 different regulatory frameworks in EU member states.
Under the MiCA, EU-wide regulations apply, allowing companies to operate in the entire EU cryptocurrency market with a MiCA license granted in one country. So what are the consequences now?
First of all, this will increase the competitiveness of EU startups and could drive market share from unregulated competitors. In addition, the MiCA could encourage more institutional adoption and activity in the EU crypto and blockchain market.
Patrick Hansen, director of EU strategy and policy at stablecoin issuer Circle, in this regard said that the MiCA will allow European crypto companies to scale and grow more rapidly, enabling licensed companies to offer their services in the world’s largest single market, according to the statement:
“Legal clarity will also foster innovation among financial institutions that were previously reluctant to launch products and services due to regulatory uncertainty.
Furthermore, as MiCA is the first comprehensive regulatory framework for cryptographic assets of one of the world’s leading jurisdictions, it is likely to attract considerable foreign capital and talent to the region.”
Peter Grosskopf, co-founder of the decentralized finance project (DeFi) Unstoppable Finance, is also convinced that the MiCA will benefit the EU crypto and blockchain market.
Indeed, first of all, companies outside Europe will have to register with a company in the EU, so there is a direct impact on job creation and tax payments.
Second, many jurisdictions take an overly rigid approach to cryptocurrency regulation. In this regard, Grosskopf stated the following:
“For example, the US regulates with enforcement. Compared to other regions, the EU will become a safe space for industry as a whole and innovators from all over the world will start building their businesses here.”