Regulation

MiCA Regulation: How the EU’s Proposed Bill May Change Crypto

August 11, 2023

Although the crypto market began as a decentralized and deregulated dimension, its rapid growth has raised numerous concerns regarding consumer protection in cryptocurrency-related issues, standardization of key procedures, and prevention of potential illegal activities. Satisfactory performance of these tasks is impossible in the current deregulated crypto realm. Therefore, recently, the introduction of new regulations has become one of the most pressing issues related to crypto.

One of the latest regulatory proposals that could have a huge impact on the global crypto industry is known as the Markets in Crypto-Assets (MiCA) regulation. MiCA is a bill proposed by the European Council to regulate essential crypto-related activities within the EU. The main provisions of this EU crypto regulation include rules on the issuance and trading of crypto assets, as well as major requirements that service providers and market participants need to follow.

Being one of the most comprehensive regulatory proposals for the crypto industry to date, MiCA deserves special attention from everyone interested in the latest crypto developments. Let’s discuss the regulation’s peculiarities and major provisions in more detail.

What is MiCA, and how would it affect the world of crypto

The European Commission introduced MiCA regulation in September 2020 as part of a broader set of measures to strengthen the EU's digital finance framework. The proposal has gone through several stages since its introduction, including discussions, negotiations, and amendments to the text. The final vote on the cryptocurrency regulation is scheduled for April 18, 2023.

Key provisions of MiCA regulation

The regulation contains provisions regarding various crypto-related aspects, including the following:

• Definition and unification of terms. Currently, there are many different approaches to defining crypto assets and their individual varieties. MiCA fixes this situation by providing a comprehensive list of key concepts from the crypto world and their unified definitions that will be applicable throughout the EU once the document is passed.

• Registration of crypto service providers. The document establishes a set of requirements for crypto custodians, trading platforms, and other major providers of crypto services, one of which is the obligation to register with the competent authorities of the countries in which such crypto actors operate.

• Additional requirements for cryptocurrency issuers. Under the provisions of MiCA, the issuers of cryptocurrencies will be obliged to provide white papers regarding the digital assets they are willing to bring to the market to competent national authorities, with the latter being able to prohibit or suspend the offering, request additional clarifications, or approve the issuing.

• Regulation of crypto-related marketing communication. MiCA compliance rules focus special attention on the way crypto providers communicate their offerings to clients. The document puts forward the demands for honesty, transparency, and prevention of misleading statements regarding risks and benefits associated with the assets issued.

• Investor protection. In addition to the obligation to adhere to clarity and transparency in marketing communications, MiCA also obliges crypto providers to disclose to potential investors complete and unbiased information about the crypto assets they seek to purchase.

• Stablecoin Restrictions. MiCA focuses particular attention on stablecoins and their legal status. Among other things, the document proposes to introduce additional requirements for stablecoin issuers, including the need to have transparent reserves of sufficient quantity and liquidity. In addition, according to MiCA, the circulation of significant stablecoins must be monitored and regulated by the European Banking Authority.

These are just some of the many provisions offered by the Markets in Crypto-Assets regulation. If adopted, this document would have a tremendous impact on the world of crypto, affecting not only the EU but, ultimately, the whole world.

MiCA’s impact on crypto issuers, providers, and users

MiCA’s impact on the crypto world would primarily concern three main categories of crypto market participants: crypto issuers, crypto service providers, and crypto users.

Impact on crypto issuers

MiCA regulation is likely to have a significant impact on cryptocurrency issuers, as it introduces new requirements for registration, disclosure, and ongoing reporting. Issuers will need to provide detailed information about their operations, including the assets they introduce to the market and the risks associated with them. They will also need to implement appropriate safeguards to ensure the integrity of the assets they issue.

Impact on crypto service providers

The newly introduced EU crypto regulation may also influence cryptocurrency service providers, such as trading platforms, custodians, wallet providers, etc. Service providers will face a range of new requirements to comply with, including those related to custody, disclosure, anti-money laundering, counter-terrorism financing rules. Providers will also need to obtain licenses or register with the relevant authorities, which may involve additional costs and administrative burdens.

Impact on crypto users

Among the three categories under analysis, crypto users would benefit from MiCA the most. Under the regulation’s provisions, they can expect greater transparency and disclosure from issuers and service providers. On the other hand, MiCA’s rules regarding counter-terrorism and ant-money laundering could, to some extent, jeopardize anonymity and privacy, which are much valued by crypto users. This, however, looks like a fairly reasonable price to pay for enhanced safety that crypto users will be able to enjoy in exchange.

Pros and cons of MiCA regulation

Like any other proposed cryptocurrency regulation, depending on the perspective, MiCA has both advantages and shortcomings. Let’s look at some of the main ones:

Potential pros

• Enhanced investor and consumer protection in cryptocurrency. Undoubtedly, crypto users are the main beneficiaries of the regulation under analysis. MiCA should protect them from unscrupulous counterparties, fraudsters, the most common crypto con schemes, as well as less obvious threats, such as, for example, distorted information about the potential of newly issued crypto coins.

• Stimulating the expansion of the crypto market. While the crypto realm is already attractive to many investors, many others are wary of it due to the lack of regulation. If adopted, MiCA will lead to an increase in investor confidence, a reduction in risks, and the perception of the crypto market as more trustworthy. A logical consequence of this may be a steady expansion of the crypto market.

• Cleaning the crypto sphere from criminal activity. Currently, cryptocurrencies are perceived as a kind of "safe harbor" for money laundering and financing of criminal activities because the movement of cryptocurrencies is almost impossible to track. With the implementation of MiCA, this situation will be fixed. Although it will not completely prevent the unauthorized circulation of criminally acquired funds, the regulation will make this task significantly more difficult.

Potential cons

• Additional barriers to entering the crypto market. The crypto sphere has so far been a level playing field for all. If you had enough resources and technical expertise, you could launch your own crypto and, if lucky, reap the rewards of your entrepreneurship. Under MiCA, which obliges issuers and other key players in the crypto sphere to legalize and register their activities, entering the market will become more difficult.

• Privacy issues. Under MiCA’s rules concerning the anti-money laundering and counter-terrorism regulation, crypto service providers will have to collect information about crypto users. Undoubtedly, these measures will reduce the level of criminal activity in the crypto sphere; however, simultaneously, a significant number of users who are concerned about their privacy without any criminal connotations will also be negatively affected by this.

• Possible adverse impact on small crypto players. While it will be easy for industry giants to comply with the rules proposed by MiCA, this may not be the case with small independent crypto providers. These crypto market agents may lack adequate resources to implement all the MiCA compliance requirements, which can harm healthy competition in the crypto market.

Wrapping up

MiCA regulation, which is to be voted on April 18, 2023, could potentially change the crypto industry not only in the EU but on the global level as well. Touching a wide variety of topics, from ultimate unification of crypto terminology to defining the legal status of crypto issuers, service providers, and users, the document could become the first comprehensive regulation of its kind and the first brick placed in the foundation of global crypto legislation.

MiCA could bring a set of positive developments to the crypto industry by protecting investors, increasing users’ trust in the market, and reducing the extent of illegal activities associated with the cryptocurrency realm. Meanwhile, some potential shortcomings, such as the complication of small providers’ access to the market and privacy issues should not be overlooked.

Overall, if MiCA is voted for and implemented adequately, its pros could easily outweigh the cons. Although today many reliable providers allow their clients to buy crypto under safe and transparent conditions, there are still plenty of other crypto players who are not so conscientious. A cryptocurrency regulation like MiCA would minimize malicious crypto agents’ adverse impact on the industry and make the crypto market much more trustworthy.

Disclaimer: Our content does not constitute financial advice. It is only intended for informational and educational purposes.