Analyzing MiCA's role in shaping global crypto regulation

Analyzing MiCA's role in shaping global crypto regulation

Markets in Crypto Assets (MiCA) is being hailed as the world's first comprehensive regulatory framework aimed at bringing the largely unregulated cryptocurrency markets under government regulation.

It is part of a broader digital finance package, also known as the Digital Operational Resilience Act (DORA), aimed at protecting the financial services sector from fraudulent activity. It is expected to come into force in July 2023 and lay the foundation for the rules to come into force gradually by January 2025.

While the United States has stalled on clarifying what the digital assets are, the European Union, with MiCA in the picture, has doubled down on how it should regulate rather than addressing the question of who should regulate the space - an approach that could prove to be a game-changer.

However, the big question is how MiCA will impact the European crypto market.

Allaying concerns about leaving Europe

The EU Council, representing 27 member states, has unanimously approved MiCA, making it the first major jurisdiction in the world with a crypto licensing system.

The positive response to the EU's robust regulatory framework can be attributed to the fact that the legislature has largely abandoned the “regulation by enforcement” approach. Therefore, several other markets and jurisdictions have begun to look at MiCA as a precedent to remain competitive in the global market. Countries such as Great Britain, Australia and Hong Kong are following in his footsteps.

Several experts have pondered how MiCA could shape the regulatory landscape in the broader crypto industry.

For example, Brinda Paul, Director of Compliance at Banxa, believes that MiCA sets a high standard for consumer protection, which will greatly benefit customers from a more reliable and trustworthy crypto market. In conversation withCryptoPotatoThe executive further added that “increased customer trust has the potential to increase participation in the crypto economy.”

Above all, its launch is expected to serve as a catalyst by attracting both start-ups and well-known companies, creating the conditions for healthier competition.

As for end users, Laura Chaput, head of compliance at Brussels-based market maker Keyrock, said that governance rules will increase transparency, rules for stablecoin issuers will provide more “confidence that their tokens are properly reserved and redeemable, and… protections against market manipulation will increase market integrity.”

However, for regulated companies that already have strict KYC and AML procedures in place, the changes will not be very significant or noticeable. However, according to Zonda's Przemyslaw Kral, users of unregulated or non-compliant exchanges may encounter withdrawal issues and will likely be asked to provide additional information about their identity and source of funds.

Combating market manipulation and abuse

There is legitimate speculation as to how the alleged wrongdoings at FTX could have been prevented if MiCA had been implemented earlier. In fact, Stefan Berger, a member of the European Parliament's Economic Affairs Committee, previously stated that adopting MiCA as a global set of regulatory standards would have prevented such a catastrophe.

On this aspect, Paul from Banxa pointed out that MiCA implements strict measures to promote a safe, transparent and fair crypto market, including disclosure of insider information, strict prohibitions on insider trading, unlawful disclosure of insider information and market manipulation.

Therefore, it is safe to say that obtaining approval under the regulatory system will not be an easy task and the ongoing controls by the relevant authorities will result in significant and recurring compliance activities on the part of crypto service providers.

Tiana Whitehouse, Chief Compliance Officer at CLC & Partners, further explained:

"MiCA is broadly consistent with the EU's existing Market Abuse Regulation (MAR), which applies to securities and derivatives. Under the new legislation, CASPs and other participants facilitating trading of crypto assets in the EU must have appropriate controls in place to prevent and detect market abuse and manipulation."

bone of contention

The implementation of MiCA should take place in two stages. The first 12-month launch period covers stablecoins and the next 18-month period covers the rest of the industry. For now, the focus is on implementation, which involves offering a comprehensive set of rules for the crypto market.

Overall, the regulation aims to regulate the issuance and provision of services related to crypto assets and stablecoins. But it has left several components of the digital asset industry outside its scope. One of them are the non-fungible tokens.

Although the NFT sector is exempt from MiCA's explicit white paper requirements, it will likely still feel the impact of regulation, according to Yuriy Brisov, co-founder and chief legal officer of IOGINALITY NFT Marketplace. He further added:

“By introducing AML/CTF rules, MiCA indirectly impacts NFT marketplaces and could contribute to greater transparency and trust in the booming world of digital art, collectibles and more, ultimately adding value to the NFT space.”

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