Local crypto firms are preparing for the transition as the extensive Market in Crypto-Assets (MiCA) regulation of the European Union progressively approaches becoming law. The new standards are more stringent than those currently in effect in some European nations, and they will become the law for all 27 EU member states.
Along with highly specific guidelines and restrictions for stablecoin issuers, MiCA also mandates an unprecedented degree of openness from cryptocurrency exchanges.
According to the law, crypto businesses are required to settle all trades the same day they occur in addition to updating the public on their pricing methodology and trading volumes in real time. Exchanges are required to keep customer funds and their own funds, including cryptocurrency, separate. Insider trading is expressly forbidden by the regulation as well.
The most significant aspect of MiCA is the introduction of a universal licensing method for all EU member states, making it the broadest piece of legislation of its sort ever created.
The founder of the French blockchain company Arianee, Frédéric Montagnon, said that
The licensing requirements and other regulations under the MICA are “more complex, more sophisticated” than those currently set by the French regulator. During the MICA process, they took a large part of what was done in France and made it deeper.
Licenses are now only required in France for cryptocurrency businesses that offer any type of crypto custody, which means they keep users’ money in their own accounts. Licensing is optional for individuals who don’t offer custody services. It will be required of everyone under MiCA, an EU-wide directive that must be implemented at the member-state level.
Cryptocurrency banking and insurance
For the 60 businesses who have previously registered with the French Financial Markets Authority (AMF) and “have already changed their processes to what the French regulator requested them to do,” according to Montagnon, not much will change on the initial site. Nothing in MiCA is beyond of reach for a startup, according to the organization.
There will be one significant adjustment, though: startups in France may struggle if the final version of MiCA requires cryptocurrency service providers to obtain business insurance, according to Montagnon.
After the FTX catastrophe, it is challenging to obtain an insurer for client funds, particularly in the cryptocurrency market, according to Montagnon. Because it’s so difficult for crypto companies to obtain an audit from a credible organization, French banks haven’t been very kind to them. Although some local, well-known banks do cooperate with some crypto companies (Montagnon won’t specify which banks), it’s incredibly difficult for the majority of businesses to open a bank account.
The search for a bank and insurance is the actual issue. It’s pretty disappointing, too. You complete every step and obtain your license, yet the market continues to reject you. I would like to think that with MiCA that will change, but I doubt it will happen.
Sven Wagenknecht, editor-in-chief of the cryptocurrency news website BTC-ECHO, claims that opening a bank account in Germany is difficult for crypto companies. He said in public that
In Germany, the majority of banks are against crypto. The larger banks, like Deutsche Bank, are still staying away from cryptocurrency, while smaller banks, like N26 and Solaris, are more supportive of the sector.
He thinks that once a comprehensive European legislation is in place, this may change. Banks need some clarity in regulation, and MiCA is a step forward.
According to Wagenknecht, there is one more aspect of MiCA that could bring European banks and cryptocurrencies closer together, at least in Germany: MiCA will make applying for a crypto custody license a simpler and more transparent process than what is currently provided by German regulation.
This will give the German banks the go-ahead to operate their own cryptocurrency custody services. Examples include Sparkasse, which is rumored to be developing a cryptocurrency trading platform, and Hauck & Aufhäuser, which purchased authorized cryptocurrency custodian Kapilendo in 2019.
Obtaining a crypto custodian license in Germany is currently an extremely difficult procedure, according to Wagenknecht, and just a small number of businesses have one. It’s not a very transparent process, and it’s very difficult for a startup without a lot of capital, he added. “You have to wait for a long time and you don’t know what you’re doing wrong.”
Crypto companies will feel more at ease under MiCA, according to John Ehlers, chief operational officer of Bitstamp, a crypto exchange with headquarters in Luxembourg.
Unlike some of the present, less stringent registration systems in Europe (for instance, in France), the licenses for providers of virtual assets under MiCA require thorough disclosures: A prudential license, the MiCA license is a true license. They examine the way you conduct your business. It’s quite detailed,” Ehlers added.
Banks and other traditional firms who have been wary about cryptocurrencies thus far will probably feel more at ease with that level of openness, according to Ehlers. You are seated at the same table as the credit institutions, yet you are not on an equal footing with them.
It’s time to prepare
However, there may be a significant difference between what a crypto service is doing at the moment to comply with local regulations and what it would need to do under MiCA, so businesses need to start preparing now, according to Ehlers. “It’s usually more difficult and time-consuming than you anticipate. I would advise the industry to get ready for the MiCA application as soon as possible. What does MiCA demand and what does your organization currently do?” Ehlers noted.
Customers of crypto exchanges may experience a slight delay in the onboarding procedure, according to Ehlers. Exchanges will need to assess a user’s suitability for particular products. Users will also get access to additional data about the assets listed on exchanges, enabling them to make more informed trading decisions.
Crypto firms will have 18 months to adapt after MiCA is approved. Given that the vote has already been delayed twice, most recently to April, it is difficult to predict with certainty when the regulation will become a law.
MiCA’s more logical approach to regulating will, in the long run, Wagenknecht claimed, make life easier for European crypto services. However, initially it might be difficult to align the current national regulations with MiCA. One instance of a regulation that differs from MiCA’s strategy is the law governing blockchain securities in Germany.
MiCA is not comprehensive enough, according to some experts, and global regulators need to take further action. For instance, in October, a research team that the French government had commissioned that particular attention be paid to the metaverse, particularly to users’ data protection laws. The metaverse is not mentioned in the present version of MiCA.
There is also a worry that, no matter how thoroughly Europe regulates cryptocurrency, it won’t actually operate unless other nations do the same. Because this is a global development, there is no point in Europe acting independently, European Commissioner Mairead McGuinness said.
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