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Get ready: more regulations will soon be implemented in an EU territory near you. The final phase of MiCA (Markets in Crypto Assets) begins in December, and while the industry has had ample time to prepare, its adoption will still require some changes to the way crypto business is conducted.
For PSAPs in particular – i.e. crypto asset service providers – the next phase of EU-wide regulation must be closely monitored. They introduce rules regarding the issuance of tokens, strengthened anti-money laundering requirements and require all PSAPs operating in the EU to have full authorization. Here’s what you need to know, whether you’re a crypto company or an EU-based crypto user.
MiCA’s new mixtape
It can be difficult to keep up with the multitude of regulations imposed on the industry. No sooner have participants become familiar with one set of rules than another appears and demands to be mastered. MiCA has been in the works for a long time, and while some in the industry have reservations about its entire design, it has nevertheless been accepted by crypto companies who are obligated to adhere to it.
The first phase of EU crypto legislation began in June, but its final form will become apparent in December. The most significant change introduced is that all PSAPs will need to be authorized to operate within the EU, including meeting strict security, governance and compliance requirements. Although this places an additional burden on crypto companies, they have had ample time to prepare and it is difficult to find fault with the intention behind this legislation.
Other rules that will take effect in December aim to strengthen anti-money laundering requirements and crack down on market manipulation. Although all EU companies are expected to comply with these rules by the end of the year, it should be noted that they may not be enforced until 2026, which gives a grace period to resolve any issues.
Does the EU Hate Stablecoins?
The most controversial aspect of MiCA concerns stablecoins. The regulations that came into force at the end of June limited the volumes of stablecoins authorized over a specific period. This is clearly an attempt to reduce crypto’s ability to supplant the Euro, especially since most stablecoins are pegged to the US dollar.
But things will get even more complicated for stablecoin issuers from December, who will be obliged to have an e-money authorization in at least one EU member state. This is evident when Circle obtained an Electronic Money Institution (EMI) license from the French regulatory authority, allowing it to issue USDC and EURC and serve customers in Europe. While Circle has the resources to meet this compliance requirement, the same cannot be said for smaller stablecoin issuers. Apart from the disadvantages this represents for issuers and for the EU stock exchanges which list these assets, it sets a worrying precedent. What stops the EU from imposing a similar mandate on all tokens that are not “sufficiently decentralized”?
The EU’s particular anger towards stablecoins seems difficult to justify given that they are one of the most compliant, least volatile and best regulated asset classes within the crypto-economy. However, aside from this anomaly, the rest of the MiCA looks overall positive for crypto adoption in the EU, providing a framework for blockchain innovation to flourish without being stifled by bureaucracy.
Exchanges and centralized depositories will likely be the entities that will need to put the most effort into ensuring compliance with MiCA. A handful of non-compliant stock exchanges, sensing which way the wind is blowing, could take advantage of this to withdraw from the European market. For retail users, however, it’s business as usual. The details of compliance legislation don’t always make sense. But from a general point of view, it is the price of progress.
