Regulation
European law MiCA will come into force on Sunday, ushering in a new era of transparent regulation of cryptocurrencies
- The Markets in Crypto-Assets Regulation (MiCA) is a legislative framework established by the European Union to regulate crypto-assets and related services in the region.
- The MiCA was adopted by the European Parliament in 2023 and will come into force on Sunday, but not immediately.
MiCA brings regulatory clarity to the entire digital asset market in the Eurozone, making Europe one of the first Western countries to implement a clear framework that cryptocurrency exchanges, securities companies Digital assets and stablecoin issuers can adopt to remain compliant.
This framework aims to protect European investors from fraud and risks in cryptocurrency markets while promoting innovation, economic competitiveness and the interests of the Eurozone.
MiCA encourages innovation in its stablecoin provisions, which will allow euro-denominated stablecoins to replace the dollar-denominated variant. Under the new rules, stablecoins will be treated as electronic money, subjecting issuers to the same levels of compliance as banks and traditional fund issuers, including 1:1 redemption in euros.
While the framework calls for bold reforms, it also places emphasis on protecting the European investor by requiring digital service providers to obtain licenses as digital asset service providers (DASPs), virtual asset service providers (VASPs) or crypto asset service providers (CASPs).
Global stablecoins are not permitted under MiCA, and stablecoins linked to other cryptocurrencies must primarily comply with European e-money licensing requirements. This would involve compliance with prudential, anti-financial crime and other rules.
To boost employment and economic growth, approved entities must maintain a local presence within the EU, which will serve as the basis for their European operations.
While MiCA is a step forward, it is not without fault. Some of its flaws include the cost of compliance, which could be burdensome for small crypto exchanges and service providers, vague (virtually non-existent) stipulations regarding decentralized finance, and a lack of flexibility in certain stipulations, such as those regarding stable coins.