MiCA leaves cryptos wanting global standards

Crypto asset firms and stablecoin issuers implementing European Union regulations have realised that managing a patchwork of emerging rulebooks in other jurisdictions is going to be a challenge for their global businesses. Some are already calling for a standard approach to crypto asset regulation to ease future compliance headaches while still neck-deep implementing the EU’s Markets in Crypto-Assets (MiCA) regime.

According to Dante Disparte, chief strategy officer and head of global policy at Circle in Washington, DC: “MiCA is to crypto assets what [the General Data Protection Regulation (GDPR )] was to privacy. Yet despite the progress of GDPR in enshrining privacy laws and individual rights in Europe, very few countries around the world mirrored GDPR. And so I think one of the challenges with the novelty of crypto assets and internet-scale financial activity like this is that we actually do need regulatory and policy harmonisation for MiCA not to be an outlier body of regulations, but rather for [it] to be a standard.”

Circle is among the first global stablecoin issuers to become MiCA-compliant. Disparte told a Circle-hosted webinar last week: “Circle as a company will operate to the highest standard and end the era of regulatory arbitrage and crypto, in which everybodyʼs racing to the bottom. We want to race to the top.”

He added: “But it’s hard to imagine a Trump administration not having an America First strategy that also enshrines in law regulation of digital dollars and regulation of crypto markets.” His hope was that they could “create a transatlantic, harmonised approach for crypto markets, with MiCA as a pillar, and with the US regime that is emerging as a pillar, and then the rest of the world will effectively benefit from those two regulatory opportunities”.

Stablecoin issuers were required to comply with MiCA rules by June 30, 2024, and the go-live date for other crypto asset services was December 30. However, transitional periods of between 12 and 18 months are in place depending on the EU jurisdiction in which the service provider is located.

Global business

“One of the challenges that global exchanges have encountered, or been able to overcome but with some challenges, is operating a global business and a global exchange and a single order book, yet at the same time having part of that global business regulated by a single regime under MiCA,” said James Sullivan, group general counsel and UK general manager at cryptocurrency exchange Bitstamp.

“This problem will probably become increasingly difficult as we start to see other regimes. I think being able to navigate through that and also have an eye to the future, when youʼre running a global business, will mean that you can’t just look at the MiCA regulation in isolation; it has to be seen within operating a global business.”

EU crypto asset service providers are also subject to the EU’s Digital Operational Resilience Act (DORA) regulations, another level of complexity for firms mostly unused to regulatory supervision.

EU rules too prescriptive, too tradfi

Some crypto asset firms have found MiCA to be too prescriptive and rooted in traditional financial (tradfi) regulation. Overall, they welcome the legitimacy the regime brings, but some of the rules are not a good fit since it is based on the Markets in Financial Instruments Directive (MiFID).

“There are significant differences between crypto assets and tradfi assets — for example, the settlement processes and the settlement timelines are completely different — and yet there is an expectation additionally for customers to be able to access their assets immediately, which is not as a scenario that exists in the tradfi world,” explained Bitstamp’s Sullivan. “So there are some very interesting real-world crunchy issues to navigate in terms of thinking about imposing a new set of regulation on processes and ways of working.”

While EU legislators and commissioners believe MiCA is attractive and designed to attract crypto asset businesses to the bloc, firms setting up there worry about protectionist policies, overly prescriptive rules and regulators’ scepticism about the asset class.

“For a body of financial market rules to really withstand the test of time, it has to be more principled than it is prescriptive. And for that, I think there are some potentially serious critical flaws in MiCA,” said Circle’s Disparte.

One area of MiCA he said was too prescriptive was the requirement for 30% or 60% of reserves to be held in the banking system, saying that could expose stablecoins to systemic risk originating in tradfi.

“Thatʼs an area of ongoing concern. Our hope is that as [the stablecoins] USDC and EURC scale in Europe, we would be able to have a principled conversation with supervisory and prudential counterparties on where these risks exist,” he said.