The European Parliament’s landslide vote in favor of new crypto licensing rules was largely met with applause from the industry, but now attention turns to the details that need to be colored in.
A long-awaited, if expected, approval of the Markets in Crypto Assets (MiCA) Regulation means the landmark law intended to protect consumers and ensure financial stability could take effect from mid-2024, and the initial reaction has been warm.
Shortly after the vote, crypto exchange Coinbase tweeted that the vote is a “pivotal moment for crypto regulation,” as the law, requiring exchanges and wallet providers to seek a license and stablecoin issuers to hold appropriate reserves, will “give crypto organizations the confidence to invest and grow in the region.”
For Antoni Trenchev, Chief Executive Officer of Nexo, the approval shows that the “crypto industry has finally had this affirmation,” adding in an emailed statement that “MiCA makes Europe fit for the digital age and will foster innovation and fair competition.” The crypto lender last year announced it would cease U.S. business, saying that talks with regulators there had reached a dead end.
Optimism about MiCA’s impact seems to be matched in the traditional financial sector. “We perceive regulation as a net positive for the industry,” said a report by Deutsche Bank staffers, citing likely impacts on corporate adoption, liquidity and volatility.
Crypto is “a dangerously unregulated sector,” Research Analysts Marion Laboure and Cassidy Ainsworth-Grace said, which has “exposed investors to massive losses across all crypto platforms.”
The key question now is how companies will prepare. While the outlines of the law have been known for some time, there’s also a 12-18 month transition period that will start ticking in June or July, and getting ready will be a bigger task for some than others, according to Bitstamp’s John Ehlers.
“For those that are new to this business and coming into the European market, it is a step change in how they operate,” Ehlers, the exchange’s chief operating officer, told CoinDesk’s First Mover show on Thursday.
“If you’re new to this space you’re not going to have very stringent AML [anti-money laundering] requirements for account opening,” Ehlers said. “If you’ve already been regulated in the EU, you’re probably in pretty good shape.”
Even long-established players will have a task ahead – like Binance, which holds a number of crypto registrations within the bloc, including under the relatively well-developed and MiCA-like regime in France.
“There are now clear rules of the game for crypto exchanges to operate in the EU,” Binance’s Chief Executive Officer Changpeng Zhao tweeted in response to the vote. “We’re ready to make adjustments to our business over the next 12-18 months to be in a position of full compliance.”
But, as Zhao also said, “the fine details will matter.”
While the overarching MiCA law, known as the “Level One” text, is now nailed down, EU agencies such as the European Securities and Markets Authority say they’ll now have to draft and consult on the “substantial package of implementing measures” that lie underneath.
Crypto industry players will be watching closely.
“There are a lot of things that the MiCA Level One text does not define – there are questions that will be answered in the so-called Level Two legislation,” Tommaso Astazi, head of regulatory affairs at lobby group Blockchain for Europe, told a Brussels event in March.
There were last-minute disputes among lawmakers and governments on how the law should treat non-fungible tokens (NFTs) and decentralized finance (DeFi), and hastily-drafted compromise language may not always be clear about, say, what is or isn’t an NFT, or a decentralized grouping.
While the EU law sets a common standard, it will be policed by individual national regulators in the bloc’s 27 member states, and there are concerns they could gold-plate the rules by imposing extra hurdles, or undercut each other in a bid to attract business.
Final details of the law should “ensure consistent MiCA implementation across member states, especially at the licensing stage, to ensure a level-playing field and avoid regulatory arbitrage,” as well as making smooth transition from existing national regimes, said Mark Jennings, Kraken’s Head of European Operations, in an email sent ahead of the vote.
Those final steps could prove crucial to MiCA’s success, Jennings suggested.
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“What evvel seemed a lofty legislative goal could soon become a universal standard for customer protection and business efficiency, if the EU can get the technical implementation of this framework right,” he said.