Regulation and lawmakers can no longer ignore the crypto sector in the wake of major events like the ICO boom and the collapse of Terra and FTX.
With its Markets in Crypto-Assets (MiCA) regulatory framework, which was passed in April 2023 after nearly three years of development, the European Union is leading the charge in encouraging responsible innovation.
While the implementation of the framework was phased, with stablecoin issuer rules coming into force in June 2024, all parts of the framework are now in effect as of December 30, 2024. In this article, we take a look at how MiCA contributes to the transformation of the crypto landscape in the EU.
MiCA:
By providing regulatory certainty for companies across the 27-member bloc, MiCA aims to ensure consumer protection in crypto.
In order to achieve this, MiCA sets transparency and accountability standards for crypto asset issuers and crypto asset service providers (CASPs). Market participants can obtain licensing in one country and passport their services across the bloc under the rules.
MiCA’s key provisions
New disclosure requirements apply to crypto asset issuers under the new rules. Tokenomics, risks, and consensus mechanisms must all be detailed in a whitepaper before an asset is introduced.
Token launches must be approved by a national authority that can block them without explicitly approving them. In addition, these issuers must comply with marketing disclosures.
In addition to these disclosure obligations, stablecoin issuers have additional requirements. As electronic money institutions (EMIs), they are required to obtain anti-money laundering (AML), know-your-customer (KYC), and audit licenses.
Stablecoins also face high liquidity, redemption, and wind-down requirements under the law, and algorithmic stablecoins are prohibited.
To comply with MiCA, CASPs need to implement robust KYC systems, establish custody policies for the safekeeping of customer funds, and implement robust reporting and detection systems for market abuse.
Additionally, MiCA bans privacy coins de facto.
How does MiCA affect companies?
Crypto issuers and service providers operating within the EU or offering services to EU residents are affected by MiCA. There are stablecoin providers like Circle and Tether, exchanges like Binance, Coinbase, and Kraken, and even custodians like BitGo.
Focus on Tether
There has been much discussion about MiCA’s passing and its consequences for the EU’s stablecoin landscape. Tether, the largest stablecoin issuer, has not sought a license in the EU, unlike Circle, its biggest competitor.
As a result, several crypto exchanges have removed Tether USD (USDT) and Euro Tether (EURT) from their listings.
Although it is unclear whether Tether will reverse its decision in the future, MiCA’s coming into effect is likely to have contributed to USDT’s market cap dropping $2 billion from nearly $139 billion to about $137 billion in the past two days.
Companies Still Have Time
Despite MiCA’s implementation, firms still have a window of grace to apply for licensing.
Due to the fact that parts of the rules targeting stablecoins came into effect in June 2024, this window was set at 12 months from the law’s implementation, giving stablecoin issuers until June 2025.
CASPs have 18 months to obtain licensing or cease operations in the EU.
In the meantime, regulators are considering updating MiCA to include DeFi and NFTs as well.
Are CASPs ready for MiCA’s sustainability requirements?
Zumo conducted a snapshot survey in December 2024 to determine whether Crypto-Asset Service Providers (CASPs) were prepared to comply with MiCA’s sustainability requirements.
As a result of existing discussions and roundtables with various CASPs active in the EU, this survey report provides key stakeholders with an early quantitative snapshot of industry preparedness for MiCA and provides a snapshot of sustainability compliance reporting for crypto-assets in MiCA.
Our conclusion is that ongoing action is required to ensure CASPs are integrated into the sustainability process
Findings from the study
1. A gap in sustainability compliance knowledge.
Three quarters of VASPs surveyed consider themselves familiar with MiCA regulations, but less than a third say they are familiar with MiCA sustainability obligations.
2. The need for continued regulatory liaison.
As part of MiCA sustainability compliance requirements, regulatory communication is both the industry’s biggest pain point (unclear regulatory requirements) and the biggest request (clearer and more detailed guidance).
3. Follow-up action must be deliberate.
Regulatory engagement and risk quantification are critical to achieving sustainable policy objectives, according to industry-side sentiment.
4. Promoting industry solutions is a requirement.
While ready-made solutions are already available on the open market, half of industry participants found the lack of ready-made solutions a barrier to achieving MiCA sustainability solutions.
5. Commitment to compliance.
Business leaders still want to comply with MiCA provisions, with over two-thirds of surveyed CASPs expecting full compliance within six months, despite challenges.
An opportunity to access a wider market
Peter Kerstens, adviser at the European Commission who reviewed and commented on the report, added: “Sustainability of crypto-assets and in particular their validation protocols are a key policy concern. That is why MiCA contains disclosure requirements, aimed at informing consumers and investors on the relative sustainability of crypto-assets. They require sound information to make responsible decisions.
“CASPs should recognise this. They should not look at MiCA – be it the sustainability or other requirements – from a compliance perspective only. They should also, and preferably, look at it as an opportunity to access the EU-wide market.”