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In September 2020, the European Commission published the first version of a proposal to regulate crypto-asset markets, MiCA (Markets in Crypto-Assets) as part of the Digital Finance Package initiative. In addition to the proposal on crypto-asset legislation, the package also includes the implementation of a strategy on digital finance, retail payments, and operational resilience.
The new regime around crypto-assets proposes to cover all non-regulated assets and will apply directly across the European Union. Four main objectives have been defined within the framework of this initiative: legal certainty, supporting innovation, protecting investors, and ensuring financial stability.
In particular, the European Union is aiming for harmonization of national legislation, so that central banks can play a greater role in granting operating licenses for cryptocurrencies.
One of MiCA’s first resolutions is to provide a typology for classifying crypto-assets. MiCA also sets out a legal framework for crypto-asset service providers, or CASPs: compliance requirements for CASPs include prudential safeguards, organizational requirements, and specific rules regarding the custody of customer funds. The following services are affected by the regulations: custody and administration of crypto-assets, operation of a trading platform, conversion of crypto-assets into fiat currency or other crypto-assets, investment in crypto-assets, and, finally, advisory services. CASPs will be subject to security requirements and will have to prove that they can “withstand all types of cyber disruptions and threats.”
Experts agree that one of the factors driving the implementation of this proposal is the rise of stablecoins, particularly Libra. A member of the European Parliament, Dr. Stefan Berger, actually told Decrypt that it is inconceivable that Marc Zuckerberg could play the role of a central bank. Dr. Berger added that a digital Euro would be the best answer to stablecoins like Diem.
With MiCA, Europe wants to create an environment of trust that encourages investment. But some critics, such as the International Association for Trusted Blockchain Applications (INATBA), warn that it could have the opposite effect, particularly because of the incompatibility that exists between “DeFi-like applications and protocols with the highly centralized placement of responsibility for crypto asset service providers.” Another concern is the cost that compliance measures place on industry players, especially small operators.
The proposal is still being discussed at the level of European Union officials, but if it comes to fruition, it would make Europe one of the most regulated crypto territories in the world.