The Markets in Crypto-Assets regulation being introduced by the European Commission will set the benchmark for governing the global cryptoasset industry. Other jurisdictions should take note.
After being proposed by the Commission in September 2020 as part of its digital finance strategy, the European Parliament finally approved the MiCA regulation on 20 April, setting the wheels in motion for it enter into force in July.
Speaking at the Digital Monetary Institute’s symposium on 11 May, Ivan Keller, policy officer at the directorate-general for financial stability, Financial Services and Capital Markets Union, called MiCA a ‘comprehensive piece of regulation’ in what will be the world’s first set of rules aimed at governing the cryptoasset industry.
MiCA will regulate issuers of stablecoins, both asset-referenced tokens and electronic money tokens, as well as all other cryptoassets and cryptoasset service providers. It will also include market integrity provisions to ensure there is no market abuse and insider dealing.
Keller explained that MiCA will be implemented in two stages: a 12-month phase-in period for the part of MiCA that deals with stablecoins and an 18-month phase-in period for the rest of the industry.
The key value of MiCA is that it establishes a common taxonomy of cryptoassets, with ARTs, EMTs and other cryptoassets. However, the legislation could and should go further in governing all the centralised players in this market. According to Keller, the plan is to look at decentralised finance markets, non-fungible tokens and the lending and borrowing of cryptoassets within 18 months of MiCA coming into force. ‘These are the three themes we will be grappling with in the next iteration of MiCA’, said Keller.
For now, the focus will be on its implementation, in what will provide a wide-encompassing set of rules for the crypto market, which have not been established until now. Many say that if MiCA had been implemented earlier, it would have prevented the malpractices at FTX. It is a model that other countries should look to emulate.
Other countries are also looking at the regulation of crypto. In the US, the work put in motion by the March 2022 White House executive order resulted in the US’s first ever comprehensive framework. The UAE, Saudi Arabia, Bahrain and most of Brazil have also introduced crypto regulations. Meanwhile, the UK Treasury launched a consultation into regulation of cryptoassets earlier this year.
In a separate session at the DMI symposium, Hester Peirce, commissioner at the US Securities and Exchange Commission, spoke about the complicated regulatory framework for digital assets and cryptocurrency. ‘The crypto entities are a whole new set of entities that we are not used to dealing with as regulators,’ said Peirce, who stressed the need to take a ‘more productive approach’ for some of the complicated issues that the crypto industry brings up.
One of the key issues is that it is still unclear where the industry is heading – whether it will just be a financial industry phenomenon or transform many areas of our lives. But as with any new and potentially significant development, regulation is important.
On MiCA and the need for interoperability in crypto regulation, Peirce said it was a ‘great opportunity for us to really put interoperability into practice because everyone is at the ground floor putting together regulatory regimes,’ adding that ‘we have a lot to learn in how MiCA works’. But she stressed that ‘we don’t all have to have identical regulatory regimes but trying to build in mutual recognition wherever we can is important’.
In a poll of the attendees at the DMI symposium, there was unanimous agreement on the need for regulation but a lack of agreement on the need for bespoke regulation or improvements to existing crypto regulation. On the most appropriate approach to the regulation of crypto, 41% called for selective adjustments to existing regulation and 32% called for comprehensive top-down bespoke regulation. Meanwhile, 18% called for widespread bottom-up bespoke regulation, with 5% calling for self-regulation by the industry and no one stating it should be left to the market.
Burhan Khadbai is Head of Content of the Sovereign Debt Institute at OMFIF.
This discussion took place at OMFIF’s 2023 DMI symposium held on 10-11 May. View all of the DMI symposium sessions here.