How Will EU’s MiCA Regulation Affect CASPs
Digital assets have seen groundbreaking moves in the last six months, and they continue to disrupt traditional finance as more key financial players eye the possible implementations of digital asset trading in one way or another. However, with mainstream adoption comes regulation—EU’s attempt at this comes in the form of Markets in Crypto Assets (MiCA) Regulation proposal, which will also affect crypto-asset service providers (CASPs).
Digital assets in European Union are currently regulated in two ways: with the EU’s Fifth Anti-Money Laundering Directive (5AMLD) and under individual member states’ regulations. 5AMLD sets important compliance requirements in order to make legal situations on digital assets more transparent and to prevent money laundering and terrorist financing, while individual member states have specific regulatory rules that apply for CASPs in each European country differently.
Germany, for example, requires any business that facilitates the crypto-asset trade to be a Federal Financial Supervisory Authority-licensed entity, while the French Financial Markets Authority can issue a visa for an offering when the token issuer complies with some underlying requirements.
Vytautas Zabulis, CEO of H-Finance, a regulation-compliant digital asset trading solutions company, notes that while 5AMLD and country-specific licensing have helped the company to be seen as trustworthy and legitimate, the improvements coming with MiCA Regulation were highly anticipated as well.
“Working under existing regulations definitely helped us to be recognized as a trusted and legally responsible company—confident and trustworthy relationships have been built with our customers due to the regulatory compliant nature of our business model and values,” observes Zabulis. “However, the lack of a unified licensing framework across the EU has resulted in a long and complicated process when going for cross-border trading.”
Though MiCA Regulation is still in its early stages, once implemented throughout the European Economic Area (EEA) the regulation would bring both clarity to overall regulatory requirements in the Union as well as simpler operating for companies like H-Finance.
“EU-wide licensing—”passporting rule”—will undoubtedly simplify opportunities to expand our services across the EU and reduce considerable amount of time and high costs towards legal complexity,” explains Zabulis. “It will become much easier to operate global transactions when there will be a clear passporting regime and possibility to have the same requirements in every EU member state.”
For digital asset trading platforms like H-Finance in particular, MiCA sets out rules which require to put in place effective systems, procedures and arrangements to ensure operational resilience of trading systems; ensure that fee structures are transparent, fair and non-discriminatory, and that they do not create incentives to place, modify or cancel orders or to execute transactions in a way that contributes to disorderly trading conditions or market abuse.
Zabulis emphasizes that these regulations, which will come in with MiCA’s implementation, would also foster adoption in banks and other Fintechs, because they will have one clear set of rules and bring growth in business opportunities for companies working with digital assets and their trading, as does H-Finance. The company is the first in the EU to offer a 100% regulation compliant solution for digital asset trading that established financial institutions and/or fintechs can integrate into existing infrastructure via native API and have a quick start to crypto trading.
When MiCA Regulation comes into force, CASPs will have an 18-month transitional period to ensure that companies meet the new requirements and adjust to challenging regulatory principles. However, Zabulis stresses that companies should start preparing for it now.
“CASPs should begin to acknowledge MiCA’s general organizational, compliance requirements which were set quite high. Businesses should take this time to become familiar with these regulatory requirements and to consider the potential implications in order to adapt and go through the implementation process smoothly,” adds Zabulis.
Aiming to improve balance and legitimization of how tokens are being regulated generally and the supervision of issuers and firms that qualify as CASPs, Markets in Crypto Assets Regulation would set clear rules of the crypto assets throughout the EEA, establishing a common framework, avoiding inconsistencies that are seen across the EU today, and opening new opportunities for crypto-asset service providers.