Key Contacts: Simon O’ Neill – Partner  |  Andrew Tzialli – Partner 

Crypto Asset Regulation – Markets in Crypto-Asset (MiCA)

The crypto ecosystem was recently described by Fabio Panetta (a member of the executive board of the ECB) in a speech to the June 2023 BIS Annual Conference as “riddled with market failures and negative externalities, and [it is] bound to experience further market disruptions unless proper regulatory safeguards are put in place”.

Controversies like FTX (a crypto exchange that collapsed following a range of issues uncovered by authorities, including inadequate risk management, unclear business boundaries and mishandling of customer funds) or the charges against Binance brought by the US Securities and Exchange Commission (SEC) (alleging amongst other things a web of deception, conflicts of interest, and lack of disclosure) demonstrate the need to instil “old fashioned” banking/financial principles in the crypto industry. However, notwithstanding MiCA, the crypto industry will be subject to ever increasing scrutiny with Fabio Panetta further noting that “regulators should refrain from implying that regulation can transform crypto-assets into safe assets” and “despite the EU taking the lead in establishing a comprehensive framework regulating crypto activities, further steps are necessary. All activities related to the crypto industry should be regulated, including decentralised finance activities like crypto-asset lending or non-custodial wallet services”.

Regardless of the previous lack of regulatory clarity. MiCA is ground-breaking for the crypto industry. It’s introduction of a harmonised EU authorisation regime for crypto-assets whilst implementing a formalised “financial services” EU regulatory framework, makes the EU one of the largest crypto-regulated areas in the world. MiCA has introduced introduced requirements around authorisation, governance, minimum capital, conduct, consumer protection as well as regulatory sanctions for breaches. We believe that MiCA can provide the bedrock in the EU for the regulation of crypto-assets and mitigate risks of further market disruptions of the type referred to above, becoming a reality and the requirements imposed by MiCA should provide confidence, certainty and a better level of protection for investors.

Based on our experience of advising crypto-asset service providers on the regulatory minefield (in the absence of any regulatory framework, other than VASP) and the volume of enquiries we receive from consumers and investors that have fallen foul of crypto related investments, MiCA is certainly welcome to establish a uniform standard within the EU and promote the rigour and governance necessary required to allow the sector to flourish.

Publication of our MiCA briefing coincides with the launch by the Department of Finance consultation on aspects of the implementation of MiCA related to:

• limited exceptions to publishing inside information;
• application of administrative penalties;
• shortening the transition period; and
• adopting a simplified application procedure for applications made before June 2026.

To read our full analysis, please click here. 

For further information in relation to this article please contact Simon O’ Neill and Andrew Tzialli.