In an expected but still major development, the European Union has gained its first rules to govern the cryptocurrency industry, with the approval of the Markets in Cryptoassets (MiCA) regulation.
The legislation is notable in that it’s the first attempt at supervising the nascent industry on a large scale. Mairead McGuinness, European Financial Services Commissioner, has said she expects the law to take effect in July after formal approval by the 27 member states of the union.
The legislation has been a long time in coming to this point—a three-year journey—and has been hailed by executives in the crypto space, who have long advocated for legislative clarity over clunky and contentious regulatory actions.
The development in the EU stands in stark contrast to what’s happening in the United States, where the Securities and Exchange Commission leadership has flatly declared digital assets securities that fall under the agency’s supervision. Chairman Gary Gensler was on Capitol Hill this week, sparring with Congress over what some lawmakers call overzealous rulemaking by the agency.
What MiCA Will Do
Once the new rules are established in the EU, they will require companies in the crypto space to become registered in one of the EU member states. Once that registration goes into effect, the company will be able to operate across the union. Rules will be in place to ensure adequate risk management and governance processes.
Certain requirements under the rules will be implemented gradually, according to a report from Bloomberg. For example, the rules regarding stablecoins will be implemented in July 2024.
“We are putting safeguards in place that would prevent companies active on the EU market from engaging in some of the practices that led certain cryptoasset operators to collapse,” McGuinness said while the rules were being debated in parliament.
What MiCa Won’t Do
Critics of the rules say they’re already outdated. The industry is still reeling from high-profile collapses last year, such as the FTX debacle.
The current rules don’t take in crypto lending, decentralized finance, and nonfungible tokens, all major components of last year’s failures.
Still, the presence of some large-scale governance is being widely welcomed—and is being urged on in places, like the United States, where the pace is well behind that of the EU.
Time to Move
Javelin Strategy & Research analyst Joel Hugentobler said the rules in the EU will be attractive to crypto companies, which could prove costly to jurisdictions that aren’t matching them.
“The U.S. is at risk for losing market share or even the global leader in innovation status by continuing the path they’re on,” Hugentobler said. “It would be better for U.S. regulators to implement an ‘OK’ piece of regulation soon than for them to continue to butt heads in disagreement to find a ‘perfect’ piece of regulation that takes much longer.
“If they don’t come out with some clarity and guidance for the industry soon, it won’t be a surprise to see a flood of businesses out of the United States to the EU.”