MiCA: The Impacts on the EU Stablecoin Industry

The EU’s flagship cryptocurrency regulation, the Markets in Crypto Assets (MiCA) law is set to come into effect this week for stablecoins (broader MiCA regulations will be applicable from December 2024). 

Passed in April 2023, MiCA represents the world’s first comprehensive framework for regulating cryptocurrency platforms. The legislation aims to reduce risks for consumers buying crypto assets, placing liability on providers if investors lose their assets.

As such, MiCA will regulate transaction authorisation and supervision, compelling token issuers and traders to maintain transparency with consumers.

Additionally, the new legal framework will support market integrity by regulating public crypto asset offerings and including measures to prevent money laundering and terrorism financing.

Under MiCA, the European Securities and Markets Authority has also been asked to establish a public register for non-compliant crypto assets operating in the EU without authorisation.

Fireblocks: EU embarking on a regulatory ‘experiment’

With the EU’s new crypto regulation now upon us, we speak to Fireblocks’ Chief Legal and Compliance Officer, Jason Allegrante, who hopes that a more resilient and stable crypto market can emerge over time.

He says: “Like many other jurisdictions, Europe is embarking on an experiment to bring digital assets and crypto market participants within the regulatory perimeter for the first time. 

“There will be winners and losers as a result, but the ultimate hope is a more stable and resilient crypto market emerges over time. 

“While I would expect differences in how companies have approached the regulation, it would be hard to characterise the adoption as sudden or unforeseen, meaning those that planned early and aggressively worked towards compliance will emerge as the primary beneficiaries of the implementation.”

MiCA: Ambiguities remain

However, even for those crypto firms that have planned MiCA compliance rigorously, there still remains some ambiguity. 

As Jason tells us, MiCA is a broad guideline for regulatory compliance, but there remains accompanying, supplementary regulation that is yet to come into effect. 

“MiCA provides broad guardrails for businesses and while many will know at a high level what they need to do, there are some ambiguities making compliance more challenging,” he says.

“The regulations are not finished. ESMA and other European authorities are in the middle of the process of issuing technical standards and other second-order rules that should provide further clarification. 

“Additionally, there needs to be further regulatory clarity around certain topics and business models, like NFTs and smart contracts.”

Regulations ‘wrong’ for stablecoins? 

Indeed, many have warned that MiCA could lead to serious implications for stablecoins, particularly when it comes to localisation requirements. There are also expected to be tight limits imposed on non-EU crypto firms.  

Localisation requirements are much more challenging to adjust than prudential changes, including the requirement for stablecoin providers to hold 30% of fiscal reserves in bank accounts, split between different local banks. The figure is 60% for Electronic Money Tokens (EMTs). 

Jason says: “One area that the regulations currently get wrong is stablecoins. Creating standards for issuers and reserves is a good idea, as is closing the market to those issuers/instruments that do not meet minimum standards. 

“However, MiCA also introduces caps on the amount of stablecoin transactions that can occur within a set period. This will prove to be a major impediment to adoption and a disadvantage to EU-based stablecoins if left uncorrected in the next iteration of rules.”

This could come as a blow to many stablecoin providers, although, it must be said, that the true negative impact of MiCA on stablecoins may not be fully apparent or understood as of yet. 

Perhaps the next few weeks will tell us more, when MiCA comes into effect for stablecoins on June 30, 2024. 

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