EU’s MiCA Framework Could Help Crypto Firms Get Banked

The EU Parliament’s passage of the Markets in Crypto Assets (MiCA) regulation is set to open up more banking services to crypto firms, according to industry participants, as many banks that strayed from the space are likely to be more willing to deal with licensed entities. 

But questions remain about implementation specifics and the crypto sub-sectors that are not covered by the landmark legislation. 

Under MiCA, crypto asset services providers (CASPs) that seek to serve EU clients must gain licenses from national authorities.

The previous lack of regulatory clarity around crypto had caused many banks to avoid dealing with such firms, leaving many in the sector unbanked, according to Simon Ousager, co-CEO of fintech startup Januar.

Januar received a payment institution license from the Danish Financial Supervisory Authority (DFSA) this week, allowing it to onboard clients across Europe.

Bruno Sousa, head of crypto asset manager Hashdex’s US and Europe businesses, said that crypto firms have historically sought out the few progressive banks and fintech companies willing to offer them services. Events over the last year have led to even fewer banking partners for such companies, he added. 

The so-called crypto winter after crypto prices peaked in late 2021 was amplified by the collapse of crypto exchange FTX last November. Struggles endured by Silvergate Bank and Signature Bank earlier this year also whittled down the number of such institutions crypto firms could turn to.

European crypto companies have predominantly relied on British, Swiss and Baltic banks, as well as electronic money institutions (EMIs) for banking needs, Ousager said. Now, with MiCA’s passage, he noted, questionable entities that may not qualify for a license should be eliminated from the landscape.  

“This positive shift should lead to a more transparent and secure industry, encouraging banks to reconsider their perception and become more receptive to offering accounts to licensed crypto businesses,” Ousager said.

Joey Garcia, head of public affairs at Gibraltar-based Xapo Bank, agreed, noting that developing trust in the industry is crucial for its growth.

“I would expect banks [to be] able to take a much more proactive position on providing services to businesses that they understand are operating to a certain standard,” Garcia told Blockworks. “And I would expect MiCA to be a relevant part of that exercise.”

MiCA’s significance

MiCA is set to bring crypto businesses — currently operating under what Garcia called “a relatively simple” registration system focused on compliance and anti-money laundering — to a new standard of financial services regulation. 

CASPs will be subject to additional governance and liquidity requirements, for example. 

“In the development of standards for the regulation of the underlying crypto service provider, the EU has raised the bar, and done this under a single European framework that obviously permits the business and activity of the business to be passported…around the entire EU,” Garcia explained. 

Sousa also labeled the legislation’s white paper requirement — forcing those issuing or offering crypto assets to disclose relevant information and risks about the tokens — among its most significant measures.

Another, he said, is that stablecoins issuers are to be authorized by the Central Bank and forced to hold sufficient reserves. 

Following the EU’s Thursday approval of MiCA — 517 for and 38 against — a formal vote to finalize the MiCA regulation is set for May 16. The regulations are expected to become applicable 12 months to 18 months after that, Sousa said.  

A divergence from the US’s “regulation by enforcement” 

The EU’s measures differ from the US approach, Ousager said, as the SEC and other regulators have sought to regulate Coinbase, the Tron network, and others by enforcement. 

The more predictable regulatory environment in the EU might make it difficult for crypto businesses in the US to operate and raise capital, the Januar executive added. 

“We are already starting to see some of the big US crypto companies opening offices in the EU,” Ousager said. “Consumer protection is also a big part of MiCA, so we could see consumers opt out of island-based crypto service providers…in favor of MiCA-licensed service providers.”

Mark Foster, an EU policy analyst at the Crypto Council for Innovation, said in a statement that MiCA’s regulatory clarity “could draw many companies away from the US, bringing new jobs and investment to the region.”

Crypto exchange Bittrex revealed last month it would shut down its US operations, citing “regulatory uncertainty” in the country. The company, which was subsequently hit with SEC charges, said it would continue to operate in Bermuda and Liechtenstein.

Questions around MiCA remain

Blockchain data platform Chainalysis said in a Thursday blog post that the European Banking Authority (EBA) and the European Securities and Markets Authority will be responsible for finalizing certain guidelines before MiCA is implemented. 

The EBA is tasked with offering more details on how stablecoins will operate, for example. 

How exactly European officials will interpret the regulations or deal with the influx of license applications remains to be seen, Garcia noted.

“There will be questions about whether authorities have the experience and capacity needed to effectively monitor and regulate businesses and assess them as they would any other regulated platform,” he added. “It is also very possible that this process will slow licensing procedures in Europe.”  

In addition, MiCA does not offer regulatory clarity for NFTs and DeFi. 

“The [EU’s] wait-and-see approach with DeFi and NFTs shows a thoughtful pause to further analyze and learn more about what these innovations can do,” Foster said.

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