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MiCA: The New Crypto Regulatory Framework in the European Union and Its Implications for Malta

The European Union (EU) has recently released the Markets in Crypto-Assets (MiCA) framework, which sets out regulations for crypto assets and services within the EU. The regulation aims to establish a harmonized regulatory framework, promote transparency, good governance, and consumer protection in the market. This article will discuss the significance of MiCA, its implications for the crypto industry, and its impact on Malta, which has already established a crypto regulatory framework.

MiCA was introduced in 2020 by the European Commission as part of the digital finance package. The regulation was approved by the European Council in 2022, and it is an important development for the crypto industry. With the recent FTX drama, the need for regulation in this space has become even more apparent. MiCA aims to establish a harmonized crypto regulatory framework at the EU level and will be the first pan-national instrument worldwide that will lay down a regulatory framework for crypto assets issuers and crypto assets service providers as well as certain types of crypto assets in general. Furthermore, MiCA will apply directly across the EU, replacing the existing domestic laws and harmonizing all national legislations in the area of crypto assets and related activities.

Implications of MiCA Framework

Once MiCA enters into force, it will establish a uniform regulatory framework for crypto assets and related services across the EU, providing greater legal certainty and consistency for market participants and consumers, and making it easier for crypto asset service providers to operate across the EU. However, the framework does not cover all assets, such as non-fungible tokens (NFTs), and experts argue that additional legislation is needed to cover these additional pieces of the crypto ecosystem that aren’t covered by MiCA or other existing regulation.

The introduction of MiCA is expected to create better compliance practices for crypto providers, particularly in terms of primary market activities and proper access to secondary market activities. It aims to promote transparency, good governance, consumer protection, and implement measures to prevent market abuse and financial crimes. This should lead to greater trust in the crypto market and attract more institutional investors.

With the implementation of MiCA, there will likely be a shift in the crypto market. Existing crypto asset service providers (CASPs) will need to become formally authorized and licensed, adhering to specific rules on governance, capital requirements, and transparency requirements. Those entities already providing crypto assets services will need to perform a thorough assessment on their activities and regulatory status in order to start preparing the documentation needed to apply for the authorization. 2022 was an interesting year for crypto markets, with several high-profile collapses and the rubber stamping of MiCA requirements putting pressure on CASPs to become more aware of the need for regulation and compliance standards. This pressure has forced companies to prepare themselves for a more regulated environment, in which regulatory compliance is the key weapon to attract new customers and ensure that their business is sustainable.

Impact of MICA on Malta

Malta was one of the first countries to establish a crypto regulatory framework back in 2018, namely, the Virtual Financial Assets (VFA) framework. This framework is based on the EU Markets in Financial Instruments Directive (MiFID) and regulates initial VFA offerings as well as outlines license requirements for VFA service providers. The Maltese VFA framework and EU MiCA framework are considerably similar, as both frameworks have been based on the Markets in Financial Instruments Directive (MiFID). Both frameworks outline similar crypto-related services which trigger a licensing requirement, including rules and obligations required to be satisfied by the service providers.

When an EU Member State has already established a bespoke licensing regime for crypto-assets service providers, MiCA mentions that regulators will apply a simplified authorization process. The Malta Financial Services Authority (MFSA) has already announced that they have started identifying and analyzing the differences between MiCA and the VFA framework to align the latter as much as possible MiCA implementation will ensure that Malta remains at the forefront of the crypto industry and maintains its competitive edge.

Conclusion

The EU’s MiCA framework is an important development for the crypto industry as it establishes a harmonized regulatory framework at the EU level, promoting transparency, good governance, and consumer protection in the market. The framework will impact existing crypto asset service providers, creating a shift in the market and requiring them to become formally authorized and licensed. It will also impact Malta, which has already established a crypto regulatory framework, but is in the process of aligning its framework with MiCA.

The implementation of MiCA is expected to create better compliance practices and promote trust in the crypto market, attracting more institutional investors. Compliance will play a crucial role in the crypto industry, and companies that adopt a compliance-first approach will be better positioned to attract new customers and ensure their business is sustainable.

As the EU’s MiCA framework is set to come into force in the near future, it is essential for crypto asset service providers to start preparing for the changes that will come with it. By doing so, they will be better positioned to thrive in the evolving regulatory landscape and contribute to the growth and development of the crypto industry.

Need assistance with your cryptocurrency-related business? Contact Malta Business Agency and you will be contacted by experienced industry professionals for an initial consultation. Fill in and submit the contact form.

DISCLAIMER

This article provides general information only and does not replace professional advice in any way. It is recommended to consult a qualified professional before making any important decisions regarding financial, legal or other matters. The author and the publication are not responsible for any errors or damages caused by the use of the information contained in this article.

Sergio Passariello
Sergio Passariello
Founder of the "Malta Business" network, a consulting, development and business organization network in Malta. CEO of Euromed International Trade which deals with business internationalization and commercial development. CEO of the Mediterranean Academy of Culture, Technology and Commerce, MFHEA licensed higher education institution. Founder of the CETA BUSINESS FORUM and the CETA BUSINESS NETWORK, the first digital entrepreneurial ecosystem to enhance the relationship between Europe and Canada.
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