MiCA: A critical juncture in the EU-UK crypto race
A cemented EU position on crypto
Last week, the EU Parliament voted overwhelmingly in favour on the final wording of the Markets in Crypto Assets Bill (MiCA), with 517 supportive votes to a mere 38 against. Initially touted by the European Commission in 2020, the new legislation represents a global first in comprehensive measures aimed at regulating the cryptocurrency sector.
Primarily, the Bill impose a range of requirements on crypto providers, traders and token issuers in an attempt to reduce the risk associated with purchasing and exchanging digital tokens. This includes introducing new obligations around alerting potential investors to the risks associated with their services and entering into written agreements with clients. The majority of MiCA provisions will apply in just over twelve months’ time to provide industry with sufficient breathing room to adapt and demonstrate compliance. At that point, crypto platforms, traders and token issuers will face a series of fresh transparency, supervision of transactions, authorisations and disclosure requirements.
Under the Bill, the European Securities and Markets Authority (ESMA) will receive powers to intervene or prohibit the continued activity of crypto providers if there is evidence to suggest they are not protecting investors, or that they are posing a threat to financial stability and market integrity. We can expect ESMA to publish secondary legislation that stems from MiCA in due course.
In the same week, European lawmakers also voted in favour of the Transfer of Funds regulation, which will introduce fresh stipulations on crypto providers to demonstrate customer identification in an attempt to pull the plug on money laundering.
The view from the UK
But what do latest developments mean for UK audiences? In the wake of the approval of MiCA, crypto players currently operating in the EU have been awarded greater levels of clarity by the European Parliament as to the shape that regulation will take moving forwards. The US and UK now find themselves playing catch up, as incoming EU regulations provide transparency and credibility to the sector at a time when it needs it most. The sector has been quick to welcome such clarity, with Ian Taylor, Chief Executive of CryptoUK, suggesting that MiCA “puts significant jurisdictional pressure” on the US and Britain to pass their own frameworks.
Despite legislation currently going through the UK Parliament to regulate the sector, namely via the Financial Services and Markets Bill (FSMB), the signing of legislation at the EU level has cast doubt over the ability of UK policymakers to lead from the front, calling the UK’s long-heralded place on the global crypto stage into question. Indeed, former UK Chancellor of the Exchequer, Philip Hammond, has cautioned that the latest step taken by the EU to bring in a robust regulatory framework for cryptocurrency could eclipse UK efforts to become a ‘global crypto hub’.
Historically, the UK Government has been keen to use the financial services sector to demonstrate post-Brexit dividends, heralding its newfound freedoms as a major win for industry and indeed the UK economy. Against that backdrop, the EU’s new offer of a more attractive environment for financial services firms to operate, grounded in an understanding of the specific regulations to expect, will be a particularly painful blow to the UK Government.
While industry voices have praised the EU for striking the right balance between freedom and restriction under the new package of measures, on the face of it, the significance of developments in the EU have not infiltrated the mainstream parliamentary or media debate, with no mention of MiCA in the past week by UK parliamentarians on Twitter and relatively limited coverage in the UK broadsheet papers. As the City Minister, Andrew Griffith MP, continues his heavy engagement programme with stakeholders on the issue and the FSMB prepares to enter its Report Stage in the House of Lords, UK policymakers working on crypto regulation appear to have met their match in their EU counterparts.
If you would like to understand more about the political and regulatory landscape in relation to crypto and the wider financial services sector, please contact Celia Clark at firstname.lastname@example.org