What to know:
- National regulators will find it very difficult to manage crypto asset provider applications under existing time constraints, several crypto industry trade bodies said in a letter to ESMA last month.
- MiCA’s year-end deadline will be considered at a Dec. 11 ESMA meeting, and “guidance” on timing may be forthcoming, a person familiar with the matter said.
As an analyst with over two decades of experience in financial regulation across multiple jurisdictions, I find myself increasingly concerned about the European Union’s MiCA implementation timeline. The fact that almost a quarter of EU countries are yet to align their laws with this wide-ranging crypto regulatory regime is troubling. It’s not just about meeting deadlines; it’s about ensuring a consistent and robust regulatory framework across the bloc.
Approaching the end of the year, it appears that the European Union’s extensive regulatory framework for cryptocurrency businesses, known as Markets in Crypto Assets (MiCA), is set to be implemented. However, with only three weeks remaining, nearly a quarter of the 27 member states within the EU are yet to prepare.
To ensure that the regulation takes effect within their respective countries, members of the EU need to adjust their local laws in accordance with MiCA. As per a report compiled by the Electronic Money Association (a professional association), these adjustments have not yet been made in Belgium, Italy, Poland, Portugal, Luxembourg, and Romania. This information was shared with CoinDesk.
Cryptocurrency trade groups contend that regulatory bodies like the European Commission and ESMA are underestimating the unpreparedness within the crypto industry by insisting on the original deadline for regulations at the end of the year, despite various countries falling short of meeting it.
According to Robert Kopitsch, who is the co-founder of Blockchain for Europe, a group based in Brussels with representatives from Coinbase, Binance, Ripple, and Ava Labs on its board, the process of integrating MiCA into national law isn’t progressing as expected.
Two-stage process
Last year, the enactment of MiCA was split into two stages. In the initial phase, which took place in June, stablecoin issuers were required to verify that they held the necessary permissions to conduct business within the country.
The matter pertaining to the second deadline is regarding crypto asset service providers (CASPs), which encompasses exchanges, wallet providers, and custodians. To legally operate within the European Union’s trading bloc, these companies must be registered in at least one EU country and obtain a license under MiCA, a regulatory framework that allows them to conduct business across the union.
Based on reports from various crypto industry groups, a challenge for some national regulators, often referred to as National Competent Authorities (NCAs), is the tight timeline between the deadline and October, when specific regulatory technical standards were set in stone. This means they only had two months to manage the paperwork and complexity that followed.
As a researcher, I find myself expressing that under the current time constraints, it would be challenging for the designated National Competent Authority (NCA) to handle the CASP application appropriately. Proper management of this application is paramount as it serves as the foundation for instituting effective supervision built upon a robust regulatory relationship. This statement was included in a letter sent to ESMA recently, and I had the honor of signing it alongside Blockchain for Europe, the European Crypto Initiative, the Electronic Money Association, and the International Association for Trusted Blockchain Applications.
The trade organizations asked for a six-month “temporary halt” in enforcing actions. Essentially, they wanted a pause in penalties to prevent unauthorized firms from being penalized while they are still in the process of obtaining authorization and continuing their operations.
To date, ESMA has turned down the request, but they will discuss the MiCA deadline during their meeting on December 11. Although postponing enforcement isn’t ideal, it seems that ESMA might be preparing to provide “insights” regarding the timeline, based on information from a reliable source. ESMA declined to provide a comment.
Due to the unavoidable buildup of registrations, certain companies might have to temporarily stop their cryptocurrency activities, as suggested by Blockchain for Europe’s Kopitsch.
If you haven’t obtained a license by a specific deadline, essentially, you must halt your operations within the European Union. This is not beneficial for businesses as it could lead to dissatisfaction among users, and it may reflect poorly on the EU.
Kopitsch pointed out that Ireland, Portugal, Poland, and Spain are finding it challenging to meet the deadline. Additionally, three unnamed sources added Italy, Malta, Cyprus, Lithuania, and Belgium to the list of countries experiencing similar difficulties.
Legislation takes time
Although Germany is known for having progressive regulations regarding cryptocurrencies, it was identified by the Electronic Money Association as facing challenges. The root cause of these difficulties lies in the fact that Germany’s current cryptocurrency framework requires new legislation to comply with MiCA standards, a process that may take some time to complete. Similarly, Malta’s crypto regulations need to be adjusted to align with MiCA, as stated by the EMA.
In a recent interview, Helmut Bauer, a consultant from the Electronic Money Association, explained that this issue involves both political and legislative procedures. He mentioned that there have reportedly been complications in Germany which have slowed down the process. However, BaFIN appears to be keeping pace with these developments, but they are waiting for the necessary legislation to move forward.
Under a framework modeled after the MiFID regulations, the German financial regulatory body, BaFin, permits banks to securely hold cryptocurrency assets.
National regulators pinpointed the legislative process as the main obstacle in execution, implicitly criticizing their respective governments for delays.
As an analyst, I’m sharing that I’ve learned from my research that here in Poland, it’s the Ministry of Finance that’s leading the charge and holding the responsibility for ensuring we meet our deadlines, under the guidance of the Financial Supervision Authority (KNF).
In an email statement, a representative from the KNF (Polish Financial Supervision Authority) shared that the blueprint for the Polish law governing the crypto market received approval for being in line with EU regulations. The bill is now under review by the European Affairs Committee. It’s understood that the act should be finalized this year, but the KNF does not have control over the legislative timeline… As it stands, Poland isn’t alone, as other EU member states are also still working on their respective national crypto-related laws, and they share similar challenges.
In an email, the Portuguese Securities Market Commission explained that the legislation to fulfill responsibilities from the European MiCA Regulation, along with determining the authority split between the CMVM and the Bank of Portugal, is being handled by the Portuguese government and is now being reviewed by them.
In an email communication, a representative from Belgium’s FSMA stated that since the determination of the responsible authorities for MiCA has yet to be made as a political decision, they are unable to provide answers to your queries at this time.
Regarding the Central Bank of Ireland, they actively welcome early interaction from potential applicants and are currently involved in a pre-application dialogue with several companies aiming for authorization under MiCA.
According to an email from a central bank representative, whether a company moves forward in the CASP application process depends largely on its specific characteristics such as size, complexity, and readiness. In other words, firms that are well-prepared and open about their dealings throughout the authorization process tend to progress more quickly.
In simpler terms, the representative from Italy’s financial regulator, known as CONSOB, suggested that you direct your query to ESMA instead of CONSOB, since ESMA handles such matters in a more appropriate capacity as a European-level authority.
Germany, Spain, Malta, Cyprus, Lithuania, Luxembourg and Romania did not reply by press time.
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2024-12-10 11:34