2) Resolving Cooperation Issues:
If a country’s regulatory authority refuses to cooperate or does not respond to information requests in a timely manner, other countries can report the issue to ESMA or EBA, and they will be responsible for coordinating the resolution. It’s like submitting a problem to Interpol and asking them to step in to coordinate and resolve it.
Eight, Effects of the Mica Bill:
Impact 1: Removal of Privacy Coins
Cryptocurrencies with built-in anonymity features (such as Monero, Zcash, and other “privacy coins”) will only be allowed to enter trading platforms if CASP or relevant regulatory authorities can identify token holders and their transaction history. Since this is practically impossible, it is expected that EU-regulated cryptocurrency exchanges will remove privacy coins from their products.
Impact 2: Easier Licensing for CASPs with European Licenses
CASP with licenses obtained under national frameworks will benefit from a streamlined MiCA authorization process and will have up to 18 months to obtain the final MiCA license. For example, regulated cryptocurrency custodians in Germany may benefit from these simplified procedures and transitional measures. However, only CASPs with MiCA licenses will have the opportunity to provide services throughout the entire European Union single market through the so-called cross-border authorization. This is why it is expected that most cryptocurrency companies will apply for MiCA authorization as soon as possible.
Impact 3: Unified European Market
The MiCA regulation will bring about unified regulation, enhance competitiveness, and promote institutional development. So far, if EU cryptocurrency companies wanted to serve the entire EU market, they had to apply to the regulatory authorities of each country, resulting in high costs and complexity. Under MiCA, the same binding EU requirements will apply to all 27 member states. Once a company obtains a MiCA license in one country, it will be able to provide licensed services throughout the entire EU single market through “cross-border authorization.”
Impact 4: Restrictions on Offshore Companies, Benefits for EU Companies
After MiCA comes into effect, offshore and unregulated companies will not be able to actively attract EU customers. Even if foreign companies can accept customers contacting them in the EU, the rules will become stricter. This means that MiCA-regulated cryptocurrency companies will grab more market share from these unregulated overseas competitors in the EU market.
Impact 5: MiCA Promotes Institutional Participation, European Banks Accelerate Layout
MiCA may lead to increased adoption and activity in the EU cryptocurrency market. According to Bloomberg data, only 4% of European institutional funds are exposed to cryptocurrency assets. Regulatory uncertainty is one of the main concerns preventing institutions from entering this field. It is expected that major European banks will launch cryptocurrency asset services in the next 48 months, whether it’s custody, trading, or issuing electronic currency tokens or asset reference tokens.
Impact 6: Impact of MiCA on Stablecoin Issuers
The new regulatory rules of MiCA will pose significant compliance challenges for stablecoin issuers, especially considering that Tether has not fully disclosed its reserve status and composition and has not undergone a comprehensive audit by an authoritative independent organization. Tether has also been involved in several lawsuits and investigations, including reaching a $18.5 million settlement with the New York State Attorney General’s Office and rumors of investigation by the US Department of Justice for alleged bank fraud, money laundering, and illegal operations. In the future, stablecoin issuers like Tether will face higher compliance costs.
To address these challenges, Tether should actively promote its compliance process, establish good cooperation with EU regulatory authorities and third-party audit organizations to improve its market reputation and competitiveness. Faced with increasingly stringent regulatory requirements, Tether has taken steps to advance its compliance process. For example, Tether recently announced that it would collaborate with the Italian branch of BDO International, the fifth largest global accounting firm, to audit the company’s reserve guarantee and verification reports and plans to change the frequency of the publication of audit reports from quarterly to monthly.
Under the MiCA framework, stablecoin issuance will become more compliant and transparent. Stablecoin issuers like Tether need to accelerate their compliance process to adapt to the new regulatory environment and maintain competitiveness in the EU market.
Impact 7: Impact of MiCA on DeFi
MiCA applies to enterprises – natural persons, legal persons, and “certain other enterprises.” “Other enterprises” may include entities that are not legally established, but the EU has clarified that decentralized DAOs and protocols are not the new targets of this legislation. Article 22 of MiCA clarifies, “If the cryptographic asset service is provided in a completely decentralized manner, without the need for any intermediaries, it should not fall within the scope of this regulation.” This core statement has been supported by multiple public statements from key officials of the European Commission and Parliament.
However, the devil is in the details. The bill proposes that even if some activities or services in a DeFi project are executed in a decentralized manner, MiCA may still apply. This means that if certain parts or aspects of a DeFi project are not completely decentralized, they may still need to comply with the relevant provisions of MiCA.
What degree of decentralization (technical, governance, legal, etc.) is needed to not fall within the scope? It is an ambiguous subjective judgment. I anticipate that some enforcement and litigation cases will revolve around this issue. The EU is generally reluctant to enforce its laws in other countries, but if some DeFi projects are nominally decentralized but in practice are centralized and provide services in the European region or to EU users, the EU will pay special attention.
If DeFi projects want to stay out of scope, they have two choices:
Prove complete decentralization (high threshold)
Block EU users
However, it is commendable that the EU has excluded truly decentralized DeFi projects when formulating regulations for traditional financial companies. If some aspects of MiCA could become global standards, it would be good news.
Impact 8: Challenges and Uncertainty
However, the actual success of MiCA largely depends on the implementation standards and enforcement practices that EU regulatory agencies will establish in the next 12-18 months. Some provisions may burden industry participants, and their full impact will only be seen once technical implementation standards provide practical operational guidelines.
Impact 9: High Compliance Costs and Hindered Innovation
Like the recent situation in Hong Kong, high compliance costs will drive companies away, and the compliance costs of MiCA will also lead stablecoin issuers to bypass the EU. The disclosure requirements and responsibilities faced by exchanges are too burdensome and do not benefit consumers, making their products less competitive compared to offshore competitors. EU consumers are either cut off from innovation or continue to use (and be exposed to) the largest offshore liquidity and utility pools. In addition, regulatory authorities may consider that most NFT and DeFi projects are actually within the scope of MiCA and need to comply – a door that is still open to interpretation in the current MiCA preamble. This will inevitably lead to teams and resources moving out of the EU.
Nine, Can the Mica Bill Become a Global Standard?
MiCA has the potential to become the GDPR of the cryptocurrency field, a regulatory standard widely adopted globally, but this has not yet been determined.
It is undeniable that MiCA will have a significant impact on its cryptocurrency framework in other jurisdictions, especially those with limited experience in financial regulation and supervision. Many concepts in the recent proposals by the Financial Stability Board (FSB) for cryptocurrency service providers and “global stablecoin arrangements” have been inspired by MiCA.
The EU market is the world’s largest internal market, with 450 million relatively affluent consumers. With its market size, MiCA will prompt many companies around the world to adopt MiCA’s operational standards and may even adapt them internationally to maintain global operations and product consistency. The global impact of EU regulatory standards has been observed in multiple industries, from chemicals to agriculture to technology, a phenomenon referred to as the “Brussels Effect” by Columbia Law School Professor Anu Bradford.
Current US Commodity Futures Trading Commission (CFTC) Commissioner Caroline Pham warned, “As the US struggles to provide regulatory clarity to its domestic cryptocurrency industry, global regulatory frameworks like MiCA may fill this void.”
With the ongoing regulatory vacuum in the US cryptocurrency market, the global influence of MiCA standards is expected to grow.
However, the actual success of MiCA is key, and most of the actual implementation work is still ahead. If MiCA proves feasible for the industry, consumers, and regulatory authorities, it will have a global impact. Otherwise, many jurisdictions may choose completely different policy paths. Only time and the market can tell us the answer.
Even the most staunch cryptocurrency extremists have to admit, especially after the complete collapse of FTX, that some form of reasonable regulation is needed to drive the industry forward and prevent the most serious fraudulent activities.
