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The collapse of FTX and other crypto players during 2022 illustrated a high degree of interconnectedness, volatility and unsound business practices in crypto-asset markets. It also showed the need to have prudential, investor protection and market integrity requirements for crypto-asset service providers.
The EU reached a political agreement on its Markets in Crypto-Assets (MiCA) Regulation in June 2022 and is finalising the text. Beyond our borders, recent turmoil in crypto markets have reinforced calls for a global crypto rulebook. As European Commissioner Mairead McGuinness said at the World Economic Forum on 19 January, “there is no point in Europe being on its own, because this is a global development, and we can't put barriers on it”.
The EU is one of the first major jurisdictions worldwide to introduce a comprehensive regulatory framework for crypto assets. Most of these assets are currently unregulated, or in some instances subject to national rules.
MiCA will therefore bring the crypto-asset market under financial services regulation. The aim is to promote the soundness of the entire crypto-asset market by providing consumer and investor protection, setting the necessary organisational, operational and prudential requirements for crypto-asset service providers, and preventing market abuse. This will in turn limit the risks to consumers, market integrity and financial stability.
That being said, many crypto-assets will, even if regulated, remain speculative instruments and should be reserved for investors with a specific risk appetite. Consumers need to understand the risks involved in crypto-assets before they invest. The European Supervisory Authorities have issued several warnings in this regard. MiCA will ensure that this information is provided to all potential retail investors before they get involved with these sorts of assets.
MiCA, complemented by anti-money laundering rules in the Transfer of Funds Regulation, will provide a robust regulatory framework that will provide the necessary legal clarity upon which the market can further develop on a sounder footing. It will become fully applicable in the EU 18 months after it enters into force. But crypto-assets are global, and our approach should be global, too...
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