When the European Union (EU) introduced the Markets in Crypto-Assets (MiCA) regulation, it achieved a world-first. While regulation
of the cryptocurrency space has been discussed for a number of years and is widely viewed as an essential step to combat fraud and a preponderance of bad actors, no other territory has yet taken any firm action. But while the concept of regulation is being
welcomed, MiCA is not. Receiving considerable criticism from all sectors of the industry, MiCA may be the first attempt at crypto regulation, but it’s unlikely to become the industry benchmark. And that brings potential for the UK in a couple of different
ways.
Why has MiCA attracted such criticism?
Although the MiCA regulations ostensibly came
into force on June 29, 2023, it was a phased introduction. This meant that some elements, such as provisions on asset-referenced tokens were not introduced until June 30, 2024, and others related
to crypto-asset service providers (CASPs) were delayed until December 2024, so it’s only now that crypto businesses are really getting to grips with the reality of the regulations. And there have been five significant areas of concern voiced by critics within
the sector.
The first is MiCA’s approach to
stablecoins – in that it doesn’t have one. Despite the fact that stablecoins are broadly viewed as among
the most volatile crypto assets, they are not covered by the MiCA regulations. When unstable, stablecoins hold the potential to seriously damage both the crypto markets and the wider financial system. MiCA’s failure to address this leaves many people asking
whether there is any point in the wider crypto regulation in the EU. This is something that could perhaps have been addressed earlier, if there had been more clarity and transparency surrounding the formation of the regulations. And that leads on to another
concern – MiCA’s regulatory technical standards (RTS), which weren’t published until more than 18 months
after the bill’s introduction. This delay caused significant uncertainty and confusion within the sector throughout the introduction of the regulation, leaving businesses and investors unable to prepare for the changes.
Another area that has caused concern is
industry development. The crypto space has always been known for its pioneering and innovative approach.
This has led to the creation of blockchain technology, tokenised assets, and decentralised finance, among other things. All of which have helped the sector to grow while influencing both the wider financial and technological markets. It’s perhaps not surprising,
then that there is genuine fear that MiCA’s high-level requirements will smother the innovation that feeds the sector. It is already pricing the smaller and emerging businesses out of the market. And as startups are generally viewed as being at the forefront
of innovation, this could lead to stagnation within the crypto industry, which will impact the wider financial ecosystem.
On the flipside of that comes the concern that MiCA’s focus has been too narrow, and that while it may prevent or slow innovation now,
it leaves plenty of loopholes for future bad actors to creep in. This leaves the regulation entirely open to
future abuse.
Lastly, there’s concern that
consumers will foot the bill. Every new regulation brings in fees, fines, and compliance costs. And when
that happens, someone has to pay. Nine times out of ten, that someone ends up being the consumer. While these fees will be passed on indirectly, there’s a strong chance that they will eventually deter both new and existing investors, sending them away to invest
in overseas markets – like the UK.
How could the UK benefit from MiCA?
EU crypto investors are already looking for alternative places to put their money. Although the UK has always been a small player in
the cryptocurrency ecosystem, this could mean significant potential. My business, for example, is based in the UK, but because we have the ability to passport the license in other EU member states, we’ve been able to attract customers from other territories.
Since the introduction of MiCA, the number of investors we work with in the EU has grown significantly. And other businesses can do the same.
Right now, there are only around
40 registered crypto businesses
in the UK, compared to more than 2,000 in the EU, and 4,852 in America. But the UK is the EU’s nearest neighbour. There’s a lot going on in America, making investors wary. Comparably, the UK looks like a safe pair of hands for EU crypto investors unwilling
to invest in their home territories during a time of uncertainty. This could be an incredible opportunity for the UK to grow its crypto industry and enhance its global standing within the space.
But then there’s also the question of UK regulation.
How could the UK learn from MiCA?
While the EU was the first territory to introduce crypto regulation, it won’t be long before others follow. In the UK, the Financial
Conduct Authority (FCA) is already in the process of developing a comprehensive regulatory framework for cryptoassets, with an eye on 2026 implementation. MiCA couldn’t provide a better learning tool. It hasn’t got everything wrong. But if the FCA is clever
about it, it can take MiCA’s model, and address all of the issues that are causing concern, creating a gold-standard regulation that could set the UK apart.
The introduction of regulations within the cryptocurrency space was never going to be easy. Detractors were always going to be vocal,
particularly when one territory stands out on its own. But while the EU has to be applauded for sticking its neck out and going first, it has also got many things wrong. For the UK, that means opportunity. We just have to be willing to take it.
