The European Union recently put together its “Markets in the Crypto-Assets (MiCA)”, which is seen as the first comprehensive piece of legislation that attempts to regulate the crypto space.
In truth, just like the EU’s “General Data Protection Regulation (GDPR)”, MiCA could become the “go-to” reference point for everyone else due to the many complexities and technicalities that have birthed the new industry.
So, we reached out across the seas to Swiss-based Ilya Volkov, founder and CEO at YouHodler (where else but Switzerland!) to provide us with insights into MiCA and a bit more.
Here are his thoughts.
Ilya Volkov—CEO and Co-Founder of YouHodler
- Can you tell us a bit about the new Markets in the Crypto-Assets (MiCA) regime?
MiCA is tasked with adding something the crypto market has been missing since day one – harmony. By that, I mean there has never been a harmonized framework for the trading, issuance, or service providers of digital assets in the European Union. MiCA will now provide a clear and comprehensive framework that will result in greater legal certainty and investor protection.
Main purposes of the regulation:
- A visible framework for companies providing crypto services or issuing tokens
- Ensuring fair access to the market and
- Guarantee confidence and adequate information to clients to interact on crypto-asset
Main benefits of the regulation:
Full access to the EU market
Harmonized rules and framework
Aggregated funds requirements
- How will the Transfer of Funds regulation affect crypto compliance?
It will impose new compliance requirements on crypto service providers. For example, customer due diligence, transaction monitoring, and reporting suspicious activities. Robust compliance programs will need to be implemented to ensure service providers adhere to the new ToF regulations (TFR). If not, they risk losing credibility, reputation, and most importantly, the ability to operate.
Purpose of the TFR: it requires companies transacting with crypto assets on behalf of their clients to collect, store and exchange information on the originator and beneficiary involved in the transaction (in the EU, it is an implementation of the already existing Travel Rule).
Scope of the regulation:
- For hosted wallets:
- CASP (Crypto Asset Services Provider) transactions, whether in fiat or crypto
- Involving a traditional wire or a crypto transfer between a CASP and any other regulated entity
- Record the name, address, date of birth and account number, as well as the name of the intended recipient of the transfer (etc.)
- No threshold => first Euro
For non-hosted (cold) wallets, the previous threshold is maintained at 1,000 Euros.
P2P transactions are out of scope unless a CASP is involved
Related:The Challenges of Regulating the Cryptocurrency Market
- How will the new licensing regime affect crypto operators across the EU bloc?
Crypto operators will need to get a license from their local financial regulator to provide crypto services. Sure, it will increase the compliance stress and costs for service providers but it’s the only way to help develop a harmonized framework for crypto assets in the EU.
- How will MiCA affect stablecoin issuance and regulation?
The MiCA regime classifies stablecoins as “asset-reference tokens.” This means they are subject to strict regulatory requirements like mandatory authorization and ongoing supervisor obligations.
- What do you think will be the impact of the new rules?
There will be more costs for crypto service providers, but this will result in more investor protection. It will also provide a clear rule book for FinTech companies building new services.
- When will the rules go into effect?
MiCA is expected to enter into force on 1st June 2023, depending on when it is published in the Official Journal. After the transition periods within the regulation, it is expected to be fully applicable at the end of 2024.
- How did negotiations occur?
It all started in 2019 when the European Commission presented its first MiCA proposal. Since then, stakeholders such as EU member states, the European Parliament and other industry representatives have worked hard to draft the proposal.
- How will this affect the EU’s role in the crypto industry?
MiCA will surely enhance the EU’s position as a global leader in regulating crypto-assets. By taking on this leadership role, the EU can promote the development of a sustainable and responsible crypto framework for other countries to follow.
- What is the effect of the legislation on the European Securities and Markets Authority (ESMA) and the role it plays in defining how the crypto space will run going forward?
It will have a big effect. ESMA will be responsible for supervising crypto service providers and stablecoins to ensure they consistently adhere to the MiCA regulations. This will increase ESMA’s workload requiring additional resources and expertise.
- Will the new regulations increase or decrease the level of trust in the crypto industry?
It will certainly increase the level of trust in the crypto industry. These new regulations will weed out the bad actors leading to a decrease in negative events in the industry. It will also promote trustworthy service providers and help them rise to the top.
- What is the significance of the EU becoming the first major jurisdiction to introduce a comprehensive crypto law?
It’s unique because typically, everyone looks to the U.S. when it comes to comprehensive financial law or even the great financial powers of Asia. But with the EU making the big steps, it solidifies the region as an international leader in finance and especially in crypto/Web3.
- Will the new regulations affect individual investors or just crypto operators?
It will affect both. Investors will be safer and crypto operators will have to spend more money to adhere to regulation. However, crypto operators will benefit from an increase in quality, trustworthy investors using their services.
- Will the new regulations apply to all EU member states?
- What is the objective of introducing the new regulations?
Creating a harmonized framework for the trading, issuance or custody of digital assets in the European Union.
- How will the new regulations impact money laundering?
The goal is to eliminate money laundering with these new regulations.
Related: What are the Best Compliance Practices for the Crypto Space? (Round Table Interview)
- Will MiCA make it easier or harder for crypto operators to do business?
Of course, there will be an adjustment period. At first, it will be a challenge for crypto operators to adjust to the new regulations but over time, it will become natural and it will be easier to do business in the EU now that a clear set of rules is in place.
- What is the potential impact of the new regulations on token values, market liquidity, and volatility?
I think volatility will decrease and we will see some tokens associated with “bad actors” disappear entirely. However, I think market liquidity will increase as trust in the market will bring in a new generation of crypto investors. The result will be a more mature, higher-quality and more stable market.
- How has YouHodler fared with the recent regulatory crackdowns and pressure?
This is nothing new to us. Since day one, YouHodler has complied with regulations wherever we operate. We are prepared for the new framework to come into place and looking forward to a safer and healthier industry.
- What are your plans for crypto summer?
We will continue to innovate as we always do in crypto summer, winter, spring or autumn. We are a client-driven platform. Regardless of market conditions, we adjust so our clients have opportunities to benefit. We keep building Web3 Banking solutions with a combination of both: crypto and fiat.
- Do you have any price predictions for the summer?
I think we will continue to see volatility but in general, I think the market is in recovery and investors will continue accumulating crypto.
- What will be the greatest challenge for MiCA’s implementation?
I think the greatest challenge is finding a balance between innovation and investor protection. We need an industry free enough for crypto service providers to be innovative with minimal restrictions. However, we also need the safety of investors too. It will be hard to find that balance and regulate effectively with the speed of technological innovation.
- How can MiCA become standard regulation for governments that don’t have any direct technical knowledge in anything crypto and blockchain?
MiCA is designed in such a way that it’s tech neutral and flexible. This means it can act as a template to be easily adapted to different countries with different contexts. The European Commission has already started to develop technical guidance and best practices to help other national regulators apply MiCA effectively.