In June 2023, the Markets in Crypto-Assets Regulation (MiCA) was passed into law, establishing a unified regulatory framework for twenty-seven countries within the European Union. This significant legislation covers almost one fifth of the global economy, marking a crucial milestone. However, MiCA signifies only the initial stage of a twelve to eighteen-month long journey involving adaptation and fine-tuning. The European Securities and Markets Authorities highlighted that MiCA incorporates a “substantial number” of Level 2 and Level 3 measures, which still require development and implementation.

In 2024, the European Union will begin implementing MiCA (Markets in Crypto-Assets) regulation. After this, there will be partnerships and adaptations aimed at increasing MiCA’s influence globally. European financial institutions will also look for skilled sub-custodians to collaborate with.

Spot Bitcoin ETF approvals are imminent across Europe

In the long run, it would be more convenient for there to be a single regulatory framework for cryptocurrency exchanges and related businesses across all EU member states. However, despite this unified approach becoming effective in 2024, individual countries will retain distinct features that need to be addressed. For instance, if a firm is authorized to provide crypto services in Germany but intends to conduct transactions in France, it would still need to comply with France’s specific Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.

In the coming year, governments worldwide will be engrossed in negotiating the finer points and drafting extensive documentation for the implementation of MiCA regulations. There’s no precedent for these comprehensive crypto laws, so everyone involved must adapt to the new procedures as they emerge. Companies that take a proactive approach in 2024 are more likely to navigate these changes smoothly and eventually reap the rewards offered by MiCA.

It’s anticipated that European regulatory bodies will allow institutional investors to buy and trade Bitcoin ETFs by around 2024. After a rigorous review process, these products may later become accessible to individual investors as well.

In a rising Bitcoin market, the chances of spot Bitcoin ETF proposals being approved and launched become greater. The increased trading activity fuels a sense of urgency to invest in financial products related to Bitcoin. Subsequently, integrating new Bitcoin-based financial instruments into the current market becomes an easier process for this tech-savvy generation.

Once the MiCA regulations are enforced and functioning properly, it’s expected that there will be adjustments to expand access to financial opportunities for a larger number of individuals. One potential way this could manifest is through bilateral agreements between smaller regions and the EU. For instance, banks in Switzerland, which don’t have EU branches, could enter into such an agreement post-MiCA implementation to gain advantages they previously couldn’t access on their own.

International standards for AML/CFT will become the norm

Europe raises the global standard for rules against money laundering and terrorism financing with MiCA adoption. International bodies like IOSCO have established guidelines that can be useful. As cryptocurrency regulations emerge in different countries and regions, there’s a trend towards common approaches, such as treating similar activities with equal risk and regulation. It would be beneficial for regulators to learn from each other and build on existing work instead of starting from scratch every time.

In simple terms, it’s unlikely that there will be a single set of international regulations for cryptocurrencies due to economic differences between regions. Some areas may prioritize open regulations to attract business, while others focus more on risk management. Regardless, clear rules and guidelines from each region are essential for crypto businesses to thrive and expand.

MiCA and custodial needs

Under MiCA’s implementation, EU banks and registered asset managers have an accessible pathway to acquire crypto custody licenses. However, not all financial institutions might be inclined to assume this new duty, which involves acquiring the necessary technology and developing the required expertise. Consequently, they may opt for the services of a sub-custodian to manage their digital assets, thus creating a clearer divide in functions and funds.

Banks prefer working with experienced custodians who have demonstrated strong capabilities in handling market fluctuations, ensuring the protection of digital assets. By selecting a custodian that doesn’t manage its own exchange, financial institutions can achieve a clear separation of duties for improved security and accuracy.

Deciding on a sub-custodian approach is among the various choices that must be made by main influencers as they work towards implementing MiCA and its potential partnerships and adjustments.

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2024-04-21 13:40