At the end of June 2022, the Council presidency and the European Parliament reached a provisional agreement on the markets in crypto-assets (MiCA) proposal, an important development which would create a regulatory framework for crypto-assets at EU level, which would protect investors, ensure market integrity and preserve financial stability.
NewsHub spoke to the Head of FinTech Supervision, Herman Ciappara, and analyst Samantha Cuyle to understand the implications of this new framework.
BACKGROUND
MiCA was put forward by the European Commission in September 2020 as part of the larger digital finance package, aimed at fostering technological development and safeguarding financial stability and consumer protection.
While ensuring that the current legal framework does not pose obstacles to the use of new digital financial instruments, it simultaneously ensures that these fall within the scope of financial regulation and the operational risk management arrangements of firms active in the EU.
The provisional agreement is subject to approval by the Council and the European Parliament before going through the formal adoption procedure. Once adopted, MiCA is intended to become applicable in two parts: the first part dealing with stablecoins will become applicable 12 months following its entry into force, while the second part dealing with crypto-assets service providers will become applicable within 18 months.
However, this will not be the end: one year later and every year after that, ESMA, in close cooperation with the EBA, shall submit a report to the European Parliament and the Council on developments in the markets in crypto-assets, accompanied by an analysis of risks posed for money laundering, terrorist financing and other criminal activities.
Three years on, the Commission will report to the European Parliament and include any measures that might be required to mitigate any identified risks.
What happens to the MFSA regime once MiCA comes into force? Will Malta lose any ‘first-mover’ competitive advantage it may have had?
The sections in MiCA applicable to crypto-asset service providers will come into force 18 months after it is enacted, and Malta will then have to repeal the local VFA regime completely. This is a Regulation, which means it will replace anything that was there before.
Essentially, the MFSA has two options. We could do nothing until MiCA came into force, but this meant we would lose our competitive advantage. The second option – which is what we are already doing – is to identify and analyse the differences between MiCA and our VFA regime and, during those 18 months, try as far as possible to bridge the gaps. In that way, the transition for our existing licence-holders will be painless and seamless, as they would already have achieved MiCA compliance. It also helps us as regulators and supervisors as this will give us more time to align our internal processes to MiCA expectations before it kicks in.
There are hundreds of operators within the EU who will need a MiCA-equivalent licence and it would be to their advantage to start aligning before the new regime kicks in. If I were an operator in the crypto asset space, I think I would find the MFSA a really good option to consider.
Malta was one of the first countries to set up a regulatory framework: how will MiCA affect this?
Our VFA framework was based on MiFID and it is very good to note that MiCA has also been based on this Directive, as essentially this means that there are very few discrepancies between VFA and MiCA. If anything, our current framework is even more rigid than MiCA and in some instances, we would have to revisit our requirements for better alignment. So the impact will be minimal, which is good news for us as the MFSA, for our current licence holders and generally for Malta as a jurisdiction.
As it stands now, MiCA would not be limited to players licensed within a Member State: any crypto-asset service provider would be able to apply for authorisation in order to operate within the EU. Does the MFSA anticipate new opportunities?
Definitely. As it stands now, operators in Europe have no crypto regime and essentially all they need to do is to register – for anti-money laundering purposes – with a Member State (in terms of the 5th AMLD). With MiCA, going forward, every operator has to get a licence so we will see a large number of operators which will need to take action.
Any third country operator which wants to offer services to citizens in a Member State would also need to establish a branch which will also need to be licensed. That represents a lot of activity in the crypto space and there will be a limited amount of time in which it has to be done.
How does this affect Malta as a jurisdiction? We are at the forefront of this sector. We have been doing this for a few years now and we have gained experience with licensing and supervising operators, with processes already in place, as well as an established track record.
From the consumer’s point of view, does MiCA offer more protection?
Without being specific, as we have not seen the final text, consumer protection is definitely a top priority. We will certainly see more conduct rules, advertising rules and disclosure requirements. Clients will also be subject to suitability assessments prior to being allowed to invest in crypto-assets and there will be more awareness going forward to ensure that those who invest in crypto understand what they are doing with their money, and do not get cheated or caught out.
What would the timeline be going forward?
There is an agreement on the general text with the European Parliament and the Council and now it only remains for the technical details to be ironed out. I think it is safe to say that the final text should be published in the Official Journal (the European Commission’s version of the Government Gazette) in the first quarter of 2023.
