VIXIO Blog | MiCA Under The Microscope | Crypto Regulation

MiCA under the microscope: a closer look at cryptocurrency regulation

Regulatory developments around crypto are growing at speed, with fresh headlines related to the rapid growth of cryptocurrencies coming thick and fast.

Whether it’s updates on where you can pay for your morning coffee using crypto or the flip-flopping of industry giants’ stance on it, there is no denying that crypto poses a major cultural and technological shift for payments. 

As consumer demand for crypto grows, attention is drawn to the regulation in place or not yet in place to support its growth.

 

VIXIO Horizon Scanning: Regulatory updates related to crypto-assets

 

As consumer demand for crypto grows, attention is drawn to the regulation in place or not yet in place to support its growth.

Data from VIXIO PaymentsCompliance’s Horizon Scanning suggests that regulators are not standing idly by when it comes to crypto. In 2019, Horizon Scanning captured 77 developments related to crypto. In 2020, this figure went up to 81 and by May this year there have already been 35 relevant developments captured, indicating a continuous upward trend. 

In the last decade alone, traditional banks, including JP Morgan, have innovated in the crypto space, and the international card giants Visa and Mastercard have announced this year that they will allow cryptocurrencies onto their network. In addition, Facebook is backing stablecoin Diem (formerly known as Libra) and central banks including the Bank of England, the People’s Bank of China and the European Central Bank are experimenting with a view to issuing their digital currencies, whereas the Central Bank of the Bahamas has the most developed retail CBDC project already. 

However, in some parts of the world the trends are reversed, with regulators in Nigeria and Turkey intervening to place restrictions on their use.

Growing regulatory involvement will give firms more confidence when exploring crypto products and services as a new opportunity. Whether regulatory developments stifle innovation or nurture it, only time will tell.

For crypto to become mainstream, CBDCs need to progress first 

During a recent VIXIO webinar, which was attended by compliance and legal professionals from across the European payments landscape, an audience poll asked about crypto becoming mainstream. 

When polled, 44 percent of the audience voted that this would happen within the next five years, followed by five to ten years (28 percent) see chart on left. Only a very small percentage felt that despite all the regulatory and consumer noise around cryptocurrencies, they would never become a mainstream form of payment in society. 

The results are not surprising and reflect the fact that the sector is evolving at a rapid pace and more crypto regulation is being introduced to keep up with the technological advances. 

But does this mean firms should drop everything and start planning for crypto today? Not necessarily. 

Source: VIXIO PaymentsCompliance webinar, “From AML to MiCA, the balance between opportunity and risk”

 

Despite the poll results, one of the webinar panellists, Ondřej Kovařík MEP, commented that five to ten years was probably the more realistic prediction, considering the time needed to get the regulatory framework up and running and the ongoing developments with central bank digital currencies (CBDCs). 

 

There may be more to come for AML and MiCA

When looking at the specific aspects of the Markets in Crypto-Assets (MiCA) proposal, it is clear that one of the key objectives is consumer protection; however, what hasn’t been obvious is how the AML aspect will be addressed. 

The EU is planning to launch a wide-ranging piece of AML regulation, the first of its kind, in the coming months, which could explain this lack of clarity. 

Although crypto firms already fall under the 5th Anti-Money Laundering Directive (5th AMLD), that law is already three years old and definitions and technology in the virtual asset space have moved on significantly since its introduction. 

As it stands, MiCA only requires that the managing bodies of token issuers satisfy the “fit and proper” conditions for AML and counter-terrorist financing (CTF) and that they have not been previously convicted of money laundering or terrorism financing offences.

There is still work to be done, but legislators are very much aware of that. If the European Commission’s proposal fails to plug the gaps to combat financial crime, as in the current version of MiCA, there will be potential for loopholes and risks to the integrity of the EU’s AML framework. 

However, there is still time for lawmakers to update MiCA to include AML provisions and observers don’t expect to wait long for the outcome. 

These are some of the key points discussed during a webinar hosted by VIXIO PaymentsCompliance on May 20, where a panel of experts discussed MiCA, the European Commission’s plan to create a single set of rules for crypto firms and cryptocurrencies throughout the EU. 

The panel addressed the proposed regulation and what it would mean for payments firms looking to explore the opportunities posed by the growing demand for crypto. 

The webinar was chaired by Jimmie Franklin, EU reporter for VIXIO PaymentsCompliance, who moderated the discussion with industry experts, including Thomas Hulme, head of blockchain & cryptoasset team at Mackrell.Solicitors, Araba Eshun, head of compliance & MLRO, UK at Gemini, and Ondřej Kovařík, Czech MEP. 

 

“Making Crypto Less Cryptic: From AML to MiCA, the balance between opportunity and risk” was originally aired on May 21, 2021 and is available to watch on-demand here.

For more information on VIXIO PaymentsCompliance’s Horizon Scanning solution, get in touch to request a demo.

 

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