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Leading fintech industry associations have expressed urgent concerns about delays in the adoption of key regulatory technical standards (RTS) under the Markets in Crypto-Assets Regulation (MiCA).
In an open letter to the European Commission and the European Securities and Markets Authority (ESMA), Blockchain for Europe (BC4EU), the Electronic Money Association (EMA), the European Crypto Initiative (EUCI) and the International Association for Trusted Blockchain Applications (INATBA) highlight the operational and regulatory risks posed by the compressed timeline for authorisation of crypto-asset service providers (CASPs).
MiCA, which will become one of the world’s most consequential legal frameworks for crypto once implemented, is set to take effect on December 30, 2024.
However, the European Commission only endorsed the revised RTS on October 31, leaving less than two months for national competent authorities (NCAs) to publish final authorisation requirements and process applications.
In their letter to Verena Ross, chair of ESMA, and John Berrigan, director general of the Directorate-General for Financial Stability, Financial Services and Capital Markets Union, the associations emphasise the complexity of the authorisation process and warn of potential market disruption if CASPs fail to secure licences in time.
“Given the amount of documents and information to be submitted based on the current draft of the RTS on authorisation, this timeline seems impractical given the level of complexity associated with this process and the number of CASPs and NCAs involved,” the letter says.
According to the trade associations, “under such time pressure it will be very difficult for the responsible NCA to manage the CASP application properly which is crucial for launching effective supervision based upon a well-established regulatory relationship”.
Diverging transition periods
The 18-month transitional “grandfathering” period provided under MiCA is also causing concerns due to inconsistencies among member states.
Whereas some, such as Cyprus and France, offer the full 18 months, others, such as Lithuania, have significantly shortened the window to as little as five months.
This inconsistency complicates compliance for cross-border CASPs and risks disrupting services in jurisdictions with shorter periods.
“The 18-month grandfathering period offers minimal support, as it allows member states the discretion to not apply, or shorten, their grandfathering periods for applicant CASPs,” the letter complains.
The associations cited examples of misaligned grandfathering policies causing potential service gaps.
For instance, an application processed in Poland may not safeguard operations in Lithuania due to its shortened transitional period.
In the event of “reasonably foreseeable delays in the processing a MiCA licences by December 30, CASPs, consumers and investors will face real regulatory and legal risks and uncertainty while the applications are still being processed,” the letter suggests, adding that this may lead to service disruptions, affecting markets and consumers.
The letter cautions that this could potentially prevent clients from accessing their assets or performing transactions, causing “serious customer detriment and negative financial consequences across all EU member states”.
“Moreover, the reputational damage may well affect the entire EU/EEA crypto-asset market, which MiCA is intended to help by creating a regulatory framework aimed at the protection of customers in a fully harmonised fashion across all EU/EEA jurisdictions,” the letter says.
To mitigate these challenges, the industry groups urged ESMA to consider issuing a “no-action” letter under Article 9a of Regulation No. 1095/2010, effectively suspending enforcement actions against CASPs until June 2025.
This measure would provide temporary relief and allow companies to focus on compliance with harmonised EU rules.
The associations also called for more harmonised transitional measures and supervisory flexibility, particularly as ESMA is still expected to finalise additional technical standards and guidelines in December.
They stressed that some of these requirements, such as data reporting interoperability, would necessitate substantial technological adjustments.
The regulatory arbitrage risk
As the compliance deadline looms, the industry will be closely watching how ESMA and competent authorities across the EU address these concerns to avoid disruptions in the burgeoning EU crypto-asset market.
Divergent grandfathering periods across the trading bloc and uncoordinated approaches among regulators could mean that a CASP compliant in one country might still face operational challenges in another, which undermines the EU’s principles of the single market.
Although the EU’s crypto framework has been welcomed by those in the industry who believe it will provide clarity that has been non-existent in jurisdictions such as the US that have regulated via enforcement action, a divergent compliance timeline will hardly be welcomed.
Such divergences have caused headaches for the EU previously, with legislation such as the Payment Services Directive (PSD2) and the anti-money laundering framework.
CASPs might struggle to navigate differing rules in member states, creating a fragmented regulatory landscape.
Smaller, EU-grown CASPs that lack the resources to manage multiple authorisation processes could be disproportionately affected, allowing larger, international players to dominate the market.
Without sufficient preparation time, CASPs ultimately risk unintentional MiCA compliance violations, leading to potential penalties.
At the same time, overburdened national competent authorities may struggle to process applications effectively, heightening the risk of errors or delays in licensing decisions, which could ultimately see bad actors get through the system.
In the coming months, what ESMA and the European Commission, as well as member states, opt to do will be vital for the success of the long-awaited MiCA rulebook.
