Crypto Regulation MiCA May Come Too Soon for Some EU Countries

The European Union’s wide-ranging regulatory regime for cryptocurrency firms, the Markets in Crypto Assets (MiCA), is set to take effect at year-end, but, with just three weeks to go, almost a quarter of the 27 countries that constitute the bloc aren’t ready.

For the regulation to apply in the country, EU members have to align local laws with MiCA. Those yet to do so include Belgium, Italy, Poland, Portugal, Luxembourg and Romania, according to a document created by the Electronic Money Association, a trade body, which was shared with CoinDesk.

Trade associations representing the crypto industry say this state of unreadiness is being taken too lightly by overarching authorities at the European Commission and European Securities and Markets Authority (ESMA), which are set on maintaining the year-end implementation date even with countries failing to meet it.

“The implementation of MiCA into national law is not going the way it should,” said Robert Kopitsch, co-founder of Blockchain for Europe, a Brussels-based organization whose board includes executives from Coinbase (COIN), Binance, Ripple and Ava Labs.

Two-stage process

The implementation of MiCA, which became law last year, is divided into two phases. The first occurred in June, when stablecoin issuers had to ensure they had the correct authorization to operate in the country.

The second — what the December deadline is about — concerns crypto asset service providers (CASPs) such as exchanges, wallet providers and custodians. These firms need to be registered and based in at least one European Union country to apply for a license under MiCA that allows them to operate across the trading bloc.

According to several crypto industry trade associations, a major issue for some national regulators, the so-called national competent authority (NCA), is the short timespan between the deadline and October, when certain regulatory technical standards were finalized. This left just two months to deal with the resulting paperwork and complexity.

“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,” reads a letter sent to ESMA last month. The letter was signed by Blockchain for Europe, the European Crypto Initiative, the Electronic Money Association and the International Association for Trusted Blockchain Applications.

The trade groups requested a “no-action” period of six months. In other words, a hold on enforcement activity so firms yet to receive authorization do not incur sanctions if they continue operating.

So far, ESMA has denied the request, but the MiCA deadline will be considered at a meeting on Dec. 11. While the stay of enforcement is unpalatable, ESMA may be gearing up to offer “guidance” on timing, according to a person familiar with the matter. ESMA declined to comment.

Faced with no alternatives other than an inevitable registration backlog, some firms could be forced to halt crypto operations, Blockchain for Europe’s Kopitsch said.

“If you don’t have a license by a certain date you need to basically stop your services in Europe,” Kopitsch said. “Imagine what that means. Very bad for business and users will be upset. And it doesn’t make the EU look good.”

Kopitsch identified Ireland, Portugal, Poland and Spain as countries struggling to meet the deadline. Three other people, who asked to remain anonymous, agreed, with Italy, Malta, Cyprus, Lithuania and Belgium also mentioned.

Legislation takes time

Despite being relatively advanced when it comes to crypto asset regulation, even Germany was mentioned by the Electronic Money Association as a place experiencing problems. The reason being that Germany’s existing crypto framework needs new legislation to meet the MiCA specifications, a process that can take time. Malta also has a crypto regime that needs to be aligned with MiCA, the EMA said.

“It’s a political process and a legislative process,” Helmut Bauer, a consultant with the Electronic Money Association, said in an interview. “My understanding is that this has posed a problem for Germany and that process has been delayed. The BaFIN seems to be fairly up to speed, but has to await the legislation.”

BaFIN, Germany’s financial regulator, allows banks to custody crypto assets under a framework that was initially based on the Markets in Financial Instruments (MiFID) rules.

National regulators also identified the legislative procedure as being the bottleneck in implementation, pointing a finger at their governments.

In Poland, the Financial Supervision Authority (KNF) said the Ministry of Finance is coordinating the process and responsible for meeting the deadlines.

“The draft of the Polish act on the crypto-asset market crypto-assets received a positive opinion on compliance with EU law and is currently in the European Affairs Committee,” a spokesperson for the KNF said via email. “We are aware that the act should be passed by the end of the year, but the Polish Financial Supervision Authority has no direct influence on this […] Poland is not the only country that has not yet passed a national act and the challenges faced by member states are similar.”

The Portuguese Securities Market Commission said via email: “The legislative proposal that implements the responsibilities arising from the European MiCA Regulation, as well as the allocation of powers between the CMVM and the Portuguese Central Bank (Banco de Portugal), falls under the jurisdiction of the Portuguese Government and is currently under consideration by the Government.”

A spokesperson for Belgium’s FSMA said via email: “As a (political) decision on the designation of the competent authorities for MiCA is pending, the FSMA cannot give any input for your questions.”

As for the Central Bank of Ireland, it encourages early engagement from applicants and is engaged in a pre-application process with a number of firms that are seeking authorization under MiCA.

“The progression of a firm through to the next stage of the process for a CASP application will be dependent on the nature, scale and complexity of the firm and the extent of preparedness of the applicant,” a central bank spokesperson said by email. “In general, based on our experience, the best-prepared firms, willing to engage transparently in all stages of the authorisation process, proceed through the process more efficiently.”

A spokesman for Italy’s financial regulator, Commissione Nazionale per le Società e la Borsa (CONSOB), said via email: “At this stage your question should be asked to ESMA rather than to Consob as a national authority.”

Germany, Spain, Malta, Cyprus, Lithuania, Luxembourg and Romania did not reply by press time.