Regulation
Interview with Mark Gofaizen, Senior Partner at Gofaizen & Sherle
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There is a lot to consider regarding the potential effects of the upcoming Markets in Crypto-Assets (MiCA) regulation on the cryptocurrency market. Mark Gofaizen, an experienced cryptocurrency regulatory compliance specialist, is here today to share his thoughts. Gofaizen is a senior partner at Gofaizen & Sherle and has actively assisted cryptocurrency companies with intricate regulatory changes. We will discuss the implications of MiCA for cryptocurrency service providers, the opportunities and challenges it raises, and how companies can best prepare for this new regulatory landscape.
U.Today: Can you briefly explain what MiCA is for our readers?
Mark Gofaizen: MiCA, or Markets in Crypto-Assets, is a regulatory framework aimed at harmonizing rules for crypto companies and assets within the European Union. This is a key development for cryptocurrency service providers, including exchanges, wallet services, and payments providers, among others. MiCA seeks to establish a secure and transparent operating environment in the crypto community, prioritizing customer protection first. This framework also highlights the growing relevance of the crypto economy to the overall economic health of the EU. In essence, MiCA is a set of rules that brings the management of crypto finance closer to that of traditional finance, covering areas such as capital requirements, anti-money laundering and terrorist financing (AML/CTF), customer data collection, protection, compliance and more .
The MiCA (Markets in Crypto-Assets) regulation will come into force on December 30, 2024. However, companies will be given a transition period extending until May 2025 to fully comply with the new requirements. This transition phase is critical for cryptocurrency service providers to adapt their operations and ensure full compliance with the MiCA global regulatory framework.
U.Today: What are the most significant changes MiCA will bring to crypto regulations in the EU?
Mark Gofaizen: Firstly, the capital requirements stipulate that companies must have a minimum paid-up capital of €125,000, which is substantial for small and medium-sized enterprises (SMEs). Second, AML/CTF requirements imply, among other things, the need for more highly trained personnel, additional reporting and increased documentation. Customer identification is also a significant aspect. Data protection is another important issue on the agenda. As an owner or manager of an SME, you need to stay in line with all regulatory changes, keep track of important dates, prepare reports and work closely with authorities. The good news is that these changes are not immediate and companies have a transition period to hire staff and find all the necessary partners. However, this is crucial for the operational part of the business: it consumes a lot of time and resources that could otherwise be allocated to business development. Our goal as a consultancy firm is to take on most of these tasks. We handle the paperwork, legal aspects, hiring and accounting and also assist in finding an office.
U.Today: How will these new regulations affect small and medium-sized crypto businesses?
Mark Gofaizen: I am actively collaborating with crypto-asset service providers (CASPs) in the EU, particularly in Lithuania, which is a key market. I have observed that most companies are willing to operate under MiCA regulations. However, this will inevitably have an impact on the cryptocurrency market. Over the next three to five years, we can expect to see a consolidation of the market, resulting in fewer but larger companies. MiCA is designed to improve the security and transparency of the cryptocurrency market for consumers. However, this will also increase the barrier to entry, requiring newcomers to have more resources from the start. The market is evolving into a more mature and complex phase and will certainly look very different in five years.
U.Today: Why is legal support crucial for companies facing these new regulations?
Mark Gofaizen: Cryptocurrency market regulation has always been complex and requires in-depth knowledge of each country’s laws to navigate various jurisdictions and languages. Typically, companies have two options: build an in-house legal team or hire a legal services provider in a crucial jurisdiction. With the rapid transformation of European cryptocurrency regulations, solid legal support has become increasingly vital. Timeliness and accuracy are essential, as is maintaining communication with local authorities. During this transition phase, companies need reliable legal guidance to ensure compliance and reliability, as well as the ability to provide 24-hour support.
U.Today: What are some practical steps companies can take to adapt to these new rules?
Mark Gofaizen: Many companies are making the transition to comply with MiCA regulations. In Lithuania, we benefit from cooperative authorities who are gradually aligning market conditions with MiCA standards. This change brings the regulatory framework for crypto-asset service providers (CASPs) increasingly in line with that of traditional financial institutions such as banks.
When it comes to actionable measures, the first decision for any company is whether to continue operating in the cryptocurrency market under strict rules, which include thorough oversight and reporting. The second step is to prepare your company to meet the basic requirements: guarantee the minimum paid-up capital, meet management qualifications and obtain the necessary licenses. Next, it is critical to evaluate how these changes will affect operational processes and determine the additional staff needed to comply. This leads us to consider internal company training versus external recruiting.
U.Today: Do you think we will see many smaller companies merge or go out of business due to higher regulatory costs?
Mark Gofaizen: Many companies are able to adhere to MiCA regulations. However, current trends suggest that some may choose to shift their primary markets. This could involve targeting different market areas or moving to more accommodating jurisdictions. As a result, we may see companies migrating from the EU to find favorable conditions in places like the United Arab Emirates, El Salvador, Canada, among others. Despite this, the EU market has substantial value for these companies and we can anticipate market consolidation. Major market players are likely to benefit from these regulatory changes. For many smaller businesses, this period represents an opportunity to evolve their business models and position themselves for growth over the next three to five years.
U.Today: Despite stricter regulations, what opportunities do you see for growth in the EU cryptocurrency market?
Mark Gofaizen: Identifying opportunities amidst these changes is truly fascinating. As mentioned, it is a time of growth and strategic reevaluation. The more mature, secure and stable the cryptocurrency market becomes, the more competitive it will be compared to the traditional financial sector. Large companies recognize this and have created internal crypto departments to keep up with current trends. However, I believe that the most valuable ideas and projects will emerge from small and medium-sized enterprises (SMEs).
U.Today: What are the current demands of the cryptocurrency industry for the future workforce?
Mark Gofaizen: As professionals, we are applying our traditional financial expertise to create a new crypto economy. The industry’s current priority is the recruitment of anti-money laundering officers and compliance professionals, reflecting the maturation of the industry. This dynamic field offers the satisfaction of seeing direct results and influencing business outcomes. We have launched an educational initiative to train graduates in AML, thus facilitating the entry of new talent into crypto finance. Furthermore, there is a growing demand for legal experts. Lawyers with a solid understanding of traditional finance are critical to the continued development and evolution of the cryptocurrency industry.
U.Today: Can you share an example of how your company helped a client successfully navigate regulatory challenges?
Mark Gofaizen: We have been helping clients navigate the regulatory changes that accompany the growth of the cryptocurrency industry for many years. This was the case when Estonia changed its main law on VASPs in 2020, and again in 2022. We also assisted Lithuania and Poland when their regulators made important legislative changes. Our support included meeting capital raising requirements, updating internal procedural rules, amending AML/KYC policies, providing regulators with company descriptions and much more. In short, we have extensive experience guiding and adapting businesses during times of regulatory change.
As for MiCA, there are no completed cases on the market yet, so there are no guidelines from the regulator. However, there are European standards that indicate what regulators expect in terms of documentation. We are already helping customers start preparing their documentation according to MiCA standards. This mainly concerns electronic money issuers (EMI licenses) and payment service providers. We understand regulators’ expectations regarding cybersecurity policies, business plans, business continuity plans, risk assessments and more. As a result, we are already working with customers to prepare a set of documents that will help them launch much more quickly once the final MiCA guidelines are issued.
U.Today: What do you think will be the biggest changes in the cryptocurrency industry in the coming years and how should companies prepare?
Mark Gofaizen: MiCA represents the first major turning point in the EU. I believe this framework could influence other markets, especially in North America. Another significant change is the growing interest and investment from institutional investors. When established financial institutions engage in the crypto space, they introduce a level of legitimacy and stability, potentially leading to broader adoption.
In terms of blockchain technology, we are seeing improvements in scalability and transaction speed, which could impact the entire market.
U.Today: Thanks for your time, Mark. We learned a lot about regulations and MiCA from this in-depth talk. We now have a better understanding of the obstacles and possibilities facing the cryptocurrency industry thanks to your experience. We value your insightful opinions and are excited to see how these laws will impact cryptocurrency development in the future.