Regulation
Less than 1 in 10 companies are fully prepared for MiCA and 25% have done no preparation at all
The first phase of the European UnionThe Markets in Crypto Assets Regulation (MiCA) will come into play on June 30. However, a new report from Sharpenthe management intelligence platform, and conducted by Eventthe trade surveillance software provider, has discovered that an attempt is underway to set up market surveillance systems as companies find themselves unprepared.
Not represents one of the first comprehensive regulatory frameworks for cryptocurrency trading to be developed in a major financial jurisdiction and its adoption will increase requirements for market participants in a number of areas.
THE studyThe Impact of MiCA on Crypto Market Surveillance: Insights and Challenges, was based on a survey and series of interviews with senior executives at 68 firms engaged in cryptocurrency trading on the buy-side, sell-side, and exchanges. It found that among the firms that were in the scope of MiCA, only 9% were fully prepared, and a quarter of the firms had not yet begun preparations.
With MiCA coming into full force at the end of the year, it is important for businesses to identify whether they fall within scope and begin preparations to comply.
In terms of market oversight, the MiCA regulation builds on the requirements set out in the EU Market Abuse Regulation (MAR). For many companies, especially crypto-native ones entering the scope for the first time, there will be a significant operational uptick in putting the necessary systems in place to be compliant. This study found that there were still high levels of companies that were unsure whether they were within the scope.
“For firms not already operating under MIFID II, MiCA will represent a significant operational step forward in becoming compliant, and it is no surprise that we found that firms were looking to third-party providers to assist them with their preparations,” he says. Red Lancaster research manager at Acuiti.
“There is a relative lack of awareness in some areas of the market about who is in scope, which will need to be addressed if companies are to have time to prepare for compliance.”
Where are companies in difficulty?
The cryptocurrency market is already becoming more sophisticated in terms of market surveillance, the report found, as companies across the market, including 57 percent of those considered outside the scope of MiCA, already have market surveillance systems in place.
With consultations still ongoing on the final technical standards, a quarter of those interested had not yet started preparation. Just under a third were in an early stage of preparation, while just over a third were in an advanced stage.
Companies investing in new systems typically consider outsourcing to a third-party software vendor: 64% plan to do so, although many companies anticipate difficulty finding the right vendor for their needs.
Of all the challenges that MiCA has posed to companies entering the scope, the costs of conformity and finding qualified personnel were key factors that companies anticipated would cause them problems.
CEO of Eventus Travis Schwab said: “While there are commonalities in trade surveillance across asset classes, digital assets can present some unique challenges. We have invested significantly several years ago to ensure we can meet the needs of this industry, including the ability to handle the generation of real-time alerts covering billions of messages per day, 24/7. Regulation in the EU is just the beginning of the new regulatory guidance we expect to see in jurisdictions around the world in the coming years.”
Bitstamp confirms changes in compliance with MiCA
One organization that ensures its readiness is Bitsamp, the cryptocurrency exchange. The EURT stablecoin, denominated in EUR, will be delisted before the June 30 deadline.
Additionally, electronic money tokens (EMTs) that are not denominated in euros and are already available on exchanges but do not fall under MiCA regulation will not be canceled. However, their availability for European customers will be limited on some products.
Bitstamp will not list new EMTs that do not meet the MiCA requirements, nor will it engage in any marketing activities for them.
James SullivanUK managing director at Bit stamp said: “We welcome the implementation of MiCA to make crypto regulation uniform across the European Union. As the world’s longest-running cryptocurrency exchange, we have consistently advocated for a proportionate regulatory response that protects consumers while allowing cryptocurrencies to continue to mature as an asset class.
“Our commitment to compliance and safety means we are in a strong position to adapt to these welcome changes. We are communicating directly with the small percentage of our clients whose asset mixes are affected.”
Struggles await after the first phase of MiCA
As companies prepare for the first phase of regulation to come into force, Jason Allegrantelegal and compliance officer at Fire blocksthe cryptocurrency custody solutions provider, explains what obstacles it could face if the necessary measures are not taken.
“Like many other jurisdictions, Europe is embarking on an experiment to bring cryptocurrency and digital asset market participants within the regulatory perimeter for the first time. There will be winners and losers as a result, but the ultimate hope is that over time a more stable and resilient cryptocurrency market will emerge.
“While I would expect differences in how companies have approached the regulation, it would be difficult to characterize the adoption as sudden or unexpected, meaning that those who have planned ahead and worked aggressively to comply will emerge as the main beneficiaries of the implementation.
“MiCA provides extensive controls for companies, and while many know at a high level what they need to do, there are some ambiguities that make compliance more challenging. However, the legislation is not over. ESMA and other European authorities are in the process of issuing technical standards and other second-order rules that should provide further clarification. Additionally, further regulatory clarity is needed on certain topics and business models, such as NFTs and smart contracts.
“One area where regulation currently gets it wrong is stablecoins. Creating standards for issuers and reserves is a good idea, as is closing the market to those issuers/instruments that do not meet the minimum standards. However, MiCA also introduces limits on the amount of stablecoin transactions that can occur within a given period. This will prove to be a major barrier to adoption and a disadvantage for EU-based stablecoins if it is not corrected in the next iteration of the rules.”
A calmer and more transparent market
The implementation of MiCA is not just a milestone in the regulatory landscape. It is also set to impact the cryptocurrency market in both the short and long term. Commenting on how MiCA will impact the market and other factors behind the recent volatility, Sergei Gorevrisk manager, YouHodlerthe web3 platform states: “MiCA is just one of the first steps towards global regulation of the cryptocurrency market as the world moves towards complete transparency.
“In the short term, the market may experience non-trivial dynamics caused by the reassessment of risks in the investment portfolios of cryptocurrency investors.”
“We have seen increased volatility in the cryptocurrency market in recent days, but I believe MiCA was just one of many factors that influenced the market. For example, a new batch of derivatives contracts on US exchanges expired last week. While such expirations occur every month, the June expiration pretty much coincides with the transition period of preparation for MICA.
“So, we observed a collapse in cryptocurrency prices on Monday, June 24, the first business day following the expiration week. Many people believed that it was due to MiCA, but this decline was, in fact, much more complex and MiCA is was just one of the reasons for these risk review dynamics.”
Looking at the future
Gorev concluded: “As for the market outlook, with the introduction of more regulations, confidence in the cryptosphere as a whole will grow, but at the same time, investors’ incomes may decrease because, gradually, volatility will decrease. It will become increasingly difficult to capitalize on the high volatility and earn thousands of percent.
“A decrease in volatility will lead to an increase in the prices of many cryptocurrencies. The market will become calmer and the dynamics of investors’ incomes will be more linear. This will attract a greater number of large investors who are professionally involved in investing in the cryptocurrency market, which will fundamentally support the cryptocurrency industry.”