Regulation
MiCA’s Stablecoin Regime and Its Remaining Challenges: Part 3
The challenges remain
Despite extensive work by EBA and ESMA, in close cooperation with national regulators, MiCA still leaves room for interpretation and uncertainty, along with ongoing practical challenges. As the MiCA regime for stablecoins comes into force, the following appear to be the most relevant:
Pending national implementing laws
Although MiCA is a regulation, meaning it is directly applicable to countries and companies, it still requires national laws to determine how it will be implemented and enforced at the national level. For the most part, MiCA compliance is overseen and enforced by national authorities in the EU. These implementing laws establish who the “competent national authority” for MiCA is within each individual country and whether there is a transition period for CASP activities (e.g. to transition from an existing registration or licensing regime to the MiCA regime). Without these laws, national authorities do not have a mandate over MiCA, so they cannot even receive MiCA applications. Currently, around half of EU member states have not yet passed the necessary implementing laws.
Uncertainty about how MiCA will be understood and implemented in practice
Covering the entire EU, MiCA has significant influence as one of the world’s first comprehensive regulatory regimes for cryptocurrency issuers and service providers. It draws on traditional market regulation and the unique risk profiles of cryptocurrency products and services that existed at the time. As with any new regulatory framework, especially in an industry previously subject to only more limited requirements in most cases, there remains uncertainty about how these theoretical rules will be understood and implemented in practice by both companies and regulators (who may even consider gold-plating the MiCA rules nationally). To address this, the EBA and ESMA have provided detailed rules and guidelines to ensure a consistent approach across the EU. However, not all issues can always be addressed in advance, especially in such an evolving and dynamic market. For example, the scope of the MiCA stablecoin regime requires issuers (or other persons) who publicly offer or seek admission to trading in the EU to hold a MiCA license. There is some uncertainty about the opportunities for future CASPs to trade unauthorized stablecoins after June 30, particularly in light of MiCA’s CASP provisions only coming into effect on December 30, 2024. While some firms have announced upcoming changes to their platforms ahead of June 30, approaches across Europe may vary significantly in practice.
The effectiveness of MiCA and its ultimate success will depend on transparent and consistent implementation by national regulators across the EU and a clear understanding of regulatory expectations by companies.
Implications of EMTs as Electronic Money and Cryptocurrencies
The dual classification of EMTs as cryptocurrencies and funds under MiCA may create confusion for CASPs. How EMTs are treated is less important for issuers (who must be e-money institutions or credit institutions in any case), but could have a significant impact on CASPs. Since EMTs are considered e-money (and therefore funds), transactions involving EMTs could be classified as regulated payment services, requiring CASPs to obtain an additional license (in addition to their MiCA license) under the EU Payment Services Rules (PSD2). However, if EMTs are considered exclusively cryptocurrencies (in a transactional context), a MiCA license would suffice.
It is important to note that legal definitions, including those for “crypto-assets”, are context-specific and dependent on the relevant EU legislation. For example, under the Regulation on the transfer of funds (FTR), EMTs are treated purely as cryptocurrencies, while according to the recent EU directive updated sanctions regimemust be classified as funds. This ambiguity highlights the need for clear guidance in MiCA or the (upcoming revision) European Payments Regulation to ensure that all firms understand their regulatory obligations.
This issue also highlights the broader challenge of distinguishing between different types of crypto-assets. This is reminiscent of the ongoing discussions on MiCA “crypto-assets” versus financial instruments under the EU’s traditional financial market, MiFID regulations. ESMA has proposed a “prudent” approach in this caseessentially classifying ambiguous/hybrid tokens as financial instruments, subjecting them to stricter regulations. This position aims to ensure comprehensive oversight and consumer protection.
The Future of Stablecoin Regulation
Stablecoins are the largest single use case for cryptocurrencies today, and MiCA’s stablecoin regime represents a watershed moment for cryptocurrency regulation in Europe, setting a precedent for global regulatory standards. Detailed prudential and conduct requirements, along with strict governance and redemption rules, reflect the EU’s commitment to establishing a rigorous and comprehensive regulatory environment for stablecoins.
However, the path to full regulatory clarity and seamless implementation is fraught with remaining challenges. Pending national implementing laws in EU member states, the slightly unclear scope of the stablecoin regime for future CASPs, and the dual classification of EMTs as funds and cryptocurrencies are likely to create significant uncertainty from June 30 onwards.
The ongoing efforts by the EBA and ESMA to refine standards and guidelines are expected to provide much-needed clarity and ensure that all stakeholders can effectively navigate the new regulatory landscape, fostering a more robust and secure cryptocurrency market.
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