On June 30, 2024, the Markets in Crypto-Assets (MiCA) regime went into effect in the EU. MiCA regulates non-security digital assets, including stablecoins. The EU legislation aims to create an environment where digital asset innovation may take place while providing a compliant ecosystem to ensure consumer and business protection. Various platforms, including crypto exchanges and stablecoin issuers, have announced they are in compliance with MiCA and thus able to provide services across the EU.
While MiCA is moving forward, the European Securities and Markets Authority (ESMA) is conducting a consultation on digital securities. Between the two initiatives, the EU is pushing forward, perhaps the first jurisdiction to tackle both sides of the digital asset equation.
CI recently connected with bitflyer Europe CEO and Director Aimi Nagata for some insight into the European crypto ecosystem. bitflyer is a crypto exchange that operates around the world and is the top Bitcoin trading platform in Japan. Nagata has worked in both TradFi and DeFi, including more than 20 years of experience at Goldman Sachs, BNP Paribas, and MUFG. She also holds an MBA from HEC School of Management in Paris, France. Our discussion is shared below.
What are the key aspects of MiCA, in your opinion?
Aimi Nagata: MiCA is the first supra-national regulation for the crypto-assets industry in the world. Until recently, enterprises active in the crypto-asset (or virtual asset) space needed to register their business activity with national regulators in each country or each EU member state. Often enough, the regulatory requirements and expectations of national regulators varied, which resulted in contradictory regulatory filings, conflicting internal policies, and a confusing web of consumer protection rules. MiCA has changed that by harmonising such requirements across the EU. This means all crypto-asset service providers (CASPs) active in the EU need to comply with the same rule-book and meet similar obligations with regard to transparency, security, and/or regulatory filings. Consumers will also benefit as they can seek redress for their grievances within a singular regime.
MiCA is the first supra-national regulation for the crypto-assets industry in the world
How does MiCA impact stablecoins? CBDCs? What about utility tokens?
Aimi Nagata: MiCA categorises tokens into three categories: Asset-Referenced Tokens, Electronic Money Tokens, and Utility Tokens. Where a token maintains its value by referencing another value, or right, or one or more official currencies it will be considered as a stablecoin. This is quite different from an electronic money token which maintains a stable value by referencing only one official currency.
Finally, where a token is neither an Asset-Referenced Token nor an Electronic Money Token, it is a Utility Token. CBDCs, however, are excluded from the scope of MICA.
Depending on the type of token, MiCA introduces a range of obligations on the issuer as well as the relevant CASPs [crypto asset service providers]. For example, the issuer of the stablecoin is required to keep sufficient reserves, go through regular audits and maintain transparency about the asset backing the relevant stablecoin. These requirements aim to protect consumers and to also prevent market abuse. The sections of MICA that relate to Asset-Referenced Tokens and Electronic Money Tokens came into force on 30 June 2024.
We have seen multiple digital asset platforms announce they have become compliant under MiCA. What do platforms (e.g., crypto Exchanges/VASPs, etc.) need to do to adhere to MiCA?
Aimi Nagata: Although digital asset platforms may announce that they are MiCA compliant, this will not be certain until they are authorised by a competent national authority. If a digital asset platform has a VASP registration and a Payment Institutions licence like bitFlyer does, they already comply with multiple regulatory obligations under MICA. This includes, for example, customer asset safeguarding, internal controls, appropriate AML/KYC practices etc. CASPs that have so far avoided being licensed will find the MICA authorisations process to be a rather uphill battle.
Do you anticipate this will boost digital asset innovation in the EU?
Aimi Nagata: MiCA will certainly place Europe at the centre of the blockchain and crypto-asset world. It will enable innovation to occur within a trusted and regulated environment and increase confidence amongst investors, entrepreneurs and ultimately consumers. As we have seen in other sectors, legal certainty and regulatory clarity are essential building blocks for innovative products and disruptive business models for digital assets. By being the first region in the world to provide the supra-national regulation, the EU can position itself as a global leader in the space to attract talent and investment as well as innovative projects from around the world.
Having said that, the EU would need to find the right balance between regulation, consumer protection and promoting innovation.
MiCA will certainly place Europe at the centre of the blockchain and crypto-asset world
Tokenization or digital securities are not regulated under MiCA. ESMA is currently pursuing a consultation on digital securities. What are your thoughts on this? Will we see digital securities traded on exchanges soon under new rules?
Aimi Nagata: At the moment, there is a very thin boundary between crypto-assets that are securities and those that are not. Clear regulatory guidelines will be crucial for the adoption of tokenized securities by regulated CASPs or for the listing of digital securities by traditional exchanges. ESMA is required under MiCA to issue its guidelines on this topic by the end of 2024, which may help clear the air on this topic. However, we must remember that while MiCA is a regulation that applies directly in all member states, EU rules on securities come from a directive that requires national laws to be implemented. This juxtaposition of European and national laws creates fertile grounds for conflicting rules and outcomes.
The digitization of real-world assets (RWA) may create a boom in alternative assets. What is your opinion on tokenized RWAs?
Aimi Nagata: Tokenized RWA could revolutionise the way we invest in various assets and manage our portfolios. However there are still various challenges for it to receive market-wide adoption. This includes harmonization with the existing regulatory regimes for each RWA (e.g. Real estate), how to establish a fair valuation model, or how to ensure security when faced with risks such as hacking or smart contract vulnerabilities. Tokenised RWA will also import disintermediation from crypto-assets to real assets.
Tokenized RWA could revolutionise the way we invest in various assets and manage our portfolios. However there are still various challenges for it to receive market-wide adoption
Credit: Source link