One of the most fiercely debated topics within the crypto community, the EU’s proposed regulation on Markets in Crypto Assets (MiCA) has sparked its fair share of controversy, sending ripples through the industry. While efforts to bring security and transparency to the crypto community are well intentioned, concerns that the sustainable growth of blockchain technology may be stifled still remain.
The second day of the AIBC Balkans and CIS conference opens with passionate arguments on all sides, as Victoria Soltesz, Founder of PSP Angels, Chinua Cole, Sales Manager at ONE, Tanja Dimitrijevic, Head of Legal at Red Acre Group, and Natalia Kolesnikova, Head of Communications at Blackcatcard examine whether the regulation can strike the right balance whilst still maintaining the ethos of decentralisation. Moderating the debate is Jean-Michel Azzopardi, the Chief Strategy Officer of Proofme.ID.
Europe – taking the lead in regulation?
MiCA comes into force in the next 18 months, bringing over 27 countries under its legislation umbrella. How does the land currently lie? Tanja Dimitrijevic opens the debate. As a lawyer within the sector, she is of course pro regulation. However, she does acknowledge that there will be challenges to overcome. There are currently only 2 regulators within the EU that are currently familiar with crypto regulation, she explains: Malta and France. The rest of the countries are currently operating under the Anti Money Laundering (AML) directive – a completely different kettle of fish to MiCA.
A lot of companies are not prepared for this, opines Natalia, with a lot of companies closing or likely to close – something she predicts we’ll see more of in Lithuania this year.
There is certainly a huge difference between these two regulations. MiCA covers investor protection and focuses on market stability, while AML is part of compliance.
“They have all the capital requirements, but the contact of business, the corporate governance, these companies are not ready for it,” says Tanja.
It’s not just about the companies she goes on to say. The regulators are not ready for this. “So we are looking into the regulation that’s heavily based on technology and in order to obtain a license you need regulators, lawyers and auditors. No one knows technology like we do.
“We’ve seen what happened five years ago – we’ve seen this in Malta. The delayed registration process, the lack of experience from the regulators, and from the industry players gave the sector a bad name. You had crypto native people that wanted to enter into the financial services space – and it was just a mess.”
There are a few regulators within the EU that will be ready for it – the rest will likely see delays, with people losing licenses, or their registration. We have at least three to four years until all of this settles down, she concludes.
Natalja is of firm belief that the government has a responsibility to work alongside the market, and to acknowledge that they aren’t prepared to apply these regulations.
“The government is going to sit down and wait for the regulation – and in this case the marketplace is going to sit down and wait for the government.” They should, she says, stand ‘shoulder-to-shoulder with us.’
The most important thing Viktoria says is to consider what’s best for the end user.
“The government has one aim and one aim only – pay your taxes and don’t do anything illegal.
So if there is a new technology, of course there’s going to be those that take advantage of that and try to find loopholes. MiCA is coming in a year. I still have one year to get creative and as a payment consultant, unfortunately, I see a lot of creative solutions which are taking advantage of the lack of the regulation.”
She goes on to say that if businesses are working with the government, there has to be a common goal, which is to make everything safer, cheaper and more effective for the end client, for the user who is actually living in a society and trying to take advantage of this technology for good means – and not to avoid taxes or not to do anything illegal.
“There should be effort from both ends, whereby the businesses are promoting fairness, transparency and the willingness to adhere to the law.”
“We have seen an absolute bloodbath in Estonia. And it was for all the right reasons that they cut out all those weed-like companies who were all there for the wrong reasons. Because I highly doubt that there are still 3500 applications currently in circulation. After the first year they culled 50% of the licences they had issued.”
There were problems from both ends, she concludes. The regulator was too late and the businesses were too eager to make money. We really need to look at how to get out of this situation in the best possible way – together as a team from the private sector and the government. That’s what MiCA is aiming to do.
There are multiple ways this can fail – but if our end goal is to create companies who are really trying to benefit the end user in a safer, more advanced technological way which is also regulated, then we can certainly expect a better future.
Weighing into the debate, Chinua believes that MiCA definitely has the right intentions. And, as he explains, intention is a really strong word.
“If you look at other jurisdictions, for example, the US, I think they are in regulatory disarray at the moment.”
He mentions the March closure of Signature Bank, which shut its doors just two days after authorities closed down Silicon Valley Bank and the lawsuits against Gemini Genesis. “Obviously the US is still a financial powerhouse, but it raised global concerns. I think that they are prioritising privacy, innovation and regulatory compliance – they are going in the right direction.”
Despite this positive assessment Chinua doesn’t think MiCA is perfect. He brings up Article 68, which has put a halt to trading companies. This, he says, pushes innovation back.
How many years have we been waiting to leave the grey market? How many years have we been looking to increase trust? asks Natalia. With MiCA we’re starting to move closer to the white market.
Jumping into the fray, Viktoria takes a more critical position. “Who wants to pay tax if there is any way in the world that you can avoid paying taxes and get away with it? Bear in mind the most traded asset is tether. Why? Because people want to find alternative ways to transact without regulation, and without paying taxes. It is not sustainable.It may be good for an individual, but it’s really bad for society. If there is no anonymity, what is there?
“When we speak about decentralisation with MiCA, to me it just doesn’t make any sense. MiCA in itself goes against what blockchain is.” says Tanja. However, she concludes, DeFi is not included in MiCA, so you can still have innovation there.
What does MiCA mean for licenced business?
Speaking about Malta, Tanja explains that there is a simplified authorisation process – where if you have an equivalent regulation you can benefit from a pared down process without needing reauthorisation.
The regulator, she says, is going to look into your business model and bridge the gap. What’s more, they’re promising that in a couple of weeks you’ll have your own MiCA licence and be able to travel across the EU. That’s not necessarily the case with Estonia and other jurisdictions though, she warns.
Lithuania is similar, says Chinua. They work very closely with companies that hold the licence. A much more pragmatic approach that also grants an 18 month grace period for everyone to get up to speed.
Tanja believes however that that grace period is exactly what’s going to slow down the application process. Because regulators are not familiar with MiCA. They’re not familiar with the technology. It’s going to take a year minimum to get a licence and because you will be unable to get a passport within that period you will be limited to operating only within your jurisdiction.
In Malta you will also likely not need to bridge the gap as the MFSA is already preparing for MiCA.
Regulation is not just for the clients, chimes in Viktoria. Overall it’s for the banks. “You can have the best regulation everywhere, but if you’re not good enough for the banks you won’t be able to do business. Will they be willing to work with you once you have a licence?