Here’s finally a regulatory framework for cryptocurrencies: welcome MiCA Regulation!

Here’s finally a regulatory framework for cryptocurrencies: welcome MiCA Regulation!

The wait is over: the EU has approved the MiCA (Markets in Crypto-Assets) Regulation

The urgent need to regulate the cryptocurrency sector has not been a secret for some time now. At least since the bankruptcy of FTX in the last weeks of 2022. But the willingness by the European Union to provide a regulatory framework for Crypto had been clear at least since June 2022, when the EU Parliament and Council laid the foundations for the MiCA Regulation, namely a document aimed at combating market manipulation and money laundering, terrorist financing and other criminal activities, in the context of crypto assets. After less than a year, precisely on 20 April 2023, the European Parliament voted to approve the text of the new MiCA Regulation, which introduces common rules for supervision, consumer protection and environmental guarantees of crypto-assets, including cryptocurrencies.

Previously on: why it was necessary and urgent to regulate the Crypto world

But let’s take a quick step back. As mentioned a few lines ago, the collapse in late November 2022 of FTX – ex leader in the cryptocurrency exchange industry – raised a Pandora’s box that was destined to disrupt the sector, at least from a regulatory perspective. The Bahamas-based US company, in fact, went from a valuation of 32 billion dollars to bankruptcy in a matter of days, experiencing a meltdown that, according to industry experts, was mainly caused by the absence of adequate regulation of Crypto. Just as had happened in previous financial crises. But the FTX collapse was not an isolated case, since, again between the end of 2022 and the beginning of this year, there were constant reports of sanctions, crises and bankruptcies of other leading cryptocurrency exchange companies, such as Kraken, Bittrex Inc., Genesis Global Capital, Terra Luna, Celsius and Voyager. This was a real storm in the Crypto world, which thus urgently called for the introduction of an industry regulatory framework. And so, through the MiCA Regulation, the EU immediately took concrete steps to fill the regulatory vacuum in the cryptocurrency market, so as to prevent this sector from experiencing a meltdown like the one represented by the 2008 financial crisis. Back in the day, we predicted that 2023 would be the year of financial compliance: after a few months, we can say that current news is proving us right.

The impact of the MiCA on finance? News, perspectives and timing of entry into force

At this point, we can take a closer look at what objectives the European authorities are pursuing with the MiCA. In particular, the Regulation on Markets in Crypto-Assets introduces new rules on transparency, disclosure, authorisation regime and transaction supervision for issuers and intermediaries of crypto assets (including asset-linked tokens and e-money tokens). In order to protect consumers, the MiCA Regulation provides for an enhanced disclosure regime on the risks, costs and burdens associated with transactions in crypto assets, as well as new rules on public offerings of crypto assets, to ensure market integrity and financial stability. Turning instead to the fight against money laundering, the MiCA provides for the establishment by ESMA (European Securities and Markets Authority) of a public register containing non-compliant crypto asset service providers operating without authorisation within the European Union. But not only that. With a view to ESG objectives, and in particular to environmental sustainability, the MiCA requires significant service providers to publish their energy consumption, in order to reduce the high carbon footprint of cryptocurrencies. The aim of this European regulation is therefore to introduce a comprehensive regulatory framework that defines the requirements for cryptocurrency-related services with reference to a range of activities, including the issuance and trading of crypto assets, the authorisation and supervision of crypto asset service providers and token issuers with reference to assets and electronic money, consumer protection and the prevention of market abuse. But what are the next steps that will lead to the implementation of the MiCA? As we anticipated, the text of the Markets in Crypto-Assets Regulation, recently approved by the European Parliament, has passed into the hands of the Council for its final approval, which will be followed by its publication in the Official Journal of the European Union, expected by the end of June. If this timetable is met, the MiCA should enter into force in July. From this date, it will take 12 months for the provisions on tokens to apply with regard to assets and e-money tokens, while it will take between 18 and 24 months for all other provisions to apply as well. In summary, the new provisions and obligations introduced by the MiCA Regulation will be progressively applied within the EU as of July 2024, according to the forecast.

And the MiCA Regulation also points the way: machine readable regulations are the future

Within the MiCA text, however, reference is also made to another very important topic. A topic that at Aptus.AI we have been dealing with for some time and in respect of which we are leading the way with our proprietary machine readable format applied to financial regulations. Within the MiCA, in fact, it is explicitly stated that “the Commission shall be empowered to adopt implementing technical standards (ITS) developed by the EBA and ESMA with regard to machine readable formats for cryptocurrency white papers, standard forms, templates and procedures for applying for authorisation as a token issuer, standard forms and template for the exchange of information between the competent authorities, the EBA and ESMA”. To sum up, within the MiCA, the European financial authorities once again point the way with respect to the publication, dissemination and exchange of legal documents: a machine readable electronic format. Without going deeper into this subject here, we refer interested readers to two other posts, one on the presentation of Aptus.AI’s proprietary machine readable format at the EFIF (European Forum for Innovation Facilitators) meeting and the other on the possibility of automating and optimizing compliance and, in general, regulatory analysis activities through a machine readable regulatory format.

Comply to the MiCA is easy with Aptus.AI… also exploiting Generative AI

At this point, one final question remains: how will all companies operating in the cryptocurrency market comply with the MiCA in a reasonable timeframe? Compliance with the MiCA Regulation will require much effort from the compliance professionals working in these companies. In order to carry out these tasks accurately and as quickly as possible, the compliance departments of the companies operating in Crypto will certainly need technological tools that make their work faster and more precise, just like our RegTech SaaS, which is able to automate some specific steps of the compliance processes. Exploiting an innovative machine readable format of financial regulations, is able to automatically extract the regulatory requirements and obligations introduced by the MiCA, also taking into account the internal processes and policies of specific financial institutions. Not only that. Aptus.AI automated AI analysis is now also integrated with Generative AI tools that allows users to immediately obtain legal information that would have required hours of regulatory analysis and specific expertise. We are talking about our regulatory Chat, the Conversational AI service integrated within Aptus.AI’s RegTech platform which allow users to chat directly with the law and receive answers in real-time on the content of regulations.