Reactions to last week’s European Parliament vote on the Markets in Crypto-Assets regulation, known most commonly as MiCA, has been generally positive. Where does Luxembourg, with its early bet on crypto, now stand? We’ve spoken with several crypto observers, including Nasir Zubairi, CEO of the Luxembourg House of Financial Technology.
Zubair sees the arrival of MiCA as bringing crypto assets and cryptocurrencies into the mainstream within the European Union. Anyone in the industry worth their salt has been crying out for this regulation to come, he argued.
Luxembourg has worked hard to develop the infrastructure and regulatory framework to encourage the development of its own still-nascent crypto industry. Zubairi pointed to the fact that Bitfly and Bitstam were the first two regulated crypto-related businesses in the EU. He said the country now has the “badge of honour in being the first to approve a bank providing crypto services with Swissquote.”
The country also has a growing number of crypto custodians setting up in Luxembourg. “There is increasing demand from more and more funds to set up sub-funds that target crypto.” In terms of security tokens, Zubairi said that most of these issuances have occurred under Luxembourg law.”
“When you talk to the issuers and those working in this market, every single one of them has said that Luxembourg has the most robust set of rules and regulations around this area.”
Confidence still building
Still, Zubairi conceded that there could still be a lack of confidence in crypto assets. Lhoft will be publishing the second edition of its report on crypto next month. “I would hazard a guess that confidences may have even declined slightly given what’s happened in the industry,” he said. “It’s a new product, a new asset class, you’re dealing with a bunch of traditional financial professionals that don’t see a robustness around the sector.”
There was plenty about crypto-assets that properly concerned asset managers and custodians. “It’s been like the Wild West in many case, right?” MiCA will put a framework in place that provides a much more robust framework, he explained.
While Zubairi said he expects that now that MiCA has been approved that some of the existing crypto players will go bankrupt or leave because they’re not willing to comply with the new regulation. But plenty of others will remain. “I think that most people who are worth their salt within the cryptocurrency industry applaud that — I think that a lot of people have been crying out for this.”
Powerful marketing tool
The increased consumer protection is “an incredibly powerful marketing tool” for the crypto industry. “It means that the industry can appeal to a broader customer business,” he said. There may have been concern about a lack of accountability. “Now we have accountability.”
Zubairi said he is confident that this will lead to more growth, through the continued and potentially accelerated growth of the cryptocurrency industry.
Zubairi’s optimism was echoed by crypto specialists at the ABBL banking association, Ananda Kautz and Andrey Martovoy. MiCA will bring changes to the crypto industry, they told Investment Officer Luxembourg. “While established financial institutions are used to conduct business in a highly regulated environment, innovative start-up and scale-up firms specialised in crypto-asset activities will have to comply with the new set of rules that MiCA puts in place.”
Facilitating crypto for banks
The ABBL team called attention to MiCA’s introduction for EU-wide crypto-assets licensing, meaning that an authorisation in any EU member state will be accepted EU wide. “It will make it easier for banks to offer crypto-related services, as banks will be able to transact with fully-regulated crypto counterparties,» said Kautz and Martovoy.
The duo also pointed out that MiCA will be accompanied by a set of regulatory and implementing technical standards (RTS) that will be developed by the European Supervisory Authorities once the regulatory proposal is adopted. “This will be an opportunity for the ABBL to participate in the further dialogue with regulators to find answers to the questions that are not detailed in the MiCA text.”
Luxembourg and many other EU countries had previously considered virtual assets from the anti-money laundering and terrorist financing perspective, said the ABBL. “The MiCA regulation goes far beyond that.” They said that this included “other important aspects of crypto-assets” including consumer protection, financial market integrity and financial stability, which includes microprudential regulation such as capital and liquidity requirements and macroprudential rules to maintain the stability of the financial system.
MiCA likely won’t be the end of crypto-assets regulation, said the ABBL duo. “We are aware that certain European institutions already now think about further regulatory acts that should be in place once the MiCA comes into force. This could include regulations on crypto-asset lending, staking, non-fungible tokens, sustainability criteria, DeFi and other aspects.