Cryptocurrency Series : The new European MiCA regulation

As the use of independent cryptoassets by small and medium-sized European companies with high international exposure grows[1]The European Parliament's Committee on Economic and Monetary Affairs (ECON) voted on the MiCA Regulation (Markets in Crypto-Assets) on 10 October 2022. The main objective of this project is to establish a common framework for all European Union (EU) Member States that have developed their own regulations on cryptoassets. Germany, Lithuania, Malta and France are the most advanced. Considering in particular the increase in the number of cryptocurrency-related cyber attacks from "2.9 % of all reported cyber threats in [January] 2021, [to] 8.4 % from February to October 2021"[2]The European institutions intend to introduce a regulatory framework for consumer protection applicable to platforms in case of loss or piracy of investors' assets.

This is without taking into account the European will to mitigate the risks of money laundering and terrorist financing, which may be permitted by the non-traceability of transactions carried out within the framework of decentralised finance not backed by central banks. The EU Member States remain aligned with Recommendations 15 and 16 of the Financial Action Task Force (FATF), for example with regard to the 'Travel Rule'. on transparency as to the origin and beneficiary of cryptoassets. There is therefore no major difference between the EU text and the FATF on the key points of compliance. Similarly, service providers whose headquarters are based in the territory of a third state considered "to be high risk in terms of anti-money laundering activities as well as on the EU list of non-cooperative countries and territories for tax purposes will be required to implement enhanced controls in accordance with the EU framework"[3].

Between regulatory requirements, controls and the promotion of an innovative investment technology, the future MiCA regulation is not without controversy on the potential encouragement or hindrance to the use of the solution that cryptoassets represent for businesses. On the one hand, cryptoasset sales and exchange platforms are expressing some fears about the development of a regulatory framework that is too far removed from the business reality and positioning of other jurisdictions, particularly in Africa. On the other hand, on the other hand, the world of banking compliance is calling for strict control by European decision-making bodies. The provisional agreement reached by the Council of the European Union and the European Parliament on 30 June 2022 was a balance between the different visions. However, the leakage of an updated version of the compromise text in September 2022 suggested that the draft contained new provisions that could hamper the adoption of independent cryptocurrencies by European businesses. The finally adopted, substantially different draft is not expected to come into force before the end of 2024. It already outlines a political vision of the arbitration between two visions of finance and the prospects of appropriation of this new tool by companies.

Indeed, independent cryptocurrencies can be considered by companies as an alternative solution to the difficulty posed by the over-compliance of banking institutions, which prefer to refuse to operate, as a precaution, transactions that are nevertheless authorised in view of the complexity of the nexus and the potential conflict between the European and cross-Atlantic sanctions regimes. Now a company can buy so-called cryptocurrencies stablecoinsFor example, a company that stores x grams of gold or x dollars per cryptocurrency to avoid volatility, and sends it to the recipient without going through a bank. While compliance issues remain in decentralised finance, the over-compliance of banks disappears. The initial cost of these checks is then amortised by the savings in bank fees. Transactions become near-instantaneous whereas several weeks would be required with one of the few banks that would agree to proceed with the transaction. The use of cryptocurrencies then offers access to new and promising markets.

However, the benefits of using independent cryptocurrencies could be limited by these new provisions of the MicA regulation. As it stands, the integration of tokens non-fungible (NFT) and stablecoins The most problematic issues are the algorithmic measures and the question of unfair competition from foreign platforms not subject to MiCA. These measures particularly affect European platforms, which process payments and trade for businesses. Platforms are now required to increase their compliance, with costs and delays being passed on. This will discourage businesses that use a platform on an ad hoc basis, as the competitive advantage of these platforms over banks is no longer as attractive. Others, which have a continuous and significant need, will continue to use them or carry out these transactions directly, without platforms, even if it means investing and training their teams. Finally, it is a compromise solution, as some economic players may use non-European platforms, which is not prohibited as long as there is no active solicitation.

The problem is therefore deeper, the growing difference between the EU's restrictive regulation and that of other more accommodating jurisdictions. The very choice of proceeding by exhaustive regulation, where the United States wants to regulate by progressive judicial decisions, does not allow the flexibility necessary for an innovative sector. The question then arises as to the issues underlying this choice. The European Union, unlike Washington, is planning to set up a central bank digital currency, the e-euro, which is a competitor for independent cryptocurrencies and stablecoins ... some of these should be regulated by MiCA.

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