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The Markets in Cryptocurrency Assets Regulations (MiCA) was signed into law in June 2023, finally creating a framework for 27 countries. Although this was groundbreaking legislation for a region that accounts for nearly 20% of the global economy, MiCA start A 12-18 month transition, transformation and customization process; This is because, as the European Securities and Markets Authority points out, MiCA contains “a significant number of level 2 and level 3 measures” that still need to be developed and improved.
Therefore, 2024 will see the European Union move to enacting MiCA in practice, followed by collaboration and customization to expand its international reach, including with EU financial institutions seeking qualified sub-custodians.
Ultimately, it would be much easier to have one framework for all jurisdictions in the EU. Cryptocurrency exchanges and other companies no longer need separate licenses in each country in the EU. But even in 2024, individual countries will still have their own unique characteristics that need to be explored. For example, if a company is licensed to provide cryptocurrency services in Germany and wants to trade in France, it will still need to address France’s KYC and AML requirements separately.
So, it’s going to be a year ahead for the government, sorting out the details, filling out tons of paperwork and filling out forms between many parties. With the new processes associated with MiCA, no one can say, “Well, we’ve done that before.” Because there is no “transition” of such comprehensive cryptocurrency regulation anywhere in the world. Instead, much of the learning will occur on the ground, exploring new processes as they unfold. Companies actively preparing for 2024 should experience a smoother path to the benefits inherent in MiCA.
A spot Bitcoin ETF is likely to launch in the EU around 2024, initially for institutional use and later for retail. Once a spot Bitcoin ETF is approved for institutions, it is again thoroughly vetted before being made available to retail customers.
The bull market has made it more likely that spot Bitcoin ETF applications and approvals will come to fruition sooner rather than later. Due to the high transaction volume, there is a risk of missing out on opportunities to make money through financial products. This will enable smooth adoption of new digital asset products with a cryptocurrency-savvy generation.
Once the MiCA regulations are implemented and operational, we will see customization that will allow more people to have a piece of the financial pie. This could include bilateral agreements to help smaller regions achieve higher trade volumes in a favorable way that the EU could not achieve independently. For example, smaller banks in Switzerland do not have EU branches, so once MiCA is implemented, they could theoretically benefit from MiCA by concluding a bilateral agreement with the EU.
The adoption of MiCA will help Europe set the benchmark when contributing to international standards on rules and regulations on anti-money laundering and countering the financing of terrorism (AML/CFT). Organizations such as the International Organization of Securities Commissions (IOSCO) have developed standards that can also be used as guidelines. As cryptocurrency regulation develops in various countries and regions, common themes are emerging, such as the “same activity, same risk, same regulation” philosophy, where regulators are constantly making laws, rather than following what other jurisdictions do when making laws. It may make sense to profit from your work. Recreate the wheel.
That said, it is unlikely that we will see fully standardized international regulations across the board. The economy is driven regionally in different ways. Some regions are willing to introduce more open cryptocurrency regulations to attract more business, while others value risk management more. Importantly, each region provides clarity on rules and processes to ensure that cryptocurrency businesses can operate comfortably in that region and foster growth.
With the passage of MiCA, every bank and every registered asset manager in the EU can easily apply for a cryptocurrency custody license. However, many of these financial institutions, such as banks, will not want to take on these additional responsibilities, including securing appropriate technology and securing and maintaining the necessary technical expertise, and will therefore want to outsource services. – A custodian who manages digital assets. It is logical to use sub-custodians to provide a clearer separation of functions and funds.
Banks will want solid custodians who have demonstrated the ability to manage volatility well by keeping digital assets consistently safe. Financial institutions may further benefit by choosing a custodian who does not oversee their own exchanges to enjoy precise separation of functions.
Choosing a sub-custodian strategy is just one of many decisions key stakeholders will have to make as they explore MiCA implementation and future collaboration and customization.