MiCA's Goals for the Trilogues: A Last Chance for European Digital Sovereignty

For more than two years, Adan, its members, and their supporters within the crypto-asset industry have sought to contribute at every stage to the development of innovative and appropriate regulations designed to help the emerging crypto-asset sector grow in an environment that is secure for both the industry and users. With this in mind, ADAN shares the same objectives as the European Union and has consistently supported the regulation of crypto-asset markets (CAM). Indeed, harmonizing rules among EU players presents a multifaceted opportunity to help the industry structure and expand its activities more easily through the passport, ensure a level playing field, establish commercial partnerships with institutional players, and provide serious and credible players with a tool to differentiate themselves from others. 

That said, Adan is extremely alarmed by the prospects of MiCA.

On the one hand, ADAN is deeply concerned about recent developments in the regulatory debate. First, the accelerated pace of negotiations and calls to finalize and implement MiCA in the very short term, which threaten the quality of this regulation. Second, the incomplete and sometimes outdated information regarding crypto-assets and market conditions on which certain recent discussions are based. Third, the failure to engage European cryptocurrency companies in these discussions, which would provide a better understanding of their operations. They are, in fact, the best stakeholders to assess the impacts of new regulatory proposals and to determine which rules are appropriate, proportionate, and effective. The MiCA regulation will affect businesses and jobs at the micro level and the future of the European digital economy at the macro level: we cannot make decisions of such importance for the future without a thorough understanding of the sector, the risks, and the opportunities presented by crypto-assets, as well as the consequences of regulatory changes.   

Furthermore, with regard to the substance of certain requirements, the IAM may not meet the EU’s objectives of striking a fair balance between investor protection and the promotion of innovation. 

In the context of the trilogues, three key areas for improvement could help restore this balance.

Proportionality. The innovations brought about by crypto-assets are driven by new entrants. According to the 2020 overview of the cryptocurrency industry conducted by ADAN, 83% of French cryptocurrency companies are less than five years old. The 600 crypto projects in France (according to the public investment bank Bpifrance) span a variety of economic sectors. As such, relying solely on established players to build crypto-asset markets is not a winning strategy. While it is obviously normal to build bridges between traditional players and new markets to leverage their regulatory expertise, the specific profile of the new “pure players” must also be taken into account. Thus, according to the aforementioned ADAN report, 62% of teams have fewer than 10 employees, the vast majority of companies struggle to secure financing, etc. This implies more proportionate rules for crypto-asset service providers (CASP) and stablecoin issuers (in terms of capital requirements, liquidity, etc.), requirements for scaling entities based on the size and maturity of their activities, and the granting of the same exemptions as those enjoyed by other financial intermediaries when crypto-asset industry players meet the same conditions. Proportionality should be assessed through impact analyses of the AML requirements conducted by EU authorities.

Adaptability / leveraging technological opportunities. Not only does MiCA fail to sufficiently leverage technological opportunities, but it also fails to take into account the specific characteristics of crypto-assets and blockchain technologies. While drawing inspiration from the traditional regulatory paradigm is understandable as a first step, a necessary next step is to streamline rules where they are ill-suited or can be simplified without hindering investor protection or market stability. MiCA’s requirements must be based on the operational and technical capabilities of new entrants and their track record as “pure players.” This will prevent situations where companies cannot de facto comply and where ineffective and overly burdensome rules hinder their operations. For example, it would be beneficial to encourage sustainable mining activities in Europe, allow for innovative use cases involving interest, and consider appropriate rules for decentralized applications (including stablecoins) and non-financial crypto-assets (including NFTs) rather than applying MiCA as designed for centralized financial activities. The AMC must focus exclusively on financial activities.

Pragmatism. As a new and still-maturing sector, the crypto-asset industry is still taking shape. The introduction of regulations must not compromise the development of businesses or their competitiveness. It is therefore essential to restore the phased approach of the AMC’s rules. This is also a more realistic approach for supervisors, who will likewise need to adapt to the expansion of the scope of entities they oversee, develop their expertise, and equip themselves with all necessary resources. A phased approach therefore appears essential to ensure effective supervision without penalizing market participants. This should result in the creation of a fast track for CCPs already authorized under national regimes (as was done for crowdfunding platforms), the granting of more realistic grace periods to allow them to achieve compliance, the planning of a phased implementation of MiCA and other regulations applicable to cryptocurrency stakeholders (such as anti-money laundering and counter-terrorist financing regulations), and the initiation of long-term work on DeFi and NFTs.

Ultimately, MiCA could still become the truly effective and balanced regulatory framework that businesses and regulators are calling for. If not, it will inevitably lead to a massive exodus of talent and companies from the EU—an option that is becoming increasingly viable for them in the context of current debates. Ultimately, driving our future champions out of the EU risks undermining our shared goals of creating a safe environment for citizens who wish to benefit from the new services offered by the cryptocurrency sector, and of ensuring legal certainty for businesses. Such a situation would undoubtedly lead to the destruction of jobs and wealth for Member States and the weakening of the EU’s digital sovereignty.

In addressing these critical challenges, Adan stands ready to work alongside EU institutions.