The cryptocurrency market has quickly become an integral part of the financial landscape. Its rapid growth attracted retail and later institutional investors, accelerating worldwide adoption. As more crypto exchanges started to pop up, Big fintechs – not wanting to miss an opportunity – jumped onto the bandwagon with the likes of PayPal and Revolut adding an option to purchase and sell cryptocurrencies.
Until recently, however, crypto was in a gray zone with little regulation or control. The status quo didn’t stick and countries such as Singapore and Lithuania soon rolled out special crypto licenses. Recently, the EU also introduced its own legislation known as MiCA (Markets in Crypto Assets).
What Is MiCA?
The Markets in Crypto-Assets Regulation (MiCA) imposes unified market rules on the crypto industry in the EU. Officially applicable as of Dec 20, 2024, it covers authorization and supervision of transfers and even enforces laws on unregulated cryptos. It also includes rules for crypto public offers. MiCA’s objectives can be summarized in three points:
- Safeguard consumers from fraud, cyber-attacks, and market manipulation.
- Maintain fair and transparent market practices.
- Mitigate risks associated with the volatile nature of crypto-assets.
The rules will be in force in 27 member states and serve as a tool to filter out the bad apples not worthy of crypto license.
MiCA and Crypto License
Crypto companies must be authorized by one of the EU’s 27 national financial regulators, according to MiCA.
If the crypto industry proudly wore an anonymity badge it’s no more now, at least in the EU: MiCA requires that all EU crypto companies stay compliant and provide regular reporting to authorities on the nature of transfers, amounts, and more.
Why Prepare for MiCA?
Competitive Advantage
Being MiCA-compliant offers a competitive edge. It fosters trust and facilitates market expansion by attracting investors and partners who prioritize regulatory adherence. As of today, the majority of financial institutions prefer to purchase Ethereum and Bitcoin through specialized ETFs, a signal that laws and regulations are crucial for wider adoption. MiCA allows financial institutions to enter the crypto market directly meaning quicker adaptation to changes and more investment capital for crypto companies.
Market Confidence
Overall, the rules are similar to the ones in force in the banking sector. MiCA regulates the market meaning non-compliant companies will quickly fail. On the other hand, law-abiding entities can prepare for a prosperous future ahead. MiCA also enhances confidence and gives an opportunity to work in a predictable environment with predictable rules. Before it was hit or miss – newly-created crypto entities would operate unregulated for a certain period of time, only to face lawsuits later. That happened to Binance – in 2023 the company pleaded guilty in a US court and faced a penalty of more than $4 billion. MiCA ensures the rules are clear and transparent for everybody while at the same time imposing drastic penalties for non-compliance.
Non-Compliance with MiCA
Legal Consequences
Understanding MiCA is paramount for businesses that want to operate in the EU’s crypto market. Failure to comply results in fines amounting to up to €20 million or 5% of global annual turnover. That erodes customer trust, attracts negative publicity, and tarnishes brand image. Furthermore, it can cause significant operational disruptions. Businesses may face shutdowns or restrictions. Adapting to MiCA is about ensuring the continuity and growth of the business.
Staying MiCA-Compliant, with AI
The Role of AI in Compliance
AI-powered compliance solutions are relatively new, but they have quickly become indispensable. Compliance tools like Sedric use AI to monitor your business and your marketing partners for any risks, flagging potential violations and offering suggestions on how to fix them. (This applies to MiCA, of course, but to any and all regulations. As rules change quickly, AI offers an easy way to make sure your business is fully compliant to every new requirement.) If you work in the EU or plan to enter the EU market, it’s vital to consider integrating AI into your compliance strategy to reduce risk.
AI-Powered Compliance
Using AI for compliance offers numerous benefits, including increased efficiency, reduced human error, and significant cost savings. AI systems can process vast amounts of data quickly and accurately, ensuring that businesses remain compliant with minimal manual intervention.
Considering boosting your own compliance program with an AI-powered tool?
Learn how Sedric is helping fintech companies move faster without breaking things.
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Consumer Financial Services Regulatory & Compliance Group
Clark Hill
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