Regulating the Unruly: MiCAR and the Future of Crypto Compliance

In a recent speech in Venice,
Andrea Enria, Chair of the Supervisory Board of the European Central Bank
(ECB), delved into the complex realm of cryptocurrency regulation, focusing
on the Markets in Crypto-Assets Regulation (MiCAR).

MiCAR, operational since June
2023 and set for full EU-wide implementation by the end of 2024, marks a
groundbreaking effort by the European Union (EU) to bring order to the
burgeoning crypto industry.

Regulating Crypto-Asset

The framework aims to tackle
the complex technical features of the crypto-assets landscape, rooted in
distributed ledger technology (DLT). In this realm, assets are encrypted as
digital tokens, and transactions occur without the need for centralized intermediaries.
Bitcoin and DeFi, as extensions of this concept, initially challenged
traditional financial structures by advocating for a system independent of
financial intermediaries and public institutions.

The initial stance leaned
towards segregating the crypto-assets world from the regulated financial
sector, allowing these technologies to develop beyond mainstream banking
channels. However, recent turbulence in crypto markets prompted a shift in
stance. The argument is that the “let crypto experiment in a closed
environment” approach is no longer tenable, considering the sector’s
growth and its increasing interconnections with the regulated financial sector.

As the EU moves forward with
MiCAR, Enria highlighted the importance of addressing issues related to sectoral
concentration, ensuring the reliability of stablecoins, and regulating
interactions between crypto-assets and the traditional banking sector. He emphasized
the need for a clear regulatory regime for tokenized deposits, both retail and
wholesale, to promote efficiency and reduce operational risks.

MiCAR’s Significance:

MiCAR emerges as a significant
legislative achievement, positioning the EU at the forefront of global crypto
developments. Its harmonized framework, directly applicable across all member
states, regulates the issuance of crypto-assets and the provision of related
services. One fundamental aspect of MiCAR is the requirement for issuers to
ensure segregation between their assets and those of their customers, aiming to
prevent disruptions akin to those seen in recent crypto market collapses.

Importantly, MiCAR’s scope does
not cover crypto-assets already regulated as financial instruments or products
under existing EU legislation. It distinguishes between fully decentralized
finance (DeFi) and native cryptocurrencies like Bitcoin, which fall outside its
regulatory scope.

Acknowledging the challenges
posed by the “deterritorialization” of financial services enabled by
technological advances, the regulatory regime for tokenized deposits, both
retail and wholesale, is emphasized to promote efficiency and reduce operational


MiCAR represents a crucial step
in regulating the crypto industry within the EU. The insights into the
challenges and considerations involved in this regulatory journey provide a
glimpse into the complex task of balancing innovation with prudential and consumer
protection measures. As MiCAR unfolds, its effectiveness in addressing the
evolving landscape of crypto challenges will undoubtedly shape the future
trajectory of the crypto industry in the European Union.

This article was written by Pedro Ferreira at

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