In an exclusive with crypto.news, Jón Helgi Egilsson, a former Icelandic central bank chairman, outlines how the European Securities and Markets Authority (ESMA) is entering the final phase of crypto-asset regulation in the European Union (EU), and what this means for Crypto Assets (MiCA) legislation.
The cryptocurrency market is becoming more and more ingrained in the public sector. The need for a legal framework that guarantees security, stability and trust is of the utmost importance, with the latest MiCA regulations seen as the answer.
Yet, despite its importance, MiCA has been shrouded in confusion and misunderstanding, particularly regarding its impact on stablecoins and their compliance requirements.
In an exclusive interview with crypto.news, Jón Helgi Egilsson, a figure well versed in the intricacies of financial regulation and the crypto landscape, describes what the market and MiCA regulations mean for the crypto industry.
The co-founder and chairman of Monerium and a former chairman of the supervisory board at the Central Bank of Iceland, Egilsson is uniquely positioned to shed light on MiCA’s nuances. Through its insights, crypto.news tries to decipher its implications for the future of cryptocurrency in Europe and beyond.
What is your position on the current state of the MiCA regulations?
MiCA addresses three types of assets; e-money tokens (EMTs), asset reference tokens and crypto-assets. MiCA does not address NFTs and DAOs. I have previously expressed my opinion that a technology specific legislation for e-money deployed on blockchains is not useful.
You highlighted a common misunderstanding regarding the regulatory status of fiat-backed stablecoins in Europe. Can you elaborate on the challenges that stablecoin issuers face as they transition to compliance under both the Electronic Money Directive and MiCA?
Many believe that stablecoins will only be illegal once MiCA goes into effect. But this is a misconception. Fiat-backed stablecoins are already illegal under current e-money laws unless issued by licensed entities. Some issuers have simply chosen to ignore this and operate without authorization. This creates an unfair advantage against compliant issuers that have gone through the proper e-money licensing process. It is incredibly frustrating to see bad actors gain market share by flouting the rules because the financial authorities of the EU are not doing their job. The real issue is enforcement.
MiCA and the Electronic Money Directive (EMD2) both apply to stablecoin issuers in certain circumstances. Given the potential overlap, how do you foresee this affecting operational clarity for stablecoin issuers. Does this dual regulatory approach benefit or hinder the stablecoin ecosystem?
What MiCA effectively does is confirm that digital cash offered within the EU should be regulated as e-money. Nothing new there. However, it adds some provisions based on a claim that it is necessary because of the peer-to-peer nature of the blockchain technology.
How can European regulators ensure fairness in the competitive landscape, given the advantage US companies can have under less stringent regulations? What steps are needed to balance innovation with fair competition?
The more lax regulatory environment for stablecoins in the US gives US issuers a competitive advantage in the short term. They can bring products to market faster and with less friction than their European counterparts who have to meet the stricter requirements of EMD2 and MiCA.
However, this advantage may be short-lived as US regulators are also looking to introduce more comprehensive stablecoin rules. In the long term, Europe’s proactive and unified approach could be beneficial, as EU-based issuers would have access to the entire European market and enjoy greater legitimacy and trust from consumers.
What about international regulations?
International coordination around stablecoin regulation will also help level the playing field globally. Regulators should work together through bodies such as the Financial Stability Board (FSB) to align principles and mitigate risks of regulatory arbitrage. A race to the bottom in regulatory standards benefits no one in the long run.
A key area of focus in MiCA has been strengthening solvency requirements for stablecoin issuers. Regulators consider it fundamental to mitigate risks associated with the inherent volatility, even for stable coins. MiCA requires a strict solvency standard that ensures stable coins, often considered safe havens in the turbulent crypto sea, are backed by robust and reliable financial practices.
MiCA also addresses the issue of proof of solvency among stablecoin issuers. How important is this aspect of regulation to the stability and confidence in the broader cryptocurrency market, and do you believe the requirements under MiCA are sufficient?
Proof of solvency is addressed in the e-money legislation and is extremely important for financial services and financial stability. Under EU law, stablecoin issuers must be regulated as e-money institutions. E-money issuers must adhere to the supervision of financial authorities, maintain certain proprietary equity standards, etc.
What about unauthorized stablecoin issuers?
Unauthorized stablecoin issuers can cause a domino effect with far-reaching consequences. MiCA reaffirms that stablecoin issuers must be licensed e-money issuers and therefore must maintain sufficient reserves and be subject to regular audits. These measures are crucial to building trust and stability in the broader cryptocurrency market. While MiCA’s requirements merely confirm existing legislation in this regard, i.e. continuous monitoring and strict rules. A robust and transparent regulatory framework is essential to prevent stablecoin failures that could potentially destabilize the entire DeFi landscape, so it is strange that current EU laws are not enforced.
Can MiCA serve as a model for balancing innovation with consumer protection and market integrity?
Finding the right balance between innovation and regulation is essential for the healthy development of the stablecoin industry. While strict oversight is necessary to protect consumers and maintain financial stability, overly restrictive regulations can stifle innovation.
MiCA requires Crypto Asset service providers to have robust governance arrangements, including transparent lines of responsibility and recovery plans. How do you see these requirements affecting the operational models of CASPs, particularly smaller entities trying to navigate the regulatory landscape?
Like any business or sector, added regulation is going to add friction. In most cases, however, the European Union’s intentions with MiCA are to regulate digital asset businesses and provide a clear framework for their operation. While the decentralization paradigm that underpins many crypto projects may not always align perfectly with regulators’ desire for clear accountability, the overall goal of protecting consumers and promoting market integrity is well placed.
Looking ahead, how do you see the global impact of MiCA regulations on the cryptocurrency industry? Do you foresee other jurisdictions adopting similar frameworks?
I think the e-money directive (EMD) is an export standard from Brussels that can support a global standard for stable coins, no doubt. But regarding MiCA and how it creates technology-specific e-money legislation for the blockchain technology, I don’t see the added value.
However, MiCA also addresses asset reference tokens and crypto-assets, which are the new part of MiCA – not e-money. Apart from e-money, MiCA is an important milestone in digital asset regulation due to its novelty and attempt to regulate it. Its impact is likely to extend beyond the European Union.
As the first comprehensive regulatory framework for asset reference tokens and crypto-assets, MiCA sets a powerful precedent. If judged successful, other jurisdictions could eventually copy large parts of the regulation.
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