MiCA under pressure as national regulators challenge passporting

As the European Union rolls out its landmark Markets in Crypto-Assets (MiCA) framework, the law’s key promise of a unified market is already under pressure.

In the latest episode of Byte-Sized Insight, Cointelegraph explored whether MiCA can live up to its promise

Promises vs reality

The regulation was designed to simplify operations for crypto firms by introducing a single licensing system across all 27 member states. Once licensed in one country, companies would be able to “passport” their services across the bloc without navigating a patchwork of local rules.

But less than a year into implementation, national regulators in countries including France, Italy, and Austria are voicing concerns that passporting could encourage firms to choose jurisdictions with lighter oversight, a practice known as regulatory arbitrage.

“Regulatory competition in Europe is nothing new,” said Jerome Castille, head of compliance and regulatory affairs for Europe at CoinShares

“We saw retail trading platforms flock to Cyprus and Malta under MiFID. With MiCA, the expectation was that this time it would be different. But again, we kind of see firms choosing jurisdictions seen as more accommodating. And if people start thinking that not all licenses are equal, then the whole single market promise goes away.”

The issue, according to Castille, is not a lack of rules but a lack of consistent implementation. “Europe already has a very high level of investor protection and probably the highest globally,” he explained

“The real issue right now is ensuring that MiCA is fully implemented. Without formal guidance, national regulators are making their own call. That’s where divergence or even regulatory arbitrage comes from. If we get that right, the market becomes both safe and attractive for global players. If we don’t, innovation will look elsewhere.”

Related: BitGo secures license to launch regulated crypto trading in Europe

Little fish big pond

For smaller firms, the rollout is proving particularly challenging. Marina Markezic, executive director of the European Crypto Initiative, noted that capacity gaps between regulators and the pace of new rules could squeeze startups out of the market

“It is very intense to be compliant in a very short amount of time,” she said

“For the biggest ones, having one single access to the whole European Union market is really positive. But unfortunately, for the smaller companies, it’s a really big burden and they might not survive this process.”

While MiCA was Europe’s bid to lead on crypto regulation, its success will depend on whether the rules are applied evenly across the bloc

As Markezic added, “There are 27 different national competent authorities supervising the same regulation. Some are bigger, some smaller, some more experienced, some less. It’s really a test for Europe to see if we’re able to supervise consistently.”

Listen to the full episode of Byte-Sized Insight for the complete interview on Cointelegraph’s Podcasts page, Apple Podcasts or Spotify. And don’t forget to check out Cointelegraph’s full lineup of other shows!

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