Markets in Crypto-Assets (MiCA), a comprehensive regulatory framework for cryptoasset operators in the European Union (EU), has been passed by the EU Parliament. It was made law on Thursday 20 April 2023 after favorable votes.
EU lawmakers voted 517-38 in favor of MiCA, with 18 absentions. This represents a landmark achievement by the EU as it makes the EU the first bloc or major jurisdiction in the world to introduce a comprehensive crypto law. Having been passed by the EU lawmakers, MiCA will take effect in 2024.
According to the EU press release, MiCA will help the EU achieve three major things:
- Uniform legal framework for crypto-assets markets in the EU
- Operations with crypto-assets will be traced in the same way as traditional money transfers
- Enhanced consumer protection and safeguards against market manipulation and financial crime
Last year, the EU lawmakers agreed that they would approve and license crypto operators and stablecoin issuers in the EU.
Apart from MiCA, the Transfer of Funds, a separate anti-money laundering regulation which requires crypto operators to identify their customers, was also passed by the EU Parliament. The EU Parliament voted 529-29 in favor of the regulation, with 14 abstentions.
The EU boasts of MiCA being “the world first”.
According to the European Commission, through Mairead McGuinness, MiCA is the “world first” and the primary idea is “protecting consumers and safeguarding financial stability and market integrity”. Indeed, MiCA is the first comprehensive legislation on cryptoasset coming from a block as large as the EU jurisdiction. The new law is expected to position the EU as the go-to market for cryptoasset innovations while also ensuring consumer protection and investor safety.
Against the backdrop of the recent FTX collapse, MiCA has the potential of helping to regain or boost trust and confidence in the crypto industry. According to the lawmaker Stefan Berger who led the legislative negotiations, the new law means that the “European crypto-asset industry has regulatory clarity that does not exist in countries like the U.S.” Alluding to the FTX collapse, Berger said that the “sector that was damaged by the FTX collapse can regain trust.”
The European Securities and Markets Authority (ESMA) has however warned consumers investing in cryptoassets that it “is a risky endeavour with limited safeguards at this stage”. The ESMA is expected to release its timetable for drafting the secondary legislation under MiCA.
The first time MiCA was introduced by the European Commission in 2020. After three years of negotiations, it is a great feat that MiCA has been finally approved by the EU Parliament and the EU Council. When published in the EU official journal, the provisions of MiCA are expected to become effective in 12 months.
MiCA could bring an end to the discrimination of crypto operators by banks, insurers, and other financial institutions
Cryptoasset operators and other stakeholders hope that MiCA will help bring to an end the discrimination cryptoasset operators have been facing particularly in the banking and financial sector.
In January 2023, Frédéric Montagnon, founder of French blockchain company Arianee, told CoinDesk that “[t]he real challenge is to find a bank and insurance. And that’s really disappointing. You pass all the steps, you have your license and the market still says no. I would want to imagine that with MiCA that will change”.
Will Nigeria and other crypto-hostile countries learn from EU lawmakers and governments?
Globally, most banks are against crypto. The difference has been largely approach. In the U.S. for instance, no circular from the Federal Reserve has prohibited U.S. banks from facilitating crypto-related transactions, but they warn these institutions to ensure that they conduct AML. On their own, based on independent risk evaluation, most of these institutions presently refrain from facilitating crypto-related transactions.
But the situation is different in countries such as Nigeria, Ghana, and Kenya for example. Here, banks, other financial institutions, and nonfinancial institutions have been expressly restricted by the central banks from facilitating crypto-related transactions. In Nigeria specifically, the Central Bank of Nigeria (CBN) issued the cryptocurrency circular of 5 February 2021. Many stakeholders, including the Blockchain Industry Coordinating Committee of Nigeria (BICCoN) and Stakeholders in Blockchain Technology Association of Nigeria (SiBAN)—where I was at the time the General Secretary and the President respectively—questioned the appropriateness of the circular. The blanket restriction placed by the circular was considered discriminatory and consequently questionable under the Nigerian Constitution and other applicable laws in the country. On 18 October 2021, a Federal High Court sitting in Abuja, in a ruling delivered by Justice Taiwo O. Taiwo, effectively declared the Central Bank of Nigeria (CBN) cryptocurrency circular referenced as BSD/DIR/PUB/LAB/014/001 of 5 February 2021 null and void to the extent that it was inconsistent with Nigerian law. The court held that the CBN lacked the authority to declare cryptocurrency illegal by a mere circular. But that mere circular continues to be enforced in the country till date, rather than Nigerian law, including the relevant provisions of the new Money Laundering Act 2022 on virtual assets—an act of the National Assembly.
The Money Laundering Act recognizes virtual asset service providers (VASPs) as financial institutions for the purpose of AML/CFT compliance in the country. With such a legislative framework, one would have expected that at this stage—particularly after Nigeria’s Securities and Exchange Commission (SEC) also issued its regulatory framework for digital assets in the capital market a year ago—the CBN would have taken steps to effectively withdraw its circular, allowing the Money Laundering Act to apply. Unfortunately, no such step has been taken. In fact, bank accounts of persons suspected to carry out crypto-related transactions have continued to be blocked or closed down. Also, banks, particularly, suffer financial sanctions as reported here and here. As long as banks, other financial institutions, and nonfinancial institutions in Nigeria continue to enforce the illegal CBN circular, the relevant provisions on virtual assets in the Money Laundering Act 2022—an act of the National Assembly—remain effectively suspended by an executive circular unknown to law. This clearly violates the rule of law and the principles of separation of powers under Nigeria’s democratic Constitution. And it remains a sad development in the President Muhammadu Buhari and Governor Godwin Emefiele regimes.
However genuine the concerns and fears regulators and governments may have about crypto adoption, the more important thing is to put measures in place in order to ensure accountability, transparency, and integrity amongst crypto operators. This is where risk-based regulation—which stakeholders have been advocating for—comes in. Restrictions or bans that largely result in opacity and criminality are not healthy for the virtual assets industry, the financial system, and the nation. Especially as Nigeria prepares to inaugurate a new political administration, it is yet another opportunity to have better and wider stakeholder engagements in our collective best interest.
Before cryptoasset innovators in Nigeria and other presently crypto-hostile jurisdictions start moving to the EU, will a real MiCA come to the rescue?
by Senator Ihenyen, Editor-in-Chief, CAB. Senator is the Lead Partner at Infusion Lawyers where he heads the Blockchain & Virtual Asset Practice. He is the immediate former President of SiBAN and former General Secretary of Blockchain Industry Coordinating Committee of Nigeria (BICCoN) and Fintech Alliance Coordinating Team (FACT).