A single market worth protecting: Getting the MiCA review right

As the European Commission's review of the Markets in Crypto Assets Regulation (MiCA) closes, Europe must determine if its crypto rulebook is protecting the market without imposing excessive costs on those who build it. When MiCA came into force, it established a unified, coherent rulebook for the first time, allowing crypto asset service providers (CASP) authorized in one European Union or European Economic Area member state to offer services across the bloc.

This milestone achievement should not be taken for granted, as it eliminated the patchwork of national regulations and provided clients with a choice among licensed, supervised providers. The review should focus on calibrating the balance between maintaining the beneficial aspects of MiCA and addressing the growing compliance burden that may be outpacing the risks it aims to mitigate.

MiCA's entry barrier has been raised, imposing a more demanding authorization and compliance framework on firms. However, this regulation has also expanded Europe's single market to approximately 450 million people, giving firms a compelling reason to establish operations in Europe. The key question for the review is whether the obligations for market access remain proportionate to the scale of the market they unlock.

Regulations should be applied where there are genuine risks to market participants or stability, and they should be proportionate to those risks. Compliance frameworks should ultimately be judged by their ability to meaningfully reduce risk. As the review proceeds, it is essential to challenge every requirement, retaining only those that address material risks and simplifying, streamlining, or removing those that do not.

Compliance costs for CASPs have risen significantly under MiCA, but this is not inherently a criticism. Some of this cost is the price of admission to a large and valuable market, which well-run firms should be willing to bear. However, cost can become a barrier to entry for smaller firms and newer entrants, stifling competition and innovation.

The review must closely monitor the cumulative regulatory burden, ensuring that any new rules add risk-reducing value rather than merely increasing costs. Europe has created a rare large, unified, credibly regulated market for crypto assets. The challenge now is to ensure the market remains attractive to firms that drive innovation and growth.

Getting the balance right is in everyone's interest, and the coming months provide an opportunity to achieve a proportionate, effective, and market-protecting review.