With the enactment of the Markets in Crypto-Assets Regulation (MiCA) in June 2023, the European Union (EU) set the stage for a significant shift in the crypto landscape. This regulation, covering twenty-seven countries and nearly twenty percent of the global economy, marks the beginning of a transition period spanning twelve to eighteen months. While the initial framework is in place, further development and customization of Level 2 and Level 3 measures are required, as highlighted by the European Securities and Markets Authorities.

In the coming year, the EU will move towards implementing MiCA, followed by collaborative efforts and customizations to extend its impact globally. This includes EU financial institutions seeking qualified sub-custodians to manage digital assets.

Spot Bitcoin ETF approvals are on the horizon across Europe
The harmonization of regulations within the EU will streamline operations for crypto exchanges and firms, eliminating the need for separate licenses in each member state. However, unique characteristics of individual countries will still need to be addressed. For instance, companies licensed in Germany may encounter distinct KYC and AML requirements when transacting in France.

The year ahead will be marked by governments refining details, navigating paperwork, and engaging with various stakeholders to ensure compliance with MiCA. Companies that proactively prepare in 2024 will likely experience smoother transitions and reap the benefits offered by MiCA.

Spot Bitcoin ETFs are expected to be introduced in the EU in 2024, catering initially to institutional investors before being made available to retail clients. The current bull market enhances the likelihood of expedited ETF approvals, driven by the fear of missing out on lucrative financial products.

Following the implementation of MiCA regulations, we can anticipate customizations that enable broader participation in the financial ecosystem. Bilateral agreements between the EU and smaller jurisdictions may facilitate increased trading volume and collaboration.

International AML/CFT standards will be embraced
With MiCA adoption, Europe contributes to setting global standards for anti-money laundering and combating the financing of terrorism (AML/CFT). Common themes in crypto regulations are emerging worldwide, emphasizing the importance of regulatory clarity to foster growth and innovation.

MiCA and custodial requirements

MiCA grants every bank and registered asset manager in the EU the opportunity to apply for a crypto custody license. However, many financial institutions may opt for sub-custodians to manage digital assets, preferring to delegate responsibilities and mitigate risks. Choosing an established custodian with proven expertise becomes crucial for maintaining asset security and operational efficiency.

As stakeholders navigate the implementation of MiCA, decisions regarding custodial strategies and collaborations will be pivotal in shaping the future landscape of crypto adoption in the EU.