Summary

This study analyses the European Union’s (EU) law on crypto-assets: Market in Crypto-Assets (MiCA) Regulation with the intent to find any remaining regulatory challenges. In other words, to find any areas of the crypto industry that remain unregulated, or under-regulated after the regulations come into force. The study finds several critical challenges that MiCA leaves. The study provides an in-depth analysis of the Crypto Winter, lending, staking, sustainability, non-formalized information, market abuse, anti-money laundering and combating the financing of terrorism (AML/CFT) rules, NFTs, and more.

Key points

  • Fully decentralized platforms are excluded from MiCA, but the study finds that what the industry calls “fully decentralized” is in fact mostly controlled by a small group of people or companies, creating a high degree of centralization. This includes DAOs.
  • MiCA under-regulates so-called systemically important crypto intermediaries (SICIs), such as FTX, Terra-Luna foundation, Binance, etc., and so does not address the crisis and huge losses that were the result of the crypto winter.
  • The risks found in the crypto industry are similar to those known in traditional finance. This means that the same reasons we have to regulate banks, exchanges, investment funds, etc. are also true for the crypto industry. In other words, the crypto industry requires similar rules and regulations as traditional finance.
  • Crypto-assets, including NFTs, are mostly akin to financial instruments (securities in the US) under EU law. Therefore, it would be best to implement a “default rule” that renders crypto-assets to be financial instruments until proven otherwise.
  • Developing an official “Euro Wallet” with integrated compliance features could greatly assist with AML/CFT efforts and could include sustainability disclosures to keep better track of the environmental footprint of the crypto industry.

Authors

Dirk A. Zetzsche
Universite du Luxembourg – Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf – Center for Business & Corporate Law (CBC); European Banking Institute

Ross P. Buckley
University of New South Wales (UNSW) – Faculty of Law & Justice

Douglas W. Arner
The University of Hong Kong – Faculty of Law

Maurits van Ek
Universite du Luxembourg – Faculty of Law, Economics and Finance

Commission by …

Committee on Economic and Monetary Affairs (ECON), Policy Department for Economic, Scientific and Quality of Life Policies, European Parliament, Luxembourg.

Recommended citation

Zetzsche, Dirk Andreas and Buckley, Ross P. and Arner, Douglas W. and van Ek, Maurits, Remaining Regulatory Challenges in Digital Finance and Crypto-Assets after MiCA ( 2023). Committee on Economic and Monetary Affairs (ECON), Policy Department for Economic, Scientific and Quality of Life Policies, European Parliament, Luxembourg. May 2023, Available at SSRN: https://ssrn.com/abstract=4487516 or http://dx.doi.org/10.2139/ssrn.4487516