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The Cryptocurrency Market Regulation (MiCA) has been hailed as a pivotal moment in cryptocurrency market regulation. However, significant misconceptions exist regarding fiat-backed stablecoins in Europe and the expected changes under MiCA.
John Egilson Co-founder and Chairman of Monerium. He previously served as Vice-Chairman and Chairman of the Supervisory Board of the Central Bank of Iceland from 2013 to 2017.
Contrary to popular belief, MiCA does not introduce entirely new regulations for fiat-backed stablecoins. Instead, it confirms that stablecoin issuers need to be regulated as electronic money institutions (EMIs).
This confirmation highlights an important but misunderstood fact. This means that many stablecoins currently offered in Europe are illegal as they are not authorized and regulated as electronic money (e-money) under European Union law passed more than 20 years ago.
As outlined in the Electronic Money Directive (EMD), in Europe, fiat stablecoins that represent a claim against the issuer already fall within the definition of electronic money. First introduced in 2000, electronic money is a “technologically neutral” digital alternative to cash, widely used in prepaid cards and mobile wallets.
MiCA confirms that issuers of fiat stablecoins must comply with existing EMDs. From July 2024, you will also need to comply with additional requirements set out in MiCA. MiCA clearly confirms the current law that states that only EMI and credit institutions can legally issue fiat stablecoins in the multinational European Economic Area Trading Area.
There is a widespread misconception that unapproved stablecoins are only illegal under MiCA. That’s not true. Fiat stablecoins that represent claims against the issuer are already illegal in the EEA unless they are issued by EMI or a credit institution and are fully authorized and regulated under legislation codifying EMD.
Failure to obtain the appropriate license to offer electronic money exposes issuers to legal liability, including potential fines and criminal charges.
Stablecoins offer the promise of enabling secure and efficient transactions and storage of digital cash without the involvement of traditional financial institutions. The importance of regulatory compliance cannot be overstated. Regulation and oversight serve as important bulwarks for consumer protection, including protecting consumers from fraudulent commercial practices and bankruptcy.
Regulation and supervision also help reduce financial instability, prevent money laundering, combat terrorist financing, and maintain the credibility and integrity of digital fiat currencies in the fiat system.
Currently, three European companies (Monerium, Membrane, and Quantoz Payments) are issuing on-chain fiat stablecoins under the Electronic Money Directive, following a regulation-first approach. Other issuers, including Circle, are applying for EMI licenses to become compliant.
In contrast, certain other stablecoin issuers have chosen to ignore current EU regulations regarding on-chain fiat stablecoin issuance and offer their products within Europe without appropriate permissions. Masu. It is a clear violation of the law to operate within the region without obtaining the electronic money license required to issue on-chain fiat currency. Their approach seems to be “move fast and break things”. While this strategy may be successful in gaining market share, it shows a blatant disregard for European regulations and laws.
The question is whether non-compliant stablecoin issuers will be held liable. It depends on European regulators at local and European level, including the European Banking Authority. Although currently operating illegally, the ability of issuers to later obtain e-money licenses to issue on-chain fiat stablecoins raises questions about the effectiveness of EU regulatory oversight and enforcement. arise.
The lax enforcement of existing rules in Europe means that even US-based companies that have publicly announced their intention to invest in EU member states that are currently applying for authorization are under pressure to implement institutional reforms to ensure compliance. It highlights the need.
Europe suffers from an alarming lack of regulation. Unregulated fiat stablecoins are listed on European exchanges. The same goes for US-issued stablecoins, which operate under far looser rules than their European counterparts. The lack of enforcement raises serious doubts about the ability of European authorities to protect Europe’s internal markets now and in the future, putting compliant European companies at a disadvantage and putting European consumers at risk. become. The obvious payoff for U.S. issuers adopting a “fix first, fix later” approach creates unfair competitive dynamics and puts European companies at a disadvantage in adhering to the rule of law. I’ll probably put it there.
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