The EU's MiCA framework, fully effective from late 2024, has processed dozens of license applications, yet only a handful operate cross-border. National regulators now question the passporting system's integrity, revealing early cracks in unified . This trend highlights growing tensions in the crypto market.
Understanding MiCA's Passporting Mechanism
MiCA allows firms licensed in one EU nation to serve all 27 member states without extra approvals. This aims to foster a single market for cefi and Web3 services.
However, passporting relies on consistent standards across regulators. Divergences in application speed and rigor now undermine this goal.
National Regulators Push Back
France, Italy, and Austria lead the challenge against passporting. They argue some jurisdictions grant licenses too leniently, enabling regulatory arbitrage.
According to Reuters, France's AMF president Marie-Anne Barbat-Layani called blocking passports an
atomic weapon
option. She noted firms shop for weak links in Europe for easier approvals.
Italy's Consob and Austria's FMA joined in a position paper urging ESMA to oversee major crypto entities. They cited major differences in supervision since MiCA's rollout.
Concerns Over Regulatory Arbitrage
Regulators worry firms exploit inconsistencies to bypass strict rules. For instance, Malta and Luxembourg have issued licenses to giants like Coinbase and Gemini.
An ESMA review flagged Malta's process for inadequate risk assessments in one case. This fuels doubts about license equality across the EU.
Jerome Castille from CoinShares told Cointelegraph that if licenses seem unequal, MiCA's single market promise evaporates. He drew parallels to past migrations under MiFID.
Impact on Smaller Firms and Market Dynamics
Smaller players face heavy compliance burdens under MiCA. Marina Markezic of the European Crypto Initiative said the process might eliminate many startups.
Larger cefi operators benefit from passporting but risk scrutiny if oversight centralizes. This could raise costs and slow market entry.
Proposed Solutions and EU Response
The trio of regulators proposes shifting big-firm supervision to ESMA for consistency. They also seek MiCA revisions for better cybersecurity and token offering management.
ESMA vows to work on uniform authorization. Yet, resistance from smaller nations like Malta persists, viewing centralization as added bureaucracy.
Insights from Industry Voices
Recent discussions on X highlight the divide. One expert criticized France's stance as sour grapes over lost business to Malta.
Another post noted France's push could increase frictions in the bloc's regulation.
These views reflect broader market unease about fragmentation.
Strategic Implications for Crypto Markets
MiCA's territorial rules require EU establishment for asset-referenced tokens, per Bird & Bird analysis. This contrasts with US flexibility under the GENIUS Act.
Divergences may drive innovation elsewhere if Europe fails to harmonize. Firms must adapt strategies for dual compliance in global markets.
Future Outlook
Ongoing talks could revise MiCA by 2026, addressing cross-border gaps. Regulators aim for stability, but delays might deter investments.
Crypto entities should monitor ESMA guidelines and prepare for stricter checks. Proactive compliance ensures resilience in evolving .
This challenge to MiCA passporting reveals the delicate balance in EU regulation. It affects cefi market growth and underscores the need for unified standards to maintain investor trust.
