There’s an old saying that the United States innovates and Europe regulates.
While Europe’s tendency to regulate may cost it in some areas, having clear regulations may finally give it an advantage when it comes to the burgeoning blockchain and digital currency industries.
According to the Deputy Governor of the Central Bank of Ireland, Derville Rowland, the clarity the EU’s MiCA regulations provide will enable her country to stay at the forefront of “safe innovation.”
Rowland said she had two priorities regarding MiCA implementation: to work with other member states and relevant authorities to ensure coordination and consistency and to improve the authorization process by explaining the central bank’s expectations.
“Europe must refocus its collective efforts on closing the innovation gap with the US and China, especially in advanced technologies,” said Derville Rowland, deputy governor of the Central Bank of Ireland.
What do the MiCA regulations mean for blockchain in Europe?
Rowland called blockchain one of the “most notable” innovations in financial services. She said it is already helping to improve multiple sectors through the tokenization of investment products and enhanced interoperability.
One example would be mBridge by the Bank for International Settlements (BIS), enabling central banks to settle payments instantly via tokenized currencies. Clearly, some big players in global financial institutions are realizing the power of blockchain technology to deliver utility.
In Europe, the MiCA regulations aim to create harmonization across the EU, creating legal clarity, protecting consumers, and fostering innovation. Essentially, it’s an effort to standardize blockchain and associated technology in the block.
Of course, rules come with obligations, and the MiCA rules put some extra burdens on the shoulders of various parties:
- Crypto Asset Services Providers (CASPs) must obtain a license, ensure transparency, and implement anti-money laundering measures.
- Crypto Asset issuers must publish detailed whitepapers about the asset, associated tech, governance, and potential risks.
- Stablecoin issuers must maintain sufficient reserves and seek regulatory approval to issue large-scale coins.
- Service providers must also adhere to strict security, transparency, and risk mitigation standards, protecting investors and traders.
Does the EU overregulate? Can MiCA be the exception?
While some critics complain that the EU’s regulations hold back innovation and hamper growth, supporters suggest this is a misunderstanding and that the EU focuses on sustainable growth rather than speed. It’s difficult to argue with that: despite its tendency to write lengthy regulations and move slowly, today, the EU is one of the world’s largest free trade zones, with a GDP of $19.35 trillion and external trade amounting to over €5.07 trillion ($5.6 trillion) in 2023 alone.
Yet, there’s little doubt that the EU’s regulations have previously played some role in hampering innovation. The world’s major tech companies are based in the United States, which takes a more laissez-faire approach to regulating emerging technology. There are no major search engines, AI firms, or chip companies in the EU.
Could MiCA prove that clear, comprehensive regulations work? Time will tell. In any case, the Deputy Governor of the Irish Central Bank thinks these rules are a good thing and is focused on implementing them to foster innovation and promote financial inclusion.
With the central banks of Spain and Latvia already moving to implement MiCA in their own ways, the race is on to see which EU nation will lead regarding blockchain and digital currencies.
Watch Fintech Revolution Summit 2023: Blockchain tech is shaping the future of finance
