The regulatory landscape for cryptocurrencies has undergone significant transformation in 2024, with the European Union (EU) leading the charge through landmark initiatives such as the Markets in Cryptoassets (MiCA) regulation, but also guidelines on stablecoins as well as updates to the so-called “travel rule” for crypto transfers, a new report by Elliptic, a British blockchain analytics firm, says.
These efforts represent some of the most significant crypto regulatory advancements of the year, highlighting the EU’s pioneering role on the global stage, and setting the stage for regulatory trends in other regions.
MiCA: a groundbreaking regulation
The report, released in September 2024, highlights MiCA as a pivotal step in the global regulation of cryptocurrencies. The regulation, which aims to harmonize crypto regulations across the EU, marks the first comprehensive framework introduced by a major global economy.
A major component of MiCA is the licensing requirement for cryptoasset service providers (CASPs), which obligates them to adhere to strict market conduct, consumer protection and prudential standards.
Once licensed by a national supervisory authority in one EU member state, a CASP is allowed to extend its services across the entire bloc, creating significant business opportunities.
The rollout of MiCA is being conducted in phases. Provisions on stablecoins took effect on June 30, 2024, while the remaining parts of the regulation will start to apply on December 30, 2024.
Updates on the “travel rule”
Another key regulatory development in 2024 was the EU’s updates to its travel rule to cover crypto transfers.
The travel rule refers to regulations that require financial institutions to share information about the sender and receiver of financial transactions. It’s designed to combat money laundering, terrorism financing and other illicit financial activities.
The new guidelines, released by the European Banking Authority (EBA) in July 2024, specify the informations required to accompany every crypto transfer, regardless of their amount. They also outline steps for payment service providers and CASPs to address missing or incomplete details, and establish measures for managing non-compliant transfers.
The update aims to ensure a consistent EU-wide approach to tracing transfers for anti-money laundering and counter-terrorism financing (AML/CTF) purposes, taking effect from December 30, 2024, and replacing earlier guidance.
Stablecoin rules
Finally, stablecoins, because of their growing importance in the crypto ecosystem, have come under increased regulatory scrutiny.
Under MiCA, stablecoin issuers are required to obtain approval from relevant member state authorities before offering their tokens within the EU, or when offering stablecoins pegged to the euro or other member state currency.
They must maintain adequate reserves with a one-to-one ratio and partly in the form of deposits. They must also provide redemption rights to token holders at any time and free of charge, and must have a registered office in the EU.
Outside of the EU, other jurisdictions have also released stablecoin regulations over the past year. In Switzerland, the Financial Market Supervisory Authority published on July 26, new guidance, clarifying the obligations of stablecoin issuers.
The guidance, which emphasizes AML/CFT compliance and default guarantees, requires issuers to determine whether their tokens qualify as deposits or investment schemes and comply with banking license requirements if applicable.
New challenges for industry players
Although these regulatory developments are providing greater clarity for businesses operating within the crypto space, they also introduce new compliance challenges to industry stakeholders.
Critics argue that MiCA could increase costs for providers and create significant burdens for startups and smaller players, raising barriers to entry and stifling innovation.
Meeting the new standards may prove challenging for some companies as they involve costly licensing applications, adjustments to the business operations to meet the requirements of the license, including capital and AML and compliance functions, as well as ongoing obligations for monitoring and reporting, KPMG warns.
This dynamic is expected to give larger companies with substantial financial resources a competitive edge, enabling them to acquire, at a discount, smaller crypto companies unable to comply with the new legislation.
Such consolidations are already taking place. In July, British crypto trading platform Iconomi acquired Triaconta, a Dutch crypto investment platform to grow and develop in the Netherlands and wider EU market. In September, Kraken, a leading American crypto exchange, completed its acquisition of BCM, one of the Netherlands’ oldest and most renowned registered crypto brokers.
In addition, some companies are navigating these challenges by choosing jurisdictions with less stringent regulatory environments. For example, OKX, one of the world’s largest crypto exchanges by trading volume, selected Malta over France as its EU hub, citing “more lenient … compliance”. Similarly, Israeli broker eToro chose Cyprus as its EU hub where it secured a CASP registration in September 2023.
The Elliptic report, titled Global Crypto Regulation Landscape 2024, provides an update on regulatory progress related to cryptoassets. It highlights key trends and advancements in 2024 so far, offering a detailed overview of global and regional developments in crypto regulations.
Featured image credit: image via freepik
