The European Union’s sweeping Market in Crypto-Assets (MiCA) legislation is slowly moving toward becoming law, and local crypto companies are getting ready for the change. The new regulations, which will be the law for all 27 EU member countries, apply stricter rules than are now in place in some European countries.

In addition to very detailed rules and limitations for stablecoin issuers, which CoinDesk has been covering in depth, MiCA demands an unprecedented level of transparency from crypto exchanges.

Under the legislation, not only must crypto companies keep the public informed about their pricing process and trading volumes in real time, but they must settle all trades the same day those trades happen. Exchanges must keep separate their own funds, including crypto, and funds belonging to their clients. The regulation also explicitly prohibits insider trading.

Most importantly, MiCA introduces a universal licensing approach for all EU member states, making it the most comprehensive legislation of its kind anywhere in the world.

Frédéric Montagnon, founder of French blockchain company Arianee, told CoinDesk the MiCA licensing and other rules are “more complex, more sophisticated” than those currently established by the French regulator, adding, “During the MICA process, they took a large part of what was done in France and made it deeper.”

At the moment, licensing is only mandatory in France for those crypto companies that provide any kind of crypto custody, meaning they store users’ funds in their own accounts. For those that don’t provide custody services, licensing is optional. MiCA – which as an EU-wide directive must be enacted at the member-state level – will make it obligatory for everyone.

Banking and insurance for crypto

On the first site, things won’t change much for the 60 companies that have already registered with the French Financial Markets Authority (AMF) and “have already adapted their processes to what the French regulator told them to do,” Montagnon said. “There is nothing in MiCA that is impossible to reach for a startup.”

However, there’ll be one important change: If the final version of MiCA makes it mandatory for cryptocurrency service providers to get their businesses insured, it will be a headache for startups in France, Montagnon said.

“It’s hard to find someone to insure clients’ funds, especially in crypto, especially after the FTX crash,” Montagnon said. French banks have been unfriendly to crypto firms because it’s also nearly impossible for them to secure an audit by a reputable company. Some local household names among banks do work with select crypto companies (Montagnon won’t say which banks), but for most firms it’s almost impossible to get a bank account.

“The real challenge is to find a bank and insurance. And that’s really disappointing. You pass all the steps, you have your license and the market still says no. I would want to imagine that with MiCA that will change,” Montagnon said, but he is pessimistic that will happen.

In Germany, says Sven Wagenknecht, editor-in-chief of crypto news website BTC-ECHO, getting a bank account is also a pain for crypto startups.

“In Germany, most banks are against crypto,” he told CoinDesk. Smaller banks, such as N26 and Solaris, for example, are friendlier to the industry, but the biggest ones, like Deutsche Bank, are still keeping away from crypto. This may change once a pan-European regulation is in place, he believes: “Banks need some clarity in regulation, and MiCA is a step forward.”

There is another part of MiCA that can push European banks and crypto closer, at least in Germany, Wagenknecht said: MiCA will make applying for a crypto custody license an easier and more transparent process than current German regulation offers.

This will give a green light to the German banks that are interested in providing crypto custody themselves, such as Sparkasse, which has been reportedly working on a crypto trading service, and Hauck & Aufhäuser, which acquired a licensed crypto custodian Kapilendo in 2019.

Securing a crypto custodian license in Germany at the moment is a very taxing process, Wagenknecht said, and just a handful of companies currently possess one. “You have to wait long time and you don’t know what you’re doing wrong – it’s not a very transparent process and it’s very hard for a company without a lot of funding,” he said

John Ehlers, chief operating officer of the Luxembourg-based crypto exchange Bitstamp, believes crypto companies will find greater comfort under MiCA.

The licenses for virtual assets providers under MiCA, unlike some of the current, lighter registration regimes in Europe (for example, in France) requires detailed disclosures: “MiCA license is a real license, a prudential license. They look at how you run your business. It’s very in-depth,” Ehlers said.

That level of transparency will likely give some peace of mind to banks and other traditional businesses that have been uneasy about crypto so far, Ehlers said. “You’re not at the same footing with the credit institutions, but you’re at the table with them.”

Time to get ready

However, the gap between what a crypto service is doing now to comply with regional laws and what it will have to do under MiCA can be quite wide, so companies must start getting ready now, Ehlers said.

“It’s always more complicated and takes more time than you think. My advice for the industry is you need to start now, prepare yourself for the MiCA application. What does your company do today and what does MiCA require?” Ehlers said.

On the user side of things, the onboarding process might become a bit longer for crypto exchange clients, Ehlers said. Exchanges will need to figure out how suitable a user is for certain kinds of products. At the same time, users will be entitled to more information about the assets listed on exchanges so they can make more educated choices while trading.

After MiCA passes, crypto companies will have 18 months to adapt. It’s hard to tell when exactly the regulation will become law because the vote has already been postponed twice, most recently pushed to April.

In the long run, MiCA will make the life of European crypto services easier, Wagenknecht said, with a more coherent approach towards regulation. But in the beginning there might be some pains harmonizing the existing national regulations with MiCA. One example is Germany’s law for blockchain securities, which is different from MiCA’s approach.

Some experts are already saying MiCA is not comprehensive enough and that the regulators of the world must go further. For example, a research group commissioned by the French government called for special attention to the metaverse, especially to users’ data protection rules, in October. The current text of MiCA does not contain any mentions of the metaverse.

There is also a concern that however profoundly Europe will be regulating crypto, it won’t really work until other parts of the world follow suit.

“There's no point in Europe being on its own, because this is a global development, and we can't put barriers on it,” European Commissioner Mairead McGuinness told CoinDesk.