Circle, a leading global financial technology firm and the principal operator of the USD Coin (USDC) stablecoin, has published a blog post in response to the European Commission’s proposed Markets in Crypto-Assets (MiCA) regulation. In the post, Circle outlines its views on how the MiCA framework can be improved to foster innovation and inclusion in the crypto sector, while ensuring consumer protection and financial stability.
The European Union (EU) has been working on a comprehensive framework for regulating cryptocurrencies and other digital assets. The proposed regulation, known as the Markets in Crypto-Assets Regulation (MiCA), aims to provide legal clarity and consumer protection for crypto-asset issuers, service providers and users.
Circle welcomes the MiCA proposal as a positive step towards creating a harmonized and comprehensive regulatory regime for crypto assets in the EU. Circle also commends the Commission for recognizing the potential of stablecoins to enhance cross-border payments, financial inclusion, and economic growth. However, Circle also identifies some areas where the MiCA proposal could be revised or clarified to better reflect the realities and opportunities of the crypto industry.
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The MiCA proposal should adopt a more nuanced and risk-based approach to classifying crypto-assets, rather than relying on a binary distinction between asset-referenced tokens (ARTs) and e-money tokens (EMTs). Circle argues that this distinction is too rigid and does not capture the diversity and innovation of stablecoin models. For instance, Circle suggests that USDC, which is backed by US dollars held in reserve accounts at regulated financial institutions, should not be considered an ART, as it does not pose the same risks as other types of stablecoins that are backed by more volatile or complex assets.
The MiCA proposal should allow for more flexibility and proportionality in applying the prudential and governance requirements for stablecoin issuers. Circle contends that some of the requirements, such as having a minimum capital of 5 million euros, maintaining a 1:1 reserve ratio at all times, and obtaining prior authorization from a competent authority, are too stringent and may create barriers to entry and innovation for smaller or newer players.
Circle proposes that these requirements should be tailored to the specific characteristics and risks of each stablecoin, taking into account factors such as the nature and quality of the underlying assets, the governance and audit mechanisms, and the market size and reach of the stablecoin.
The MiCA proposal should clarify the scope and applicability of the anti-money laundering (AML) and counter-terrorism financing (CTF) obligations for stablecoin issuers and service providers. Circle notes that some of the provisions in the MiCA proposal seem to overlap or conflict with existing AML/CTF regulations in the EU, such as the Fifth Anti-Money Laundering Directive (5AMLD) and the Sixth Anti-Money Laundering Directive (6AMLD). Circle urges the Commission to harmonize and streamline the AML/CTF rules for crypto-assets, and to ensure that they are consistent with international standards and best practices.
MiCA covers a wide range of topics, such as:
Defining different types of crypto-assets, such as utility tokens, asset-referenced tokens and e-money tokens.
Establishing rules for issuing and offering crypto assets to the public, such as disclosure requirements, whitepapers and prospectuses.
Setting standards for crypto-asset service providers, such as custodians, exchanges and trading platforms, including licensing, governance, capital and operational requirements.
Introducing a passporting system that allows crypto-asset service providers to operate across the EU with a single authorization.
Harmonizing the supervision and enforcement of crypto-asset activities among national competent authorities and the European Banking Authority.
Enhancing consumer protection and market integrity by imposing anti-money laundering, anti-fraud and market abuse rules on crypto-asset activities.
Addressing the risks and opportunities of stablecoins, especially those with a global reach, by imposing additional requirements on their issuers and service providers.
MiCA is expected to enter into force in 2024, after being adopted by the European Parliament and the Council of the EU. It will have a significant impact on the crypto-asset industry in Europe and beyond, as it will create a common legal framework that will foster innovation, competition and growth. Circle concludes by reaffirming its commitment to working with regulators, policymakers, and industry stakeholders in Europe and around the world to advance a balanced and forward-looking regulatory framework for crypto assets. Circle also invites feedback and dialogue from the crypto community on its suggestions for improving the MiCA proposal.