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There is much to consider regarding the potential effects of the upcoming Markets in Crypto-Assets (MiCA) regulation on the cryptocurrency market. Mark Gofaizen, a seasoned specialist in cryptocurrency regulatory compliance, is here today to share his thoughts. Gofaizen is a senior partner at Gofaizen & Sherle, and he has been actively assisting cryptocurrency companies with intricate regulatory changes. We will talk about the implications of MiCA for crypto asset service providers, the opportunities and challenges it raises and how businesses can best get ready for this new regulatory landscape.
U.Today: Can you briefly explain what MiCA is for our readers?
Mark Gofaizen: MiCA, or Markets in Crypto-Assets, is a regulatory framework aimed at harmonizing the rules for crypto companies and assets within the European Union. It is a pivotal development for crypto asset service providers, including exchanges, wallet services and payment providers, among others. MiCA seeks to establish a secure and transparent operational environment in the crypto community, prioritizing customer protection first and foremost. This framework also highlights the increasing relevance of the crypto economy to the EU's overall economic health. In essence, MiCA is a set of regulations that brings the management of crypto finance closer to that of traditional finance, covering areas such as capital requirements, anti-money laundering and counter-terrorism financing (AML/CTF), client data collection, protection, compliance and more.
The MiCA (Markets in Crypto-Assets) regulation is set to become effective from Dec. 30, 2024. However, companies will be granted a transition period extending until May 2025 to fully comply with the new requirements. This transitional phase is crucial for crypto asset service providers to adjust their operations and ensure full compliance with MiCA's comprehensive regulatory framework.
U.Today: What are the most significant changes that MiCA will bring to crypto regulations in the EU?
Mark Gofaizen: Firstly, the capital requirements stipulate that companies must have a minimum paid capital of 125,000 euros, which is substantial for small and medium-sized enterprises (SMEs). Secondly, the AML/CTF requirements imply the need for more highly qualified staff, additional reporting and increased paperwork, among other things. Client identification is also a significant aspect. Data protection is another important issue on the agenda. As an SME owner or manager, you need to stay in line with all regulatory changes, keep track of important dates, prepare reports and work closely with authorities. The good news is that these changes are not immediate, and companies have a transition period to hire staff and find all the necessary partners. However, this is crucial for the operational part of the business — it consumes a lot of time and resources that could otherwise be allocated to business development. Our goal as a consulting firm is to take on most of these tasks. We handle the paperwork, legal aspects, hiring and accounting, and we even assist in finding an office.
U.Today: How will these new regulations affect small- and medium-sized crypto businesses?
Mark Gofaizen: I am actively collaborating with Crypto-Asset Service Providers (CASPs) in the EU, particularly in Lithuania, which is a key market. I have observed that most companies are prepared to operate under the MiCA regulations. However, this will inevitably impact the crypto market. Over the next three to five years, we can expect to see market consolidation, resulting in fewer but larger companies. MiCA is designed to enhance the safety and transparency of the crypto market for consumers. Yet, it will also raise the barrier to entry, requiring newcomers to have more resources from the start. The market is evolving into a more mature and complex stage, and it will undoubtedly look quite different in five years.
U.Today: Why is legal support crucial for companies navigating these new regulations?
Mark Gofaizen: Regulating the crypto market has always been complex, necessitating a thorough understanding of each country's laws to navigate various jurisdictions and languages. Generally, companies have two options: build an in-house legal team or engage a legal service provider in a crucial jurisdiction. With the rapid transformation of European crypto regulations, robust legal support has become increasingly vital. Timeliness and precision are essential, as is maintaining communication with local authorities. During this transitional phase, businesses require reliable legal guidance to ensure compliance and trustworthiness, coupled with the capability to provide round-the-clock assistance.
U.Today: What are some practical steps that companies can take to adapt to these new rules?
Mark Gofaizen: Many companies are transitioning to comply with the MiCA regulations. In Lithuania, we benefit from cooperative authorities who are gradually aligning market conditions with MiCA standards. This shift brings the regulatory framework for Crypto-Asset Service Providers (CASPs) increasingly in line with that of traditional financial institutions like banks.
When it comes to actionable steps, the first decision for any company is whether to continue operating in the crypto market under the stringent rules, which include extensive oversight and reporting. The second step involves preparing your company to meet the foundational requirements: securing the minimum paid capital, fulfilling management qualifications and obtaining the necessary licenses. Subsequently, it is crucial to assess how these changes will impact your operational processes and determine the additional staff needed to comply. This leads us to consider internal corporate training versus recruiting externally.
U.Today: Do you think we will see a lot of smaller companies merging or going out of business due to higher regulatory costs?
Mark Gofaizen: Many companies are capable of adhering to MiCA regulations. However, current trends suggest that some may opt to shift their primary markets. This could involve either targeting different market areas or relocating to more accommodating jurisdictions. As a result, we might witness businesses moving out of the EU to find favorable conditions in places like the UAE, El Salvador, Canada, among others. Despite this, the EU market holds substantial value for these companies, and we can anticipate market consolidation. Major market players are likely to gain from these regulatory changes. For numerous smaller enterprises, this period represents an opportunity to evolve their business models and position themselves for growth over the next three-five years.
U.Today: Despite stricter regulations, what opportunities do you see for growth on the EU crypto market?
Mark Gofaizen: Identifying opportunities amid these changes is indeed fascinating. As mentioned, it is a time for growth and strategic reassessment. The more mature, secure and stable the crypto market becomes, the more competitive it will be against the traditional financial sector. Large companies recognize this and have established in-house crypto departments to keep pace with current trends. However, I believe that the most valuable ideas and projects will emerge from small and medium-sized enterprises (SMEs).
U.Today: What are the current demands of the crypto industry for the future workforce?
Mark Gofaizen: As professionals, we are applying our traditional finance expertise to forge a new crypto economy. The industry's current priority is the recruitment of AML officers and compliance professionals, reflecting the sector's maturation. This dynamic field offers the satisfaction of seeing direct results and influencing business outcomes. We have launched an educational initiative to train graduates in AML, thereby facilitating the entry of new talent into crypto finance. Moreover, there's a growing demand for legal experts. Lawyers with a robust understanding of traditional finance are crucial to the crypto industry's ongoing development and evolution.
U.Today: Can you share an example of how your firm has helped a client successfully navigate regulatory challenges?
Mark Gofaizen: For many years, we have been helping clients navigate regulatory changes that accompany the growth of the crypto industry. This was the case when Estonia changed its main law for VASPs in 2020, and again in 2022. We also assisted in Lithuania and Poland when their regulators made key legislative changes. Our support included meeting capital increase requirements, updating internal procedural rules, modifying AML/KYC policies, providing regulators with business descriptions and much more. In short, we have extensive experience in guiding and adapting companies during periods of regulatory change.
Regarding MiCA, there are no completed cases on the market yet, so there are no guidelines from the regulator. However, there are European standards that indicate what regulators expect in terms of documentation. We are already helping clients start preparing their documentation according to MiCA standards. This primarily involves electronic money issuers (EMI licenses) and Payment Service Providers. We understand the regulators' expectations for cybersecurity policies, business plans, business continuity plans, risk assessments and more. As a result, we are already working with clients to prepare a set of documents that will help them launch much faster once the final MiCA guidelines are issued.
U.Today: What do you think will be the biggest game-changers in the crypto industry over the next few years, and how should companies prepare for them?
Mark Gofaizen: MiCA represents the first major game changer in the EU. I believe this framework could influence other markets, especially in North America. Another significant shift is the growing interest and investment from institutional investors. As established financial institutions engage with the crypto space, they introduce a level of legitimacy and stability, potentially leading to wider adoption.
In terms of blockchain technology, we are witnessing improvements in scalability and transaction speed, which could impact the entire market.
U.Today: Thank you for your time, Mark. We learned a lot about regulations and MiCA from this insightful talk. We now have better knowledge of the obstacles and possibilities facing the cryptocurrency sector thanks to your expertise. We value your insightful opinions and are excited to see how these laws affect the development of cryptocurrency in the future.
Alex Dovbnya
Arman Shirinyan
