What India can learn from EU’s crypto regulations

The European Parliament’s approval of MiCA, the Markets in Crypto-Assets Regulation, is a significant step towards establishing a comprehensive regulatory framework for crypto-assets in the European Union (EU). This regulatory framework is seen as a politically acceptable and workable compromise that builds on existing regulatory frameworks while offering certainty to entrepreneurs and preventing knee-jerk reactions from policymakers.

One of the key aspects of MiCA is the introduction of a tailored license for crypto-asset services and stablecoin issuers that can be passported across all 27 EU member states, covering a market of 450 million people. This is expected to streamline regulatory processes and foster cross-border activities in the crypto industry.

MiCA distinguishes between different types of cryptoassets and provides regulatory requirements specific to each category. This approach recognizes the diversity of cryptoassets and their different use cases, and tailors regulatory requirements accordingly. By taking a nuanced approach to different types of cryptoassets, MiCA aims to provide effective regulation that is appropriate for each category.

MiCA includes rules for stablecoin issuers that aim to ensure consumer confidence by requiring proper reserves and the redeemability of tokens. This is expected to enhance the reputation and acceptance of stablecoins as a form of digital currency.

Another noteworthy aspect of MiCA is its deliberate exclusion of decentralized finance (DeFi) and non-fungible token (NFT) activities from its regulatory scope. This allows for continued experimentation and development in these areas while still providing regulatory oversight for other aspects of the crypto industry. The European Central Bank has defined DeFi as a new way of providing financial services that bypasses traditional intermediaries and relies on automated protocols. By excluding DeFi and NFTs from its regulatory scope, MiCA allows for continued innovation in these areas.

While MiCA has been praised for its comprehensive and forward-thinking approach to regulating the crypto industry, it has also faced muted criticism for being restrictive for the industry. However, proponents of MiCA argue these regulations are in the Goldilocks zone of regulation – a delicate balance between the risks and benefits of different regulatory approaches. This ensures that regulations are consistent across borders and do not create unintended consequences. It also strikes a balance between consumer protection and industry growth and provides much-needed regulatory clarity and certainty for entrepreneurs and investors in the crypto space.

In a nutshell, MiCA represents a significant milestone in the regulation of cryptoassets in the EU. Its focus on licensing and passporting, exclusion of certain areas like DeFi and NFTs, and tailored regulatory requirements for different types of cryptoassets demonstrate a thoughtful and pragmatic approach to crypto regulation that could serve as a global template in the future. As other countries and regions, including India, navigate their own crypto regulatory frameworks, they can learn valuable lessons from MiCA’s comprehensive and nuanced approach to crypto regulation.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)