Markets in Crypto Assets (MiCA) [UPSC Notes]

The European Commission adopted a legislative proposal on the regulation of crypto-assets called Markets in Crypto Assets (MiCA). How does MiCA regulate markets in crypto assets? Know more about MiCA and other details for the IAS exam in this article.

Markets in Crypto Assets (MiCA)

The European Parliament has approved the world’s first set of comprehensive rules called Markets in Crypto Assets (MiCA) to regulate cryptocurrency markets.

• Crypto assets not covered by current financial services legislation will be covered by MiCA. 
• The EU regulation controlling the issuance and delivery of services connected to crypto assets and stablecoins is known as the Markets in Cryptoassets (MiCA) Regulation.
• The scope of MiCA will not apply to some digital assets, such as decentralized finance and digital currency issued by central banks.

Need for Crypto Regulation:

• Around 22% of the worldwide cryptocurrency market was centred in central, northern, and western Europe. 
• More significantly, bankruptcies and fraud revelations in 2022 led to some of the worst failures and wipeouts in the cryptocurrency sector. 
• Other crypto-lending platforms had to stop taking customers due to the liquidity shortfall brought on by these shocks.
• In comparison to the U.S. or the U.K., which lack regulatory clarity, the EU has a competitive advantage in its expansion thanks to a complete framework like MiCA. 

Significance of MiCA

• MiCA will foster innovation while bringing regulatory stability and improved consumer protections to the cryptocurrency business.
• To serve customers in the EU, crypto companies must be authorized by the EU and adhere to MiCA’s anti-money laundering and anti-terrorist financing regulations.
• Additionally, MiCA aims to lessen the effect that cryptocurrencies have on the environment. 

Limitations of MiCA

• Decentralized finance (DeFi), one of the organizational and technological forms in the crypto sector, is a major blindspot with reference to the MiCA. One of the more recent organizational and technological forms in the crypto area is not mentioned in the present legislation.
• The EU framework also ignores the expanding loan and staking markets for cryptocurrencies.
• The non-fungible tokens (NFTs) are another matter to keep an eye on. Despite the definition being missing from MiCA, it will nonetheless regulate NFTs as a whole as cryptocurrencies.

Crypto regulation in India:

• The PMLA, or the Prevention of Money Laundering Act of 2002, covers businesses that deal in cryptocurrencies or virtual assets.
• The Financial Intelligence Unit of India, often known as FIU-IND, must be notified of any questionable transactions by cryptocurrency exchanges.

Conclusion: In terms of legislation, the European Union published what is perhaps the most thorough all-in-one crypto regulation of any legal jurisdiction first.  The rest of the world should adopt the European Union’s crypto asset regulations in order to establish a strong international framework that safeguards consumers and financial stability.

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