Market interest in crypto assets is not new. February 2014 CSSF published a press release declaring that the activities of virtual currency providers fall under financial services. A step forward for Luxembourg’s financial sector that has also brought in well-known players such as Bitstamp and Bitflyer.
However, “since then, the soufflé may have dropped a bit,” notes Thomas Campione, director and head of crypto assets at PwC Luxembourg. “We could have expected a more outright acceleration from 2016-2017, but that hasn’t happened. In the meantime, virtual currency providers are regulated as payment service providers, but only for activities related to fiat currencies, not cryptocurrencies. It is understood that several players showed interest in France and Germany after settling there.
With a text specific to the crypto industry implemented a few years ago, we could attract more players and build a wider ecosystem than the one we have now, such as Switzerland, France and Germany.
Was it necessary for Luxembourg, like France, to adopt a new concrete text in order to secure its competitive advantage? “Mika village tends to demonstrate that a specific text was needed,” comments Thomas Campione, elaborating: “With the crypto-industry-specific text implemented a few years ago, we could attract more players and build a wider ecosystem than we currently have.” time is, for example, in Switzerland, France and Germany. However, we cannot rewrite history and must look ahead and seize the opportunity for Luxembourg.”
A matter of perception
Thus, the entry into force of Mica (Crypto Asset Markets), expected during 2023, will provide a common framework for all 27 Member States. As this is a European regulation and not a directive, no country can attempt to create a competitive space with text transposition. However, Thomas Campione does not expect this general regulatory framework to lead to the resetting of counters. “We will catch up from a regulatory point of view just by applying mica. But, in terms of perception, there is still a long way to go to capture the attention of the industry,” emphasizes crypto asset leader PwC, emphasizing the need to have a sufficiently broad and mature ecosystem to attract international players to the sector.
However, the regulatory framework and ecosystem are not enough to make Luxembourg a privileged location for the crypto asset industry. In addition to the speed of the regulator in issuing licenses, Thomas Campione recalls the role of the government in determining the position on the country’s strategy in this area, as does Bruno Le Maire, the French Minister of Economy and Finance. On October 17, the latter unveiled Bercy’s roadmap for cryptocurrencies, wishing for “France to become the European hub of the cryptoasset ecosystem.”
Luxembourg has the opportunity to attract institutional players who have the will and strong enough backbone to act properly.
For his part, Thomas Campione welcomes the French approach. “The words of Bruno Le Maire are very active. He goes to meet the industry by setting expectations. A dimension in which we could certainly advance.” This does not mean that he believes that Luxembourg’s position should be to accept all entities that wish to settle there. “Luxembourg has the opportunity to attract institutional players who have the will and strong enough backbone to act properly. Mica will create natural selection. Either the bar will be too high for someone, or someone will not have enough skills. They’ll just be taken off the market.” In his opinion, Luxembourg thus has a key role to play in attracting the best market participants.
Rising costs
The requirements set by the Mica ruling will indeed be high and will cover all crypto assets that are not considered financial instruments. As such, all types of stablecoins—asset-linked tokens (ART), which have an underlying asset basket of traditional currencies or commodities, and electronic money tokens (EMT) backed by a single traditional currency—will be in line with the Mica Regulation. . “One of Mica’s priorities is the regulation of assets that can directly or indirectly affect European monetary policy. If a significant number of people start using stablecoins issued by private individuals and / or backed by foreign currencies, this may also entail a risk to state sovereignty,” explains Thomas Campione. At the same time, Mica regulation will also cover utility tokens, crypto assets used in an ecosystem operating in a vacuum, for example, on a specific platform.
Thus, the European legislator seeks to present Mica as a consequence of the Mifid directive for assets that are not financial instruments. However, Thomas Campione expects Mica to end up doing some damage to market participants. “At the time Mifid emerged, the traditional financial sector was much more institutionalized than the crypto asset industry is today. The compliance effort or the risk of market participants disappearing is certainly greater than when the Mithida directive came in.”
This will be all the more important as there is a risk of losing assets at the exchange floor level. Protecting the lifecycle of the private key and separating client assets is critical.
Despite everything, Mica’s vocation remains to raise the level of governance of the cryptoasset industry, especially in terms of the experience and skills required both in the management and control teams and in risk management within the participants. “This will be all the more important as there is a risk of losing assets at the exchange floor level. Protecting the lifecycle of private keys and separating customer assets are critical elements,” says Thomas Campione. Financial costs and strengthening of human resources, which will be accompanied by prudential capital requirements, which have not been in the past. What to prevent scandal like FTX in European jurisdiction in the future.