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As the EU’s Markets in Crypto-Assets (MiCA) regulation prepares to come into effect in 2024, a key architect of the legislation has thanked New York for providing inspiration.
Speaking at the Financial Times' Crypto and Digital Assets Summit in London, an advisor to the European Commission said that MiCA has borrowed heavily from existing rules in New York.
“I wouldn't say that MiCA is perfect, but it is the result of a very deliberative process which brought together the inspiration we got from other jurisdictions,” said Peter Kerstens.
“For example, we had a very careful look at the New York statute, and if there was a bit of plagiarism, I apologise for that — although plagiarism is flattery.”
Kerstens was featured alongside Adrienne Harris, superintendent of the New York State Department of Financial Services (DFS), in a panel discussion on the “End Game” for crypto regulators.
In the two years that EU lawmakers spent crafting MiCA, Kerstens said that “every possible position and idea” on how to regulate crypto was debated at the European Commission and European Parliament.
“I think MiCA really combines a lot of perspectives,” he said. “From those who were very hesitant and even wanted to ban crypto, to those who said crypto is the best thing since sliced bread and we should move all our assets into crypto.”
The key outcome, in Kersten’s view, is that MiCA offers a framework for firms to do business using digital assets, but to do so “under regulatory sunlight”.
Meanwhile, firms that wish to steer clear of digital assets are free to do so, and no pressure is put on them to partake in the new asset class if they do not want to.
Going forward, despite MiCA’s borrowings from other jurisdictions, Kerstens said it is likely that the EU will still be credited as a first-mover in crypto regulation.
“There is something very famous in Brussels called the ‘Brussels effect’,” he said, “which means that jurisdictions around the world have a tendency to emulate European regulation.
“Whether that's a good thing or a bad thing, I will leave that to you, but there is an awful lot of plagiarism and thankfully there is no copyright on regulation.”
New York continues to lead on US regulation
Responding, Harris said the DFS has taken a leading role in regulating crypto since 2015, when it first began rule-making for the new asset class.
In that year, the DFS introduced the Virtual Currency Business Activity licence, also known as the "BitLicense".
Most major US crypto businesses hold a BitLicense, and those that do not are unable to do business in New York state.
Binance US, for example, has never legally been allowed to operate in New York. FTX US, likewise, never gained permission to operate in New York, following a failed BitLicense application in 2022.
Consequently, consumers in New York were “much better protected” when FTX filed for bankruptcy and when US regulators turned their crosshairs on Binance, said Harris.
With its team of more than 60 experts, Harris said the DFS is still the only prudential regulator in the US with “crypto-specific authority”.
“We have some of the most robust standards in the world, and it's quite challenging to get a licence to operate in New York,” she said.
“But our rules are there and they are transparent, so that we're not regulating by enforcement.”
Federal crypto regulator could come soon
Looking ahead to 2024, Harris hinted that a crypto-specific regulator may soon launch at the federal level in the US.
“Our hope is that we will have a federal partner on the prudential side very shortly,” she said. “We've been working very closely with Congress over the last year and a half to help make sure that that happens.
“I think everybody, including myself, is hopeful that more explicit authority will be given by Congress to the prudential regulators who are seeking it.”
Given New York’s experience in regulating crypto, Congress has leaned on the DFS in other ways as calls for federal regulation have grown.
For example, Harris said the bipartisan Clarity For Payment Stablecoins Act is largely based on New York’s own stablecoin rules.
Introduced by Representative Patrick McHenry (R-NC), the act was marked up by the House Financial Services Committee, of which he is chair, in July.
In 2024, it will therefore move to a vote in the House of Representatives.
Harris also said she is hopeful that federal legislation to “add clarity” to where digital assets stand in the US will be passed in 2024, therefore ending a long-running conflict over jurisdiction between agencies.
Although she did not specify any particular bill, she may have been referring to the Financial Innovation and Technology for the 21st Century Act, also known as the FIT Act.
Like the stablecoin bill mentioned above, the bipartisan FIT Act was marked up in July by the House Financial Services Committee and the House Committee on Agriculture.
One of its main aims is to delineate responsibility between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) where crypto-assets are concerned.
“Our comprehensive digital asset market structure legislation recognises a key issue,” said McHenry, “digital assets that are not inherently securities may be offered as part of an investment contract, but that does not make them securities.”
