Cryptoassets have emerged as one of the fastest growing sectors in global finance, presenting significant opportunities for both retail and institutional investors. With European revenues expected to grow by more than 30% each year, Europe is well placed to take full advantage of the growth in this dynamic sector, but it must embrace scrutiny and adapt quickly or risk being left behind.
The recent adoption of the Market in Crypto Assets (MiCA) Regulation by the European Union (EU) is a significant step forward in supporting the acceptance of the crypto industry on the continent and has helped establish Europe as a hub for well-regulated and responsible operators.
The early stages of the introduction of new continent-wide regulations covering a complex, new and fast-moving crypto sector have understandably highlighted areas where additional measures and clarity are needed. However, 10 months after MiCA came into force, Europe recognizes that it is in a uniquely strong position to establish a regulatory gold standard when it comes to supervision in this area.
To maintain this advantage, European regulators must continue to work quickly and collaboratively, and be willing to learn on the go. This is essential to ensure that regulation does not significantly lag behind the industry and that the inherently innovative nature of this industry is protected by effectively minimizing risks without creating unnecessary regulatory burdens.
Martha leads by example
Prior to the introduction of MiCA, Malta was the first European country to introduce a full licensing regime for crypto asset service providers (CASPs). The Virtual Financial Assets (VFA) Act was adopted in 2018 and has been developed based on existing European legislation such as the Markets in Financial Instruments Directive (MiFID), the Markets in Financial Instruments Regulation (MiFIR), the Prospectus Regulation, the Transparency Directive and the Market Abuse Regulation, and in consultation with supranational and subnational competent authorities (NCAs).
As Malta’s sole financial services regulator, the Malta Financial Services Authority (MFSA) has built considerable capacity and expertise to properly supervise the country’s cryptocurrency industry under the VFA Act, and has also gained practical experience in supervising cryptocurrency companies that have subsequently gone on to secure MiCA licenses in Malta. During this time, we invested resources through initiatives such as the Financial Supervisors Academy (FSA). This is a training program created to help develop a pipeline of talent with the skills needed to effectively oversee the financial sector. The MFSA has also adopted advanced supervisory tools to complement more traditional financial oversight mechanisms, such as blockchain analysis and market surveillance systems. Malta has proven to be very effective over time when it comes to supervising CASPs, as shown by the fact that it did all of these things at once before many jurisdictions considered regulating digital assets, and these measures have become widely adopted by regulators within and outside Europe.
accept intense scrutiny
As an early adopter of regulation in the cryptocurrency sector, the MFSA welcomed the European Securities and Markets Authority (ESMA) peer review process that concluded in July earlier this year. The final report recognizes a range of strengths and areas of good practice when it comes to the regulation of digital assets in Malta, which is very encouraging and should provide further confidence to companies considering licensing.
Unsurprisingly, the report also identified several areas for improvement, and we immediately began implementing the recommendations it made, both to Malta and to National Competent Authorities (NCAs) across Europe. We are finalizing the implementation and review of all internal processes to ensure compliance with ESMA Peer Preview.
Enhanced oversight and enforcement
Recognizing the need to expand capabilities and capacity to ensure effective implementation, MFSA has also increased investment in its supervisory and enforcement teams and processes. In 2024, the MFSA conducted 1,345 supervisory interactions, a 33% increase compared to 2023 and a threefold increase from 2020. In the same year, 134 enforcement actions were taken, including 126 administrative penalties, four directives, two license revocations, and two reprimands.
set the record straight
The peer review process was also an opportunity to address the myth that Malta is rushing to grant licenses at the expense of close scrutiny in processing applications. This is a misunderstanding. Throughout the preparatory phase, MFSA has demonstrated exceptional responsiveness and agility, without compromising on rigor, oversight or regulatory integrity under any circumstances. Preparations for MiCA implementation had been comprehensive for two years, allowing us to move quickly. Additionally, a robust and extensive process was and continues to be followed before licensing companies. This started in November 2023 when the first industry event was held to raise awareness about the different requirements for securing a MiCA license. A series of supervisory meetings were held throughout 2024 to provide a detailed review of the readiness of prospective applicants. This process included a comprehensive evaluation toolkit and validation of all requirements by at least two people to avoid errors. Underpinning all this preparation was the supervisory experience we have gained over the past seven years through the Malta VFA Act.
The MFSA is an agile regulator. Having said that, a quick look at the ESMA provisional register shows that Malta is not the only country issuing MiCA licenses, with 58 CASP licenses issued to date in 11 countries. To be clear, no carrier has been granted a MiCA license by the MFSA within the next few days.
Look forward instead of backwards
Against the backdrop of the first nine months of MiCA implementation, it is clear that NCAs in Europe and the rest of the world have an opportunity to learn and improve, but in a timely manner. As we seek to raise standards, scrutiny should not be feared or avoided, but embraced as an opportunity to learn, improve, and demonstrate what is working, along with identifying areas that need greater clarity. It should be a reason to move forward faster and more determinedly, rather than slow down and risk falling behind. Ultimately, if Europe is to take advantage of the $100 billion opportunity that the digital asset sector represents, it will require a continuous and ongoing process of learning and adaptation.