Crypto assets have emerged as one of the fastest growing sectors in global finance, presenting huge opportunities for investors and institutional investors. With European revenues expected grew by more than 30% annuallyEurope is well placed to achieve the growth of this dynamic sector, but it must embrace scrutiny and adapt quickly or risk being left behind.
The recent adoption of the Markets in Crypto-Assets (MICA) regulation by the European Union (EU) is a significant step in supporting the continent’s embrace of the crypto industry and has helped Europe establish itself as a hub for well-regulated and responsible operators.
The first days of the implementation of a new continent-wide regulation covering the complex, novel and fast-moving crypto sector have naturally highlighted areas where further action or clarity is required. However, ten months after MICA came into force, Europe finds itself in a uniquely strong position to uphold the regulatory gold standard when it comes to managing the sector.
To maintain this advantage, European regulators must continue to work quickly, together, and be ready to learn on the go. This is important in ensuring that both regulation is not too far behind the industry and effectively reduces risk without creating an unnecessary regulatory burden, so that the inherently innovative nature of the sector is protected.
Malta leading by example
Prior to the introduction of MICA, Malta was the first country in Europe to implement a full licensing regime for crypto-asset service providers (CASP). The Virtual Financial Assets (VFA) Act was adopted in 2018, and was 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, as well as consultation with supranational and peer national competent authorities (NCA).
As the country’s sole financial services regulator, the Malta Financial Services Authority (MFSA) has built considerable capacity and expertise to adequately supervise the country’s crypto industry under the VFA Act, as well as having the practical experience of supervising crypto companies that have since secured MICA licenses in Malta. During this period, it invested resources through initiatives such as the Financial Supervisors Academy (FSA), a training program created to support the development of a talent pipeline with the necessary skills to effectively oversee the sector. The MFSA has also adopted advanced supervisory tools to complement more traditional financial monitoring mechanisms, such as blockchain analysis and market monitoring systems. Malta did this at a time before many jurisdictions were thinking about regulating digital assets – and, over time, has proven to be highly effective when it comes to administering CASPs, as shown by these measures which have been widely adopted by regulators across Europe and beyond.
Embrace the investigation
As an early adopter of regulation in the crypto sector, the MFSA accepted the peer review process of the European Securities and Markets Authority (ESMA) earlier this year, which concluded in July. The final report identifies various strengths and areas of good practice when it comes to the regulation of digital assets in Malta, which is very encouraging and should give additional confidence to companies considering licensing.
Naturally, the report also identified some areas where there is room for improvement, and we started implementing the recommendations made by the report, both for Malta and National Competent Authorities (NCAS) across Europe, immediately. We are finalizing the implementation and review of all internal processes to ensure compliance with ESMA’s peer preview.
Improved administration and enforcement
In recognition of the need to measure capabilities and capacity to ensure effective implementation, the MFSA has also increased investment in its administration and implementation and processes. In 2024 the MFSA carried out 1,345 administrative contacts, an increase of 33% in 2023 and a three-fold increase from 2020. In the same year 134 enforcement actions were carried out, including 126 administrative penalties, 4 directives, 2 license cancellations and 2 reprimands.
Setting the record straight
The peer review process is also an opportunity to address the myth that Malta is in a rush to grant licenses at the expense of in-depth scrutiny of application processing. This is a misconception. Throughout our preparation phase, the MFSA has demonstrated exceptional responsiveness and agility – but under no circumstances have we compromised rigor, oversight, or regulatory integrity. We were able to move quickly because preparations for the implementation of MICA were comprehensive and started two years ago. In addition, leading any firm’s licensing, a robust and extensive process and followed. It was kicked off early in November 2023 when the first industry event to raise awareness of the various requirements for securing a MICA license was convened. A series of oversight meetings were held throughout 2024, as well as in-depth assessments of the readiness of prospective applicants. This process involves a comprehensive assessment toolkit and the verification of all requirements by at least two officials to avoid error. Supporting all this preparation is the previous seven years of supervisory experience we have under our belt through the Malta VFA Act.
The MFSA is an agile regulator. That 58 CASP licenses issued to date in 11 countries. To be clear, no operator has been issued a MICA license by the MFSA for several days.
Looking forward, not returning
Behind the first nine months of MICA implementation, there is a clear but sensitive time for NCAs in Europe and beyond to learn and improve. As we look to raise the bar, scrutiny is not something to be feared or shy away from but rather should be embraced as an opportunity for learning, improving and demonstrating what is working well, along with identifying areas where more clarity is needed. This should be a reason to move forward with greater speed and determination, not to slow down and dangerously fall back. After all, there must be a continuous and ongoing process of learning and adapting if Europe is to successfully achieve $ 100 billion Opportunity The Digital Assets sector represents.
