EU Stablecoins Face Dual Licensing Trap in MiCA – PSD2 Overlap
In the evolving landscape of digital finance within the European Union, stablecoins—an increasingly pivotal element of cryptographic assets—are encountering significant regulatory scrutiny. Recent developments indicate that issuers and facilitators of stablecoin transactions are bracing for a potential regulatory logjam. This stems from an overlap between the proposed Markets in Crypto-Assets Regulation (MiCA) and the existing Payment Services Directive 2 (PSD2), which is causing concern among industry experts and stakeholders. This dual licensing challenge is set to create both confusion and compliance costs, potentially affecting the broader adoption and development of stablecoin projects within the EU.
Understanding MiCA and PSD2
MiCA, introduced by the European Commission and currently under final negotiations, aims to establish a comprehensive regulatory framework for crypto-assets, significantly focusing on stablecoins. The primary objective of MiCA is to create a harmonized regulatory environment that ensures consumer protection, market integrity, and financial stability. Its stringent requirements on capital, investor protection, and operational procedures are mainly designed with the volatile nature of cryptocurrencies and the systemic importance of stablecoins in mind.
Meanwhile, PSD2, which has been in effect since 2018, regulates payment services and payment service providers within the EU and EEA. It aims to increase pan-European competition and participation in the payments industry from non-banks, and provides a legal foundation for the safer and more innovative provision of payment services across the EU. Importantly, PSD2 also covers the licensing requirements and operational rules for electronic money institutions—a category under which some stablecoin providers could arguably fall.
The Crux of the Overlap
The crux of the issue lies in whether stablecoin issuers must be licensed under both regulatory frameworks. MiCA’s approach to stablecoins, especially those pegged to fiat currencies or assets, views them in similar light to electronic money if they offer units that are stored and used for payment transactions. As such, without proper delineation, stablecoin operators who are already complying with electronic money regulations under PSD2 might also need to meet additional parallel licensing and compliance obligations under MiCA.
This situation could lead to what industry insiders dub a “dual licensing trap,” where stablecoin issuers are caught between the necessities to adhere to both sets of regulatory standards, often leading to duplicated efforts, higher operational costs, and potentially stiffer entry barriers for new market entrants.
Implications for the Stablecoin Market
Firstly, the direct implication of this overlap is the increased compliance cost. Navigating two separate regulatory frameworks concurrently means increased legal and administrative expenditures, which could deter innovation and the scalability of operations, particularly for smaller players or newcomers in the market.
Secondly, the readiness and speed of adoption of stablecoins in the EU market might slow down. As organizations grapple with understanding and implementing guidelines from both PSD2 and MiCA, the inertia could hamper the dynamic nature of this burgeoning sector and affect consumer access to these modern financial tools.
Towards A Harmonized Regulatory Approach
To mitigate these challenges, there are several pathways that regulators and policymakers could consider. Achieving a clearer demarcation of the scope and application between MiCA and PSD2 should be a priority. Such clarification would not only alleviate the pressure on stablecoin issuers but also ensure that compliance efforts are more streamlined and effective.
Furthermore, the introduction of a “passporting” system similar to that used in traditional financial services within the EU could offer a solution. Passporting would allow a licensed operator in one member state to serve other member states with minimal additional authorization, thus reducing redundancy in licensing requirements.
Conclusion
As the legislative process for MiCA reaches its advanced stages, all eyes will be on how these crucial issues are navigated. The European Union stands at a critical juncture in its attempt to remain at the forefront of financial innovation while ensuring robust market oversight. Resolving the regulatory overlap with PSD2 will not only clarify the route for stablecoin issuers but will importantly fortify the EU’s vision for a secure and integrated digital finance ecosystem.
