The resilience of Gibraltar in the face of MiCA - Albert Isola MP

Gibraltar Finance Report

The resilience of Gibraltar in the face of MiCA

By The Hon. Albert Isola MP, Minister for Digital and Financial Services

at Government of Gibraltar

The recently passed Markets in Crypto-Assets (MiCA) regulation is expected to provide greater regulatory certainty for the European crypto industry. The vote marks the beginning of a transitional period of 18-24 months until the new laws are enacted. However, even though this landmark legislation has finally passed, many distributed ledger technology (DLT) companies find themselves in limbo as they scramble to find a regulatory base in the meantime. It remains to be seen whether MiCA will sufficiently address the challenges of the rapidly evolving crypto industry. In the last six months alone, the world has experienced the spectacular fall of the now infamous FTX exchange, while we are currently navigating our way out of

a banking crisis caused by the collapses of Silicon Valley Bank and Credit Suisse.

MiCA is meant to be the legislation that protects EU-based consumers from the ramifications of these kinds of industry events — but now it has finally been passed, will it be sufficient?

What can we expect?

To date, MiCA is one of the most significant attempts by a single jurisdiction to regulate the DLT industry worldwide, mainly because of the more than 450 million people these laws will protect. Other global attempts such as those by VARA in Dubai, the latest developments across APAC (most notably in Hong Kong), and the curious clampdown currently underway by the SEC in the US are

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only beginning to scratch the surface. Despite Gibraltar’s close links with Britain, the United Kingdom remains at the consultation stage when it comes to crypto regulation.

As such, MiCA has the potential to set a precedent for other jurisdictions considering digital asset regulation. It is only hoped that these laws will enable the EU to become a vibrant crypto hub and bring much-needed transparency to the industry — just as we, the EU’s close neighbour Gibraltar, did in 2018 with the launch of our DLT Providers Regulatory framework. Furthermore, the EU stands to learn a lot from Gibraltar’s achievements in clearly defining regulatory standards to protect consumers within the blockchain space — all without stifling innovation.

Europe can now breathe a somewhat punctured sigh of relief following the MiCA vote. Originally set to take place in November 2022, the bill was postponed again in February 2023. Talks originally began in late 2019 in response to the introduction of Facebook’s Libra coin, alarming EU representatives who believed it posed risks to the traditional financial sector. However, Gibraltar was keen to understand both the benefits and risks associated with the crypto asset industry as far back as 2013 and, as mentioned, became the first jurisdiction to introduce DLT legislation in January 2018 — long before talks of MiCA ever materialised.

Will it be enough?

While some countries have chosen to outright ban any dealings with digital assets, others have struggled with whether to regulate them to the same degree as other financial assets. Furthermore, digital asset innovation has raised widespread concerns about consumer protection and market integrity. By recognising the importance of defining clear industry standards to ensure user protection, Gibraltar shielded the public from any concern. This was achieved through the nature of the framework and the subsequent introduction of innovative standards by a Market Integrity Working Group, composed of a combination of Government representatives, the Regulator and leaders

in the DLT space. The EU Parliament has yet to express such sentiment towards the importance of market integrity — indeed, MiCA arrived without a public consultation phase with the DLT community.

Alternatively, many players in the space have argued that the incoming MiCA regulation will be restrictive and stifle innovation in the EU crypto industry, deterring new business. Others, including European Central Bank officials, are concerned that MiCA alone may not be enough to address all the complexities and risks associated with crypto assets, thus pre-emptively kicking off conversations around what a MiCA II could look like, with the current incarnation seemingly unfit for purpose.

The resilience of Gibraltar

As Gibraltar is not a part of the EU, MiCA regulation will not apply on these shores. However, our record of accomplishment in regulating DLT will see Gibraltar remain a frontrunner in the global crypto landscape. Without the need for a reference point like MiCA, Gibraltar has already paved the way

for a future of innovation, adoption, and integration of DLT technology with previously nine, now ten, regulatory principles. Our robust regulation has allowed Gibraltar to remain a frontrunner in digital asset regulation in the backdrop of MiCA’s regulatory uncertainty — and will continue to do so well after the EU’s landmark legislation is enacted.

The proximity of Gibraltar to the EU will make it an attractive alternative location for companies that MiCA does not cater for, while the regulatory backdrop in the US will see those affected, who want to build a presence in the EU without being subject to MiCA regulation, consider alternative options. For this reason, Gibraltar will always maintain its competitiveness and appeal as a destination for DLT companies.

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