This institution has questioned the effective implementation of these assets since 2018. The same year, after the Fintech Action Plan publication, the UE asked The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) for its review. After that, they determined that most of these assets were not covered by existing financial services regulations and, thus, no protection applied to consumers and investors. Moreover, there were no rules to regulate crypto-assets services beyond anti-money laundering rules.
Following these conclusions, the Commission and the European Parliament established a regulatory framework to consider the opportunities and risks presented by these assets in 2019.
In this way, MICA regulation arose, the new regulation of crypto asset markets that will end the legal loophole that has existed until now in the cryptocurrency world.
But what is the MICA regulation, and when will it come into effect?
MICA is the European Union’s proposal for the Regulation of Crypto assets, which aims to lay the foundations for the crypto-assets market in the following years, establishing uniform requirements for the offer and trade of crypto assets. The foundations respond to the need to create a common regulatory framework for all Member States.
MICA, also known as Markets in Crypto Assets, will apply to natural persons, legal entities and companies that engage in the issuance, offer and trading of these assets or those providing services related to crypto assets in the EU.
The proposal, still in draft form, was approved by the European Council in October and is expected to enter into force in 2024.
Crypto-assets regulation proposal goals
The main goals of the proposal are:
- To introduce a European framework to provide legal certainty for crypto assets and all actors involved in this market.
- To replace countries’ regulations so companies can scale their business at the European level.
- Support innovation and the use of blockchain-based technologies.
- Ensure proportionate treatment of issuers and service providers of crypto assets.
- Preserve financial stability and convergence in the international treatment of assets, mainly because of the advent of global stablecoins.
Measures regulated by the new cryptocurrency legislation
MICA establishes the regime applicable to crypto service providers, lists the crypto assets subject to regulation, and the minimum conditions for transparency, solvency and trading. In addition, it regulates the minimum requirements for issuing these assets and the rights to protect holders and clients of crypto asset services.
It also introduces the obligation to register exchanges and to have licences to operate in all European countries.
At the same time, the new regulation aims to end the risks caused by anonymity in transactions involving these digital assets. That is why knowing the identity of the sender and receiver of the transaction will be mandatory in Europe.
This obligation is also the result of the pressure of the Financial Action Task Force (FATF) in recent months in terms of applying what is known as the <<crypto ravel rule>>.
The travel rule involves sharing identifying information about the recipients and receivers of crypto transactions.
To comply with this, the European Union will create an additional MICA law related to transferring funds that will oblige cryptocurrency service providers to identify the parties behind the transactions.
This request implies introducing the Know Your Customer (KYC) process in the industry.
What is Know Your Customer in the crypto industry?
Know Your Customer is the process that verifies a customer’s identity on a cryptocurrency exchange platform. KYC checks ensure that individuals are who they claim to be when transacting with cryptocurrencies, preventing anonymous transactions and creating and misusing crypto accounts or wallets.
Platforms ask for KYC data when opening an account and where previously provided information has changed to prevent misuse.
The adoption of this process goes beyond creating a database of users entering the crypto exchange and investing platforms and finishes with the anonymity that characterised the industry.
KYC to ensure secure use of crypto-assets
Regardless of the new regulatory framework’s obligations, many European companies in the crypto sector already apply KYC policies to increase users’ confidence when making transactions on their platforms and avoid no-control purchases. The basic steps for crypto KYC verification are:
- Request and verify the authenticity of an official identity document containing personally identifiable information.
- Verify that the individual behind the process matches the person on the identity document provided.
- Identity checks against official databases such as PEP lists limit access to sanctioned individuals.
MobbScan is the KYC solution to comply with the upcoming MICA regulation
The lack of a global framework has hindered the development of a secure crypto-asset market and lost opportunities due to a lack of user trust. However, these problems and concerns about anonymous transactions will disappear with the new law and the obligation to perform KYC processes.
Mobbscan is our KYC solution that can verify the user’s identity by capturing and scanning the identity document, validating and extracting all the information from the document, and verifying the user with facial biometrics and liveness detection. Our solution protects your platform and provides an extra layer of security for each user’s account.
If you want to offer better security for your customers and an optimal user experience, MobbScan is your solution. It is easy to integrate and flexible. MobbScan offers you all this with its mature technology and in a risk-free environment by meeting all KYC and AML security requirements.
With MobbScan, you will know your customers and be ready for MICA.
Feel free to contact us if you are interested in introducing KYC verification on your cryptocurrency platform because you are worried about the scope of anonymous transactions on your platform.
I am a Computer Engineer who loves Marketing, Communication and companies’ internationalization, tasks I’m developing as CMO at Mobbeel. I am loads of things, some good, many bad… I’m perfectly imperfect.
Comply with the legislation and know your users
- Meet AML / KYC requirements and regulation.
- Enhance user experience.
- Reduce the dropout rate during onboarding.
- Automate user verification.
- Avoid documentary and identity fraud.