Cryptoassets have emerged as one of the fastest growing sectors of global finance, providing significant opportunities for both retail and institutional investors. With turnover in Europe expected to grow by over 30% annually, Europe is well placed to benefit from the growth of this dynamic sector, but it must embrace control and adapt quickly or risk being left behind.
The recent adoption of the Markets in Crypto-Assets (MiCA) Regulation by the European Union (EU) was a significant step forward 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 early days of implementing a new continent-wide regulation covering the complex, emerging and fast-moving crypto sector have naturally highlighted areas where further action or clarity is required. But ten months after MiCA came into force, Europe finds itself in a uniquely strong position to establish the regulatory gold standard when it comes to overseeing the sector.
To maintain this advantage, European regulators must continue to work quickly, collaborate and be willing to learn on the fly. This will be crucial to both ensure that regulation does not lag too far behind the industry and that it effectively minimizes risk without creating an unnecessary regulatory burden, so that the sector’s inherent innovative nature is protected.
Malta leads by example
Prior to MiCA’s introduction, Malta was the first European country to implement a full licensing scheme for Crypto-Asset Service Providers (CASPs). The VFA Act (Virtual Financial Assets) was adopted back in 2018 and was developed on the basis of 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 in consultation with supranational and corresponding national competent authorities authorities (NCAs).
As the country’s sole financial services regulator, the Malta Financial Services Authority (MFSA) built significant capacity and expertise to adequately supervise the country’s crypto industry under the VFA Act, as well as gain hands-on experience in supervising crypto businesses that have since gone on to secure MiCA licenses in Malta. During this time, it invested in resources through initiatives such as the Financial Supervisors Academy (FSA), a training program created to support the development of a pipeline of talent with the necessary skills to effectively oversee the sector. The MFSA also adopted advanced supervisory tools to complement more traditional financial surveillance mechanisms, such as blockchain analytics and market surveillance systems. Malta did all of this at a time before many jurisdictions were even thinking about regulating digital assets – and over time has proven to be highly effective when it comes to overseeing CASPs, as demonstrated by these measures, which have been widely adopted by regulators across Europe and beyond.
Comprehensive scrutiny
As an early adopter of regulation in the crypto sector, the MFSA welcomed the European Securities and Markets Authority’s (ESMA) peer review process earlier this year, which concluded in July. The final report recognized various strengths and areas of good practice when it comes to the regulation of digital assets in Malta, which is extremely encouraging and should give further confidence to companies considering licensing.
Of course, the report also identified some areas where there was room for improvement and we immediately started implementing the recommendations made by the report, both for Malta and National Competent Authorities (NCAs) across Europe. We are finalizing the implementation and review of all internal processes to ensure compliance with the ESMA Peer Preview.
Improved oversight and enforcement
Recognizing the need to scale up capabilities and capacity to ensure effective implementation, the MFSA has also increased investment in its supervisory and enforcement teams and processes. In 2024, the MFSA carried out 1,345 supervisory interactions, an increase of 33% compared to 2023 and a threefold increase since 2020. In the same year, 134 enforcement actions were taken, including 126 administrative sanctions, 4 directives, 2 license cancellations and 2 reprimands.
Set the record straight
The peer review process was also an opportunity to address the myth that Malta has rushed to issue licenses at the expense of due diligence in the application process. This is a misunderstanding. Throughout our preparatory phase, the MFSA demonstrated exceptional responsiveness and flexibility – but under no circumstances did we compromise rigor, oversight or regulatory integrity. We were able to move quickly because preparations for MiCA implementation have been extensive and began two years ago. In addition, a robust and comprehensive process was and continues to be followed prior to licensing any business. This started as early as November 2023 when the first industry event to raise awareness of the various requirements to secure a MiCA license was convened. A number of supervisory meetings were held during 2024 as well as in-depth reviews of the readiness of potential applicants. This process involved a comprehensive assessment tool and verification of all claims by at least two officials to avoid errors. The basis for all this preparation was the previous seven years of supervisory experience that we had under our belt through the Malta VFA Act.
MFSA is an agile regulator. That said, a quick look at ESMA’s temporary register shows that Malta is not alone in issuing MiCA licenses, with 58 CASP licenses issued so far in 11 countries. To be clear, no operator has been awarded a MiCA license by the MFSA in a matter of days.
Looking forward, not back
Based on these first nine months of MiCA implementation, there is a clear but time-sensitive opportunity for NCAs in and outside Europe to learn and improve. As we seek to raise the bar, scrutiny is not something to fear or shy away from, but instead should be embraced as an opportunity to learn, improve and demonstrate what works well, along with identifying areas where more clarity is needed. That should be a reason to move forward with greater speed and determination, not to slow down and risk falling behind. After all, there must be a continuous and ongoing process of learning and adaptation if Europe is to succeed in capitalizing on the $100 billion opportunity that the digital assets sector represents.
