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The Regulation Paradox of the Crypto-Asset Industry – A Critical Analysis on How the European Union is Going to Resolve the Conflicts of Interest and Regulatory Challenges When Integrating the New Asset Class to the Scope of Regulation

Opinnäytetyöt 14.4.2022, Gradut ja muut tutkielmat

The crypto-asset market has grown exponentially in recent years, creating a whole new sub-industry to the financial sector. Following this rapid growth, the interest of regulators towards the industry has naturally increased around the world. Indeed, in autumn 2020, the European Commission published its first draft on the Regulation on Markets in Crypto-Assets (COM (2020) 593 final) (“MiCA”). The proposal is part of the EU's digital finance package, which states to create an innovation-friendly environment for market participants while simultaneously ensuring financial stability and investor protection in the markets.

This thesis examines the regulation of the crypto-asset markets from a critical perspective. The main focus stands on the question of how to simultaneously enable innovation, market access, free competition and operational efficiency for market participants, while simultaneously ensuring adequate investor protection, market reliability and legal certainty for individual investors in the EU. As the EU has appeared to take quite a similar approach to regulate the industry with the existing MiFID II legislation in traditional finance, comparing the current and upcoming legislation is a natural approach to assess and give some context to the subject in some parts. Due to the cross-border nature of the phenomenon, the review will focus on the EU area's regulation as a whole, and the legislation of individual Member States will not be examined in greater detail. On the other hand, international legislative solutions and regulatory proposals have been covered to some extent, as the market for crypto-assets is focused mainly outside the EU.

The thesis concludes that the objectives of the planned legislation are most likely to remain theoretical. Furthermore, the examination indicates that neither the EU legislators nor the proposed regulation would promote innovation or free competition in the markets. Instead, it appears that the regulatory future is most likely going to create barriers for new companies' market entrance while at the same time alleviating the market access to the crypto-asset industry for the major traditional finance market participants. Therefore, implementing the Regulation in its current form is likely to cause more harm than good to the industry. Although investor protection would improve in some parts with the entry into force of MiCA, the new Regulation would also increase the fragmentation of industry regulation, create opportunities for regulatory arbitrage and leave many critical regulatory issues unresolved.

Regarding the preparatory work of MiCA, it is particularly striking that the regulators seem to have a great ambition to structure the whole phenomenon to fit within the existing regulatory framework, without even questioning whether it is the most appropriate and effective solution or not. In addition, only the leading market participants and different banking authorities from traditional finance have been consulted and even required to give their opinions in the preparation stage. In contrast, the actual largest market participants in the crypto-asset industry, to whom the Regulation is going to affect the most, have not been heard comprehensively enough. Instead, the measures have been limited to open consultation, which the EU legislators have not even actively tried to market to these market participants. Therefore, it is pretty evident that regardless of the final decisions the regulators are going to make and the form that the Regulation will end up in, the current way of preparing the MiCA makes the Regulation very susceptible to questioning and criticism.

Asiasanat
• Finanssivalvonta - Lohkoketjuteknologia - Rahoitusmarkkinat - Sijoitustoiminta - Sopimus - Virtuaalivaluutta

Linkit
• Laki virtuaalivaluutan tarjoajista
• EPNDir 2014/65/EU rahoitusvälineiden markkinoista sekä direktiivin 2002/92/EY ja direktiivin 2011/61/EU muuttamisesta 15.5.2014 (rahoitusvälineiden markkinat -direktiivi, MiFID II -direktiivi)