How MiCA is already being embraced by financial services

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How MiCA is already being embraced by financial services

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Banking Circle has launched the first EU Markets in Crypto Assets (MiCA) compliant stablecoin, among the first cryptocurrency-related assets to be launched under the new regulation.

MiCA doesn’t come into full effect until the end of this year, 30 December. Banking Circle has taken a plunge into the no-so-unknown in releasing this product – MiCA has provided financial services with the information they need to develop regulated products. Yet, even a few months ago there was still some trepidation around how ready Europe was for MiCA.

I spoke with Daniel Lee, head of Web 3, Banking Circle about why they decided to launch their stablecoin and some of the processes they have taken.

MiCA provided clarity for financial services

Banking Circle’s stablecoin Eurite has first been made available on Binance, with other exchanges to follow. Binance are themselves in the process of becoming MiCA compliant, as it gradually phases out stablecoins which do not meet the regulatory requirements. Bitstamp announced they would not be listing any E-money tokens that are not complaint with MiCA.

The industry is gearing up, but Banking Circle are the first bank to take this step. Lee commented this was partially because “MiCA actually gave a lot of clarity. A lot of financial institutions do want to come to this space, but the concern has always been what kind of regulatory clarity and framework you can actually operate under. You see, you could be like the best in class, but being best in class doesn't mean anything if there's no standard to judge it.”

This makes sense for a lot of big players. They didn’t want to dip their toes into the crypto world until things seemed more certain. In a previous article I wrote, Are stablecoins the next opportunity in payments?, one commentor Yiannis Giokas, senior director, Moody’s Analytics, stated that those big players are waiting for the “dust to settle”. In this way, Banking Circle are blazing the trail which other providers may be able to follow.

Yet internally, MiCA played a huge role for Banking Circle. Lee told me that the legislation allowed them to convince their board and senior managers that they should pursue a stablecoin. It still took them almost a year to get through all the internal approval processes, but for lee this provides a lot of opportunity: “This is a very important space to be in if you want to be relevant, to future proof ourselves.”

MiCA building trust in stable coins

There has been a continued concern over lowered trust around stable coins, as a somewhat cryptocurrency associated asset. Yet, MiCA seems to have offered a bit of a redemption arc to the asset.

Lee commented: “When you have no regulations around it, how you would do your attestation, how you manage your reserves, etc, is not something that's predefined. So now we can only operate within certain parameters that are prescribed by the regulations. And this, I believe, would actually provide a lot more trust in that particular product.”

There are different tokens which can be issued under MiCA, such as asset-reference tokens – these include stablecoins backed by commodities or several commodities. In Banking Circle’s case, they have issues an E-money token, which is backed by a single currency, the Euro.

Lee explained that their team had gone a step further in keeping the stablecoin off of their balance sheet. He said they place the money they receive in a bankruptcy remote structure, “so regardless of whatever happens, that money is safe. We actually do not lend up this money. We don't do any lending with this reserve. We only sweep those money to our central bank for safekeeping.”

Future of stablecoins under MiCA

While Banking Circle has been the first to make this step, it seems highly unlikely they will be the last. Although, bigger players who are waiting to drip their toe in once things settle may already be lagging behind.

Stablecoins could play a big role in the future of our payments systems and MiCA has been an essential step in moving that forward. Lee commented: “If you believe in the future of banking and payments would actually have a large digital element to it. We could say that tokenised money, in whatever form, whether it's in a tokenised deposit, stable coin, e-money token, so on so forth, it will play some sort of role.

“Whether it completely replaces the traditional cross border banking rails, that's yet to be seen. We think that that's a place that we as a payment bank would want to be in.”

Looking to the future, Lee told me they though remain focused on the EU and EEA, but they may investigate some other currencies but not other jurisdictions. Lee elaborated that this was because MiCA provides “one of the most well developed stablecoin regulation” and outside Europe and Japan, most regulations are still in the sandbox.

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