As MiCA’s transitional periods expires, Europe’s crypto market faces a reckoning

From fragmentation to filtration

Prior to MiCA, there was fragmentation across the EU as national regimes vied with different domestic regimes. Whilst some jurisdictions implemented specific new legislation, for most, the EU AML registration regime was the most relevant regime for virtual asset service providers (“VASPs”). The registration regime is a minimum harmonisation directive that did not allow firms to passport across the EU, meaning that firms would require a registration in each country it operated in but also allowed Member States to gold plate and put additional requirements as it saw fit.

MiCA seeks to change this situation at a structural level by introducing a directly applicable, EU-wide regulation which goes further than just AML and instead covers market access, disclosure, governance, prudential safeguards and supervision. The result of this is a much more comprehensive regime and set of requirements for issuers of E-Money Tokens and Asset Referenced Tokens as well as firms that qualify as authorised Crypto-Asset Service Providers (“CASPs”).

This also seeks to achieve MiCA's intended goals of creating high quality and orderly markets. Whilst precise figures are difficult to determine due to differences in national systems, industry estimates suggest that Europe had more than 3,000 registered VASPs as of 2024, with Poland alone accounting for over 1,400 registrations. As of May 2026, there are 194 authorised CASPs (including credit institutions) and it is expected that around 75% of the pre-MiCA VASP population will lose its registration status as transitional periods expire. On the one hand this points to MiCA raising the compliance bar and wiping out those that do not fit the bill. However, there are valid concerns raised in relation to the cost of compliance pricing out some of the smaller firms. MiCA, therefore, does not simply harmonise the market; it filters access to it. In practice, MiCA has favoured established firms, with stronger players obtaining licences whilst smaller or less prepared operators exit the market.

The consumer protection paradox

MiCA seeks to, among other things, protect investors and consumers. It puts in place a number of requirements on firms to achieve this, however, as stated above, the number of firms that are able to service clients is rapidly declining. There is little reason to assume that demand will decline in line with this. Regulatory changes may affect how consumers access crypto-asset services, but they do not eliminate the underlying demand for trading, custody or yield opportunities. If demand remains relatively stable, and firms are unable to gain authorisation for one reason or another, there are concerns that consumers could turn towards third-country providers or non-compliant platforms to seek more competitive products and services. In this sense, MiCA's restrictions on market access may undermine its own consumer protection objectives. Although the available evidence is still limited, there are indications that this dynamic is already emerging. The European Systemic Risk Board (ESRB) has noted that EU investors continue to access non-compliant stablecoins through decentralised exchanges operating outside MiCA's scope. Whilst it can be argued that MiCA creates cleaner markets, consumers using unregulated channels may be exposed to exactly the risks — such as fraud, manipulation and misappropriation — that the regulation seeks to reduce.

The innovation deficit

Although one of MiCA's core aims was to promote innovation, recent trends suggest that this is not progressing as desired. Whilst a regulatory framework may be in place, many crypto firms continue to face difficulties in accessing basic banking services, with a high rate of account closures. Whilst these developments are not as a result of MiCA, it is clear that there is a need for a cultural shift. Regulation introduces substantial compliance costs that are more easily absorbed by large firms than by smaller ones and the EU must be cognisant of this. As a result, MiCA may act as a barrier to entry for a number of firms, resulting in less competition and diversity in products and services.

MiCA 2.0

Establishing MiCA so early on was both a blessing and a curse. Whilst it allowed the EU to chart the way for how others may wish to approach regulating crypto-assets, it also meant that there are a number of areas where MiCA is unclear or silent in relation to where the industry has moved. Prime examples of this are DeFi and Staking, or Crypto-lending. When MiCA was being negotiated this was not a key concern and the market was too small to warrant any specific provisions. However, the pace of change has created calls for MiCA to be reopened to address these shortcomings and provide clarity across the market. One may also hope that a MiCA 2.0 may address the structural issues that have emerged during the first stage of implementation, including those mentioned above. The concern, however, is that reopening MiCA would also reopen the old discussions and the delicately found compromises that allowed MiCA to get over the line in the first place. Given some of the problems arising during the early days of MiCA, some may suggest that this may be worth the risk.

Moving goalposts

An issue that has come to the fore has been what some in the industry view as the changing expectations of regulators. Regulators at first seemed to indicate a proportionality-based approach to regulatory requirement. In early 2025, ESMA indicated that a risk-based and proportionate approach would apply, implying that regulators might have lighter initial expectations on smaller or less complex firms and ramping that up based on size and complexity. This view was certainly shared by a number of national competent authorities who had shown some degree of flexibility in the early stages of the CASP applications. However, ESMA later stated that there are effectively no “low-risk” CASPs, given their interaction with retail investors and the technical complexity of their activities . This, over time, resulted in a stricter approach being taken. Certainly, after the fallout of the Malta peer review and subsequent statements, national authorities were encouraged to apply consistently high standards, including to firms who were already deep in the authorisation process. This has created uncertainty for firms and may also been a reason for the low number of authorisations.

Enforcement

One of the objectives of MiCA was to create a single rulebook for the treatment of crypto-assets. As the transition period closes across the EU, a significant question is how will firms that have so far been taking advantage of the grandfathering provisions be treated by regulators. In practice, regulators are increasingly moving from supervisory warnings to direct enforcement. National authorities have begun to act more decisively. In Italy, CONSOB has issued several orders requiring the immediate cessation of unauthorised crypto-asset services under Article 94(1)(h) MiCA. These measures have targeted both domestic and cross-border platforms and include the first enforcement action and pecuniary sanction against a public offer of crypto-assets made without a compliant white paper. In France, the AMF has continued to use blacklists and public warnings to address unauthorised providers offering services to French clients from abroad. At the same time, cooperation between national authorities is increasing. In a joint statement, CONSOB, the AMF and the Austrian Financial Market Authority (FMA) warned investors about the risks linked to unauthorised providers and confirmed their intention to coordinate supervisory actions. They also highlighted the limits of purely national enforcement and pointed to the need for a more centralised approach, including potential direct supervision by ESMA of major CASPs.

A key enforcement challenge under MiCA relates to the ability of European authorities to manage cross-border activity and not just within the EU but from third countries. The result of this is taking a strict approach to reverse solicitation and financial promotions. The EU is not alone in this; a similar trend can be observed outside the EU. In October 2025, the UK Financial Conduct Authority (FCA) brought High Court proceedings against HTX (formerly Huobi Global) for illegally promoting crypto-asset services to UK consumers. The HTX case suggests that further enforcement actions of a similar nature may follow, as regulators increasingly target offshore entities accessing domestic consumers through digital channels without authorisation. Whilst enforcement of this nature may provide some level of consumer protection, arguments are made that a more competitive regulated market would prevent the need for this in the first place.

Forum shopping and the Malta peer review

MiCA's intention of having a single rule book to prevent fragmentation, has in someways been hampered by the fact that whilst it is a regulation that creates a single rule book, it is enforced by national competent authorities. With passporting rights meaning that authorisation granted by one national authority allows firms to operate across the entire EU, there has been a tendency from some firms to seek authorisation in jurisdictions perceived as more efficient or less demanding. This issue became evident in July 2025, when ESMA published a peer review of the Malta Financial Services Authority's authorisation of a CASP. The review found that whilst the MFSA had demonstrated a good level of expertise and supervisory cooperation, there were some concerns that some risk areas were not adequately addressed during the authorisation process. This raised broader concerns about the consistent application of MiCA across Member States. In fact, the joint statement from the Austrian AFM, the AMF and CONSOB threatened to prevent CASPs from certain firms to be able to passport into its jurisdictions. The fallout from the report was also that some NCAs are cautious to provide authorisations with some jurisdictions yet to authorise any CASPs.

The call for direct supervision at EU level

The challenges described above have led to renewed discussion in relation to MiCA's structural design. In December 2025, the European Commission proposed to make ESMA the direct supervisor of CASPs as part of a broader reform package. This proposal seeks to address the cross-border concerns in the market and ensure the consistent application of the law. With a number of firms that are already authorised as CASPs operating on a cross-border basis, questions were raised as to how effective supervision on a national level will be. Therefore, some have welcomed this proposal, however others understandably have not. The case for centralisation is reinforced by a structural consideration that is specific to crypto-asset supervision: national competent authorities, many of which have developed their regulatory frameworks around traditional financial services, do not necessarily possess the specialised expertise required to supervise a sector as technically novel and rapidly evolving as crypto-assets. Building that expertise from scratch across 27 separate jurisdictions risks producing uneven supervisory quality — precisely the fragmentation that MiCA set out to eliminate. This is not a theoretical concern. As of April 2026, the disparity in authorisations granted across Member States is striking; whilst some national authorities have processed and approved a significant number of CASP applications, others have authorised only a handful, and several have yet to grant a single licence. A regulation designed to create a single market is, in practice, being applied at markedly different speeds and with markedly different outcomes depending on where a firm happens to have filed its application. In this respect, the argument for direct ESMA supervision is not merely one of efficiency, but of competence. As noted by the ECB, centralising crypto-asset supervision from the outset would allow the necessary expertise to be built up once and to the highest possible standard, avoiding its imperfect duplication at national level and creating a level playing field across the EU from the start.

On the other hand,  one of the central tenets of European financial regulation has been to respect a certain level of autonomy at the Member State level and moving everything to ESMA might not be acceptable to many stakeholders. Moreover, at present, ESMA does not have sufficient resources to supervise a complex and fast-evolving sector across different jurisdictions nor pending resources to finance the necessary competencies in the near future.  Indeed there would  need to be a large investment to build up competences, which again raises concerns as to whether this will result in the cost of compliance raising even further in the EU. There are also questions on the effectiveness of central supervision and the loss of local regulators who are ‘closer to the business'. This naturally raises questions on whether firms would have to relocate their headquarters. If MiCA is supervised by ESMA in Paris, AML by AMLA in Frankfurt and DORA by the NCA regulating the financial activity, the jurisdiction analysis gets more complicated and would again increase the cost of compliance. 

Conclusion

Assessing MiCA against its objectives, it has certainly sought to protect consumers and the integrity of EU markets. However, it is also clear that more still needs to be done to create a truly single market that promotes the adoption and innovation of crypto-assets. The issues stated above will need to be addressed. Whilst some can be put down to ‘cold start issues' some are more deep-seated foundational ones. MiCA is a regulation that arrived with great fanfare, much promise, and offered the potential to create a truly single market for crypto-assets. It would be a stretch, however, to indicate, that MiCA has achieved these results.  Indeed, there not only needs to be clarity given on the matters addressed above but a message that crypto-asset activity has an important part to play in Europe's future. Heavy handed applications of the regulation, blocking access to traditional banking services and general uncertainty of crypto's standing, is stifling innovation in the sector. Unlike a lot of other financial services legislation, which seeks to control a market, many hoped MiCA would create a new market. If the EU wants to achieve this, serious consideration needs to be given to the issues highlighted above.  

Authored by Jeffrey Greenbaum, John Salmon and Lavan Thasarathakumar.