MiCA and UK crypto regulations may drive industry integration, banks will benefit from new standards

European MiCA Regulations and New UK Regulations: Consolidation in the crypto industry is accelerating, and banks are facing new opportunities

Europe's Crypto Asset Markets Regulation (MiCA) has shifted the focus of the crypto industry from obtaining licenses to sustainable long-term compliance, raising questions about the ability of small businesses to bear the costs of increasingly stringent regulations.

Regulatory requirements in the UK and the EU are becoming increasingly stringent

Although many European crypto companies are competing to obtain MiCA licenses, the industry has now entered a new stage, characterized by increasing mergers and acquisitions and cooperation between crypto-native companies and traditional financial institutions. Changes in the regulatory environment are no longer just a matter of obtaining operating licenses; they now require companies to expand to meet stricter compliance obligations.

In the UK, the Financial Conduct Authority is finalizing new rules that could impose compliance requirements on a level comparable to the EU MiCA framework. Unlike MiCA's approach to adapting local conditions, the UK's proposal would directly require crypto companies to comply with the same regulatory regime as traditional investment institutions.

Steven Lightstone, a partner at Morgan Lewis Law Firm in London and co-head of the global fintech industry team, said that the FCA aims to support market competition and new entrants, while adhering to high standards of regulatory requirements, especially in terms of consumer protection. He explained that the FCA tries to help competition and new entrants, but it enforces very high standards, especially when it comes to issues involving consumers.

According to Lighterstone, UK crypto companies will be required to comply with requirements that traditional financial institutions are already familiar with, including prudential supervision, operating specifications and customer asset protection, rather than operating under a new regulatory system. He emphasized that obtaining authorization from the FCA will still be a difficult process for new entrants.

Banks and mature financial institutions discover new opportunities

For traditional banks and investment companies that already have well-established compliance systems, entering the crypto market may be relatively straightforward. In contrast, new crypto startups may find it expensive and complex to build a robust governance, capital and asset custody framework from scratch.

The FCA's proposal includes applying a customer asset source manual system, which would require companies to custody customers 'digital assets separately from company funds, and develop specific protection measures for private key management and reconciliation processes. Lightes described the requirements as onerous and suggested compliance pressure could prompt some crypto companies to seek mergers with established institutions that are already familiar with such controls.

As regulatory clarity increases, traditional banks are becoming increasingly open to expanding the scope of their crypto services. Simon Schneider, CEO of Sygnum Europe, pointed out that currently less than 20% of banks in Europe provide some type of crypto services, and the market is seriously underserved. He believes that the real impact of MiCA is not so much to create new licensing paths as to provide legal certainty for financial institutions. He highlighted the rapid adoption of digital asset services by Switzerland's banking industry after the introduction of distributed ledger technology laws. Swiss-based digital asset bank Sygnum has positioned itself as a regulated infrastructure provider rather than competing directly with individual retail customers.

Schneider predicts that most banks will focus on working with regulated infrastructure providers to obtain custody, brokerage and tokenization services, rather than completely replacing crypto-native enterprises. He also expects that as companies that cannot meet the new licensing standards close or scale back their operations in Europe, more digital assets will be transferred to regulated providers, while institutional custody and autonomous custody models may coexist.

Size may replace speed as key to crypto startups

The UK's regulatory approach to promoting innovation is actually consistent with a broader trend in Europe: Success is likely to depend on a company's ability to meet strict financial regulations. Industry observers believe that as lean startups face rising regulatory costs, scale may become a new competitive advantage, which may accelerate integration in the digital asset space.