Cyprus Securities and Exchange Commission Chief Highlights Early Impact and Challenges of EU Crypto Rules

The introduction of the Markets in Crypto-Assets Regulation (MiCA) is transforming Europe’s digital asset landscape while simultaneously bringing new regulatory complexities to the surface, according to George Theocharides, chairman of the Cyprus Securities and Exchange Commission.

Writing in an article originally published in Eurofi magazine, Theocharides characterised MiCA as a fundamental turning point for the European crypto-asset market. He explained that an industry which previously operated largely without a unified regulatory structure is now governed by common rules, licensing obligations and supervisory oversight across the European Union. “The Markets in Crypto-Assets Regulation represents a structural shift for the EU crypto-asset market,” he said.

He noted that the transition is already producing measurable advantages, particularly in terms of improved certainty and transparency for both businesses and users. “This transition is already generating tangible benefits, notably through enhanced legal certainty and regulatory clarity for firms and users,” he said.

Theocharides elaborated that MiCA addresses fragmentation by introducing well-defined categories for crypto-assets, such as asset-referenced tokens (ARTs), e-money tokens (EMTs) and other digital assets, while creating a harmonised compliance framework across member states. At the same time, he pointed out that investor protection has been significantly reinforced through stricter authorisation requirements for crypto-asset service providers.

These requirements cover governance, internal controls, conflict-of-interest management, safeguarding of client funds and operational resilience.

He also stressed that market integrity has been strengthened through the rollout of a crypto-specific market abuse regime designed to tackle insider trading and market manipulation, thereby increasing transparency and fairness in a sector that had previously been lightly regulated. In addition, MiCA’s passporting system allows authorised firms to operate across the EU under a single licence, facilitating cross-border expansion and supporting deeper integration of the internal market.

Despite these gains, Theocharides warned that the implementation phase is revealing practical challenges, particularly in how certain provisions function in real-world scenarios. “A key issue concerns Article 60 of the regulation,” he stated.

He explained that Article 60 assumes that firms already authorised under other EU frameworks can begin offering crypto-related services through a simple notification process. However, he cautioned that crypto activities often carry unique and complex risks. “In practice, crypto-asset activities often entail specific and idiosyncratic risks that require adjustments to governance structures, risk management frameworks, custody arrangements and digital operational resilience systems,” he mentioned. “A simple notification may not always adequately address these risks,” he added.

The article also highlighted difficulties in applying MiCA to decentralised models. While fully decentralised activities fall outside the regulation’s scope, identifying the boundary between decentralisation and regulated intermediation remains problematic. “While the regulation excludes fully decentralised activities, determining where decentralisation ends and regulated intermediation begins is not clear cut,” Theocharides said.

He warned that such hybrid models can create ambiguity regarding accountability and compliance responsibilities, underlining the need for clearer regulatory direction. Theocharides also drew attention to classification issues, particularly concerning ARTs, which must be distinguished from EMTs and traditional financial instruments to ensure they fall under the correct regulatory framework. “In practice, however, ARTs often resemble traditional investments, creating a grey area between MiCA regulation and MiFID II,” he said.

Looking ahead, Theocharides suggested that Europe’s crypto market is likely to become more closely integrated with traditional financial services, prompting a shift in regulatory priorities. He emphasised that this evolution will require alignment between MiCA and the broader financial system, rather than treating crypto-assets as an isolated sector.

From the standpoint of a smaller EU member state, he said proposals to centralise supervision of large cross-border crypto firms at the EU level raise important strategic questions. While acknowledging potential benefits, he urged caution. “Centralisation can enhance consistency in certain high-impact cases, but it should be proportionate and consistent with subsidiarity,” he said.

Theocharides cautioned that excessive centralisation could lead to unintended consequences, including the concentration of activity in a handful of jurisdictions or a weakening of the connection between regulators and local markets. “There is a risk that overly centralised approaches could concentrate activity in a few Member States or weaken the link between supervision and local market realities,” he stated.

He argued that differences in supervisory practices across member states should not automatically be viewed as inefficiencies, noting that national regulators often possess deeper insights into local conditions and risks. Their proximity to market participants, he added, can enable more effective oversight. “The key question is therefore whether centralisation is always the best answer or whether clearer Level 1 rules, combined with stronger checks and balances around convergence tools, could resolve the problem more effectively,” he said.

The article concluded by noting that, like any pioneering regulatory initiative, MiCA’s rollout has exposed areas requiring further clarification, supervisory alignment and targeted adjustments. Theocharides emphasised that while the framework has already significantly improved regulatory clarity, its long-term effectiveness will depend on ongoing supervision, evolving guidance and careful calibration as the crypto sector continues to converge with traditional finance.

By fLEXI tEAM