Crypto businesses will be forced to suspend services in the almost $1 trillion-worth European market unless they get more time to comply with the EU’s new Markets in Crypto-Assets regulation.

That’s according to a letter sent to the European Securities and Markets Authority by a group of crypto and blockchain trade associations who warn that, unless they get more time to comply, the market’s reputation and customers will suffer.

Failing to do so will jeopardise users’ ability to trade and cause “serious customer detriment and negative financial consequences across all EU member states,” said the letter from the European Crypto Initiative, Blockchain for Europe, the Electronic Money Association, and the International Association for Trusted Blockchain Applications.

The letter, seen by DL News, comes as the next stage of MiCA’s phased rollout is set to go into effect on December 30. This will set new rules for crypto asset service providers, or CASPs — such as exchanges, wallet providers, and custodians.

While the new laws have been hailed as the driver of the next step of the crypto industry’s growth in across Europe, industry reps fear a perceived sluggishness from regulators means they won’t be ready to tap into that opportunity.

What’s this about?

The EU markets watchdog only recently finalised the implementing rules of MiCA. These are the finer details of MiCA that individual state regulators and crypto firms need to follow to comply with the crypto framework.

The next stage of MiCA’s phased rollout is its rules for crypto asset service providers, or CASPs — such as exchanges, wallet providers, and custodians.

CASPs in each EU state must be authorised under MiCA by their local regulator. It’s a process that involves tons of red tape, and documentation sent over to regulators.

However, it does confer a big advantage on the CASP — once they’re authorised in one state, they can offer their services across the bloc. That’s known as MiCA’s passporting provisions.

But CASPs can’t authorise firms until they get ESMA’s rules. The regulator submitted these rules to the European Commission on October 16.

The commission endorsed them on October 31. That left EU state regulators with mere weeks to publish their authorisation requirements and to approve firms in time for the December 30 deadline, the letter said.

Grace period

MiCA does provide a grace period of up to 18 months for firms to transition from outgoing local CASP regulations to MiCA.

However, the trade associations warned, this grace period is not much help, and crypto firms may still have to shutter cross-border services.

That’s because MiCA allows individual countries to pick different grace periods up to that 18-month limit.

Some states — such as Denmark, France, and Greece — opted for the full 18 months. Others, like Ireland, opted for 12, and others, like Lithuania, for just five months.

The problem? Applications take time, as they involve a lot of paperwork. And since ESMA got the rules done so late, that realistically pushes the timeline for authorisations beyond many countries’ grace periods.

Take a firm in Poland that also offers services in Lithuania. It might have fully processed its application in Poland by May 2025, but will still have to shut down in Lithuania, as that country’s grace period will have run out.

That’s a big threat to the passporting rules, MiCA’s biggest selling point for CASPs, the letter says.

Solutions

The lobbyists ask ESMA to extend the grace period for MiCA authorisation to the end of June.

“This would mitigate regulatory uncertainty, allowing CASPs to continue services while applications are processed,” Vyara Savova, a senior policy expert with the European Crypto Initiative, told DL News.

Savova said that ESMA could also fix the issue by telling member states to harmonise their timelines and lengthen their grace periods.

ESMA did not respond to a request for comment.

Joanna Wright is a regulatory correspondent for DL News. Reach out at joanna@dlnews.com