Europe’s Markets in Crypto Assets (MiCA) regulation has shifted the focus in the cryptocurrency sector from licensing to sustainable long-term compliance, raising questions about whether smaller firms can bear the costs of evolving oversight.
UK and EU regulations grow more demanding
While many European crypto companies raced to obtain MiCA licenses, the industry is now entering a phase dominated by mergers, acquisitions, and collaborations between crypto-native firms and traditional financial institutions. The changing regulatory landscape is no longer just about securing operational approval; it now challenges firms to scale up to meet stricter compliance obligations.
In the United Kingdom, the Financial Conduct Authority (FCA) is finalizing new rules that could impose compliance demands on par with the EU’s MiCA framework. Unlike MiCA’s tailored approach, the UK’s proposal would integrate crypto firms directly into the same regulatory regime as traditional investment institutions.
Steven Lightstone, a partner at Morgan Lewis in London and co-leader of the firm’s global fintech industry team, said that the FCA aims to support both competition and new entrants to the market but upholds high regulatory standards, particularly regarding consumer protection.
The FCA is trying to help competition and newcomers, but it enforces very high standards, especially where consumers are concerned, Lightstone explained.
According to Lightstone, crypto companies in the UK would be required to adhere to requirements already familiar to established financial entities, including prudential, operational, and client asset protections, rather than operating under an entirely new regime. He emphasized that obtaining FCA authorization will remain a difficult process for new entrants.
Banks and established institutions see new opportunities
For traditional banks and investment companies already equipped with extensive compliance systems, entering the crypto market may be relatively straightforward. In contrast, new crypto startups may find building robust governance, capital, and asset custody frameworks from the ground up both expensive and complex.
The FCA’s proposals include applying the Clients Asset Sourcebook (CASS) regime, which would require companies to keep customer digital assets segregated from corporate funds in trust, coupled with specific safeguards for handling private keys and reconciliation processes. Lightstone described these requirements as onerous and suggested that compliance pressures could prompt some crypto firms to seek mergers with established institutions already familiar with such controls.
Mini dictionary: CASS regime, a framework from the Clients Asset Sourcebook that sets strict requirements in the UK for separating and safeguarding clients’ assets, aiming to protect investors from company failures or misuse of their funds.
As regulatory clarity improves, traditional banks are increasingly open to expanding their crypto offerings. Simon Schneider, CEO of Sygnum Europe, noted that currently fewer than 20% of European banks provide any type of crypto services, leaving the market significantly underserved.
There is less than 20% of all the banks in Europe offering any type of crypto services, so it’s heavily underserved, Schneider observed.
Schneider believes MiCA’s true impact is less about creating new licensing pathways and more about delivering legal certainty for financial institutions. He highlighted Switzerland’s rapid uptake of digital asset services across its banking sector after the introduction of distributed ledger technology laws. Sygnum, a digital asset bank headquartered in Switzerland, has established itself as a provider of regulated infrastructure instead of competing for individual retail customers.
| Country | Banks Offering Crypto (%) | Key Regulation |
|---|---|---|
| Europe (EU) | Less than 20 | MiCA |
| Switzerland | About 75 | DLT Act |
He predicts most banks will focus on partnerships with regulated infrastructure providers for custody, brokerage, and tokenization services, rather than displacing crypto-native companies outright. Schneider also expects more digital assets to migrate to regulated providers as firms unable to meet new licensing standards close or downsize their European activities, while both institutional and self-custody models are likely to coexist.
Scale may overtake speed for crypto startups
The UK’s approach, intended to foster innovation, nonetheless aligns with a broader European trend: success will likely depend on an enterprise’s ability to meet rigorous financial regulation. Industry observers suggest that as lean startups face mounting regulatory costs, scale could emerge as the new competitive edge, potentially accelerating consolidation across the digital asset sector.
