TRM Labs Report Evidences MiCA’s Sweep In Europe

As the grandfathering period established by the Markets in Crypto Assets (MiCA) regulation ended in Europe, the European crypto industry entered a new period of consolidation, as the existing crypto asset service providers (CASPs) landscape experienced changes that shifted the digital assets landscape.

In a recent report, TRM Labs found that MiCA contributed to streamlining and consolidating the European CASP ecosystem, with only roughly a fifth (281 of 1,343) of the pre-MiCA crypto organizations applying and receiving authorization to operate under the new rules.

Jurisdictions with looser registration requirements were hit the most. None of the over 1,800 crypto organizations registered in Poland received MiCA authorization, and only eight out of over 400 were authorized in Lithuania.

TRM Labs points out that jurisdictions that embarked on licensing early, such as Germany, concentrated the vast majority of registered crypto firms. Germany’s BaFin authorized 55 firms, while French and Dutch regulators licensed 29 companies each.

Nonetheless, MiCA is doing what it is supposed to do, as the framework isolated high-risk companies from reaching European customers. TRM Labs’ ratings indicate that 12% of the firms left unauthorized carry a High or Severe risk classification compared to 2% from the authorized firms group.

Exposure to sanctions risks is the differentiating factor between the two groups, as unauthorized firms sent $5 billion to sanctioned counterparties, while authorized ones sent just $1.7 billion, almost a third.

“Although exposure appears broadly similar across the two groups, the risk is more concentrated among offboarding firms. Half show no measurable illicit exposure, while a small number route 1% to 12% of their volume directly to illicit addresses. As a result, exposure is roughly four times higher for offboarding firms,” the report concluded.

Even so, MiCA has had negative effects on European access to stablecoins, and crypto executives have raised concerns about the consequences of leaving large market capitalization stablecoins out of the region.

Nonetheless, the EU is currently planning a full revision of the MiCA framework focused on solving the stablecoin issue and bringing tokenized assets under its scope.