'Let history be your guide' on potential for second MiCA: European Commission adviser

Peter Kerstens is an adviser on financial technology, digitization and cybersecurity for the European Commission and a key player on the landmark Markets in Crypto-Assets legislation expected to become law across the 27 members of the European Union in April. On Monday, Kerstens took a few minutes after a South by Southwest panel on crypto regulation in Austin, Texas, to speak to The Block about the persistent rumblings of another MiCA and how stablecoins fit into digital asset policy across the, well, bloc.

The interview has been edited for length and clarity.

Do you anticipate a second MiCA bill [which some policymakers have suggested could happen]?

Our priority at the commission is to get MiCA "one" published and then acted on, so we’re focused on that.
There’s a lot of talk about a MiCA "two," [but] not from the European Commission, and it’s ultimately for the European Commission to present a MiCA "two" if and when that is necessary. So MiCA "one" asks the commission to report in 18 months’ time on three issues: NFTs, DeFi and crypto lending/borrowing. And we will do that. What we will be reporting [with regards to those] it’s too early to say: 18 months is a long time in the crypto space. So we will see in 18 months’ time, but we will meet that requirement and that will be accompanied by proposals if we believe there’s something to propose. So then you have a MiCA "two."

But when we do that report, nothing stops us from also adding other subjects which came up, like there may be other topics that have emerged or looking back into experience on MiCA "one," and market developments and so on.

Probably the best thing is to let history be your guide to the future. And if you look at other pieces of legislation, they come in iterations. MiFID capital requirements and so on, payment services. So there, historically, you’ve seen newer versions. Does this predict the future? No. But it may be one way to think about it.

The anti-money laundering legislation under debate by the EU is still being revised. Is that also happening with MiCA?

MiCA is actually agreed, and it was agreed last year, but it has to go through the process of translations, because we work in every language. People who are specialized lawyer linguists make sure these translations work and the text is actually consistent. Some simple things like one article refers to an issue in the singular and another article refers to it with a plural, so these things need to be cleaned up. That process takes time. This leads to textual changes but these are not substantive changes.

So [negotiation] is now completed for MiCA. The AML legislation is still being negotiated. So there’s no agreement yet so that text is still evolving. It deals with the AML framework and the obliged entities and the obligations and creation of an anti-money laundering authority, these kinds of things. But there are certain issues, especially in Parliament. Parliament was trying to write in certain provisions, crypto-related provisions, in AMLR. For example, on DeFi you have no obliged entity. And also on non-fungible tokens.

USDC de-pegged from its value over the weekend [due to concerns about the financial health of banks where Circle kept its reserves]. If or when MiCA passes, how would that situation be addressed?

MiCA doesn’t regulate mark-to-market value, it’s price regulation… So MiCA requires that stablecoins must be fully collateralized and that the reserve assets must be highly liquid, highly secure… so it provides the rules under which reserves must be managed.

MiCA doesn’t use the term "stablecoin" because — in our view — stablecoins are not stable and are not coins. We call them "electronic money tokens" and they purport to have a stable value and there’s a system around it that gives credibility to this stablity, but the stability is not absolute.

What is important under MiCA rules for electronic money tokens is that the issuer must redeem them at par. That means that if you hold the coin, you can always go to the issuer and say "I want my dollar, I want my euro back." This redemption obligation has an impact on the market. Because if the coin were to trade above its peg, that’s not very rational, because you would have to pay, say, $1.05 but you can only redeem it for $1. So why would you pay more? That’s rational, but if it’s trading below, there’s an interest for people to say, "I’m going to buy it" because I can buy that for 90 cents on the dollar and turn to the issuer and say "I want $1 for this." And that buying behavior will move the coin back up again. That’s the market.