"The evolving crypto landscape - towards the implementation of MiCA" - Remarks by Gerry Cross, Director of Financial Regulation, Policy & Risk

30 May 2023 Speech

Gerry Cross

The remarks were made on 30 May 2023 at Day 2 of Blockchain Ireland Week

Good morning. Thank you to Blockchain Ireland for the invitation to speak with you today. It is good to be back again at Blockchain Ireland Week.

Technological innovation is an important focus of attention for the Central Bank of Ireland. We are an integrated regulator with a mandate to secure the sound functioning of the financial system so that it sustainably supports a well functioning economy and the financial wellbeing of citizens.

Rapidly evolving technological innovation is a key feature of the environment in which we seek to deliver these mandates. With that in mind, it should come as no surprise that a core theme of the Central Bank’s Strategy is being Future-Focused. We aim to secure the benefits of change, innovation and competition for consumers, investors and the economy as a whole while ensuring the risks are well managed.

Ireland has significant advantages when it comes to being a place in which fintech products and services can emerge, grow and flourish.

We have highly developed financial and technological ecosystems; we have a pragmatic, agile and responsive approach to business development; we have a highly educated and young working age population; and we are strongly integrated into the wider EU and international markets. Importantly also, we are respected for the high quality and effectiveness of our regulatory approach. All this means that we are well positioned to ensure that our financial system continues to evolve and develop so as to continue to serve the needs of the Irish and European consumers and the wider economy.

Data on the Fintech sector indicates that the fintech ecosystem in Ireland comprises approximately 270 indigenous fintechs and 120 international fintechs. When we look across the Fintech sector, we are struck by the diversity of the applications and solutions, with Fintechs sector providing solutions in Regtech, Payments, InsurTech, Funds/Trading, and Credit and Lending sectors. And of course, over recent years we have been seeing the significant growth of the Blockchain and crypto sectors

Open and engaged

Being open and engaged is a key part of our strategy. As a public authority, trust and confidence as well as agility in responding to a rapidly changing world are fundamental drivers of success. We know that effective, high quality engagement with stakeholders are central to this.

In 2018 we set up our Central Bank of Ireland Innovation Hub. This was designed to support engagement between the Central Bank and the innovation community. Particularly for those for whom engagement with the regulator is something new. Over this time, the Innovation Hub has met and facilitated engagements with a large number and wide array of innovators, fintechs, innovation facilitators, regulated entities, and thought leaders.

DLT / Blockchain and digital assets now represent the dominant sector for enquiries into the Innovation Hub.

In 2023, Central Bank we will be enhancing the Innovation Hub and more generally our approach to innovation engagement. Although the Hub has served us and innovators very well, the time has come for us to be even more ambitious and further deepen our engagement. Our review work is currently underway and we will issue a consultation paper later in the year. 

The use case for crypto

When I spoke at this event last year I spoke about the excitement and challenges that we in the regulatory community experience in the face of new and significant developments such as those involving the blockchain. From our perspective as a financial regulator, the combining of cryptography, information technology and financial services is an important development that has the potential to bring significant benefits to the economy and to the users of financial services. However in order to unlock these benefits, there were, and are, some important challenges to be overcome and risks to be managed.

Key amongst the challenges is achieving greater clarity around the use case for crypto. Utility is key for us at the Central Bank. What does blockchain or cryptotechnology do for users? How should we think about it and approach it? While we recognise the importance of allowing experiments to flourish, where products or services are being sold to consumers it is important to consider what it is the value that those products or services are seeking to deliver – and what do users understand in this respect. We build our regulatory approach from that starting point. Of course multiple potential uses is one of the notable features of blockchain.

I noted last year that there was an important need to bring more sharply into focus the purposes and use for which blockchain is being deployed in different situations – in particular, where consumers are involved. We need to be clearer about the situations where blockchain and cryptotechnology are being deployed to underpin payment services, and where they are being deployed to support investment activities or, as is often the case, speculation. There are situations where the intention seems to be to provide more of a gaming experience. And of course there are situations where they are being used to support smart contracts, and facilitating developments in decentralised finance or DeFi through tokenisation. And beyond these there are likely to be many other uses, perhaps as yet unknown, to which this technology can be expected to be put in the area of financial services and more widely.

The past twelve months have brought some increased clarity as to the different uses of crypto. However we still have a long way to go. This is of course to be expected with a field of technological development that is still as young as the blockchain – even if in this area things move very fast and we can measure in months what in previous times we would have measured in years.

The crypto winter

It has in many respects being a difficult year. The phrase “crypto winter” has not emerged as a result of generally happy or positive experiences.

Despite all that has happened however, we at the Central Bank of Ireland remain as positive towards, and engaged with, technological innovation as we have ever been. Indeed it is increasingly at the centre of our thinking and our strategy. We believe that the benefits to citizens and the economy can be enormous over the years ahead. Provided of course that the right steps are taken and the right lessons learned when lessons are presented to us.

This was a painful time for investors and consumers, whose losses were significant. It brought home the importance of good governance, and business model sustainability, and the need for effective regulation.

It also brought home the potential financial stability risks associated with crypto. While interconnection with the wider financial system for now remain limited, nonetheless we have seen material linkages begin to have relevance - between for example the failure of Signature Bank in the US and its exposure to crypto markets on the one hand; and between the failure of Silicon Valley Bank and potential contagion risks to crypto firms and the stability of their fiat pegs on the other. Against this backdrop, the finalisation of the Basel Committee’s standards for the treatment of banks’ crypto exposures, and the European Commission’s move to incorporate these rapidly into EU legislation is important and welcome.

More broadly during the past year or so, we had the case of TerraUSD (UST), which was an algorithmic stablecoin, whose algorithm was supposed to maintain a $1 peg supported through a dual token system between the stablecoin TerraUST and its LUNA token. At its peak, the LUNA token hit a high of $119.18. However set against the backdrop of a bearish wider crypto market, with bitcoin hitting a 10-month low on 10 May 2022, LUNA saw its value plummet below $40 that day and be essentially worthless by 13th May. So much for the stable peg in that case!

Or take the case of Celsius - a retail friendly crypto lending platform and a very popular platforms in the market who promised high returns and safe investments. Through interconnectivity with other crypto products, including Terra Luna, over-leverage, and unpreparedness for significant margin calls in a falling market, Celsius failed with significant losses to retail investors.

And of course there has been FTX, where traditional, old-fashioned, failed governance, mismanagement, and investors perceived as easy targets led to major losses and collapse.

An aspect that has also come strongly to the fore over the past year is the degree of complexity, opacity and at times the potential for conflicts of interest that can arise in the context of large groups focused on crypto markets. This is a real challenge for regulators when it comes to overseeing crypto markets. It is something that needs particular attention. In this context, we very much welcome the publication last week of a consultation paper by IOSCO, the International Organisation of Securities Commissioners on just this topic. For a valuable reflection of events of the past year, connectivity and complexity, a recent blog post by Elizabeth McCaul, Member of the Supervisory Board of the ECB is worth a read.

A differentiated approach

When we talk about the uses of crypto, it is of course important to remember that we are dealing here with a rapidly evolving field of technology, and that one of the great drivers of ultimate benefit is serendipity.

By definition, we often don’t know where the benefits are going to come from, so we should be very careful about straitjackets and narrowly purposive thinking that can stifle things before they even get going. 

That said, when things achieve a certain scale or form the basis for material business models, then it is definitely the right time to ask what is the use to which this is being put.

As our understanding of and insight into the different purposes and uses of cryptographic techniques, DeFi, and the blockchain have evolved over the past twelve months, we are pleased to have observed that our developing perspectives are reflected more or less in the European regulatory approach that has been crystallising in the form of the Markets in Crypto Assets (MiCA) legislation. I will say a little more shortly about MiCA and also about the importance of a strongly coordinated approach to its implementation.

Let me start with what can be described as “unbacked crypto”. These are crypto products or “coins” which do not purport to be backed by any other asset. They take their value solely from what people are willing to pay for them, and not from anything else.

In principle we find these products difficult to appreciate and hard to understand  especially where they are driven by speculation and lack real utility. That said, we realise that, as financial regulators and for many of us, not digital natives, it may be that there are aspects that our particular experience and perspective makes it more difficult for us to see clearly. So for example, for those who are immersed in the ever more prevalent world of online gaming, virtual reality, or the metaverse, such products may have real value and purpose within the context of those virtual contexts. They may also play a role in supporting the evolution of smart contracts.

However, where we do get concerned is where we see such unbacked crypto products distributed and used in an entirely different manner. Where we see them treated as if they are value-related investments, our warning lights begin to blink. Where we seem them heavily marketed and promoted, often by very well known personalities, in the very penetrating medium of social media, and a large and wide-scale to retail investors. Then our warning lights are flashing red. You will see that we, like other European regulators, have issued strong warnings about these products. And indeed if you want to see the matter laid out in the plainest of terms, take a look of the words of the Central Bank of Ireland Governor Gabriel Makhlouf in his recent blog on the topic. 

The publication last week of the European Commission’s Retail Investment Package contains proposals for imposing more liability on social media influencers (so called finfluencers) and on the companies that pay them for promotion of and recommendations for financial products and services. This is an approach that could have real value in the context of speculative crypto products heavily promoted to retail customers.

Here it is also important to distinguish the situation of unbacked crypto marketed to retail customers to the same product made available to non-retail, professional investors. It is our approach in the Central Bank that such investors, subject to the appropriate marketing and disclosure rules by product providers, are better able to look out for themselves. On this basis, we have recently updated our guidance on investments in digital assets to allow greater flexibility for professional only investment funds or QIAIFs to invest in these assets albeit indirectly.

In Ireland, QIAIFs may now hold indirect exposures to digital assets of up to 20% for open-ended funds and up to 50% for funds that are closed ended or offer limited liquidity. (Direct holding will be subject to demonstration that a depositary can meet its obligations to provide effective custody or safe-keeping services to digital assets.)

Backed crypto offerings, are a potentially very different animal. Where a crypto product purports to be backed by meaningful assets, then where this is reliably and effectively done, there is the potential for meaningful purposes and uses to be developed. In this context, amongst the features that will be particularly important from a regulatory perspective are a high quality governance, effective “backing” of the crypto offering so that the purported value aligns with the realisable value, and high quality transparency and communication with investors, in particular, retail investors so that they know clearly and understand fully what risks they are exposed to. 

Tokenisation. A really interesting field of current exploration is that of tokenisation. Tokenisation of assets involves the digital representation of real (physical) assets on distributed ledgers, or the issuance of traditional asset classes in tokenised form.

This approach could, on its face have the potential to deliver a range of benefits - including enhancing liquidity, improving valuation, broadening access, amongst other benefits.

In terms of funds, for example, tokenisation has potential benefits in realising cost and timing efficiencies and improving transparency around record keeping and reporting while also facilitating the exchange of the units without the need to redeem. 

Improved transferability could, if structured appropriately, potentially make it easier to pledge collateral and margin without amplifying redemption pressure on funds at times of increased market stress. 

However, we also need to consider how these innovations will interact with our current regulatory frameworks built upon the intermediated model and designed with inbuilt and self-reinforcing safeguards.

We have not at this stage seen a working model of tokenisation for investment funds.  Until we see how they propose to operate in practice we can only talk in general terms about potential benefits and risks. Nonetheless the potential is interesting. 

I am conscious that there are a number of tokenisation pilots at various stages of development underway across the fund industry.  We look forward to the engagement as the technology evolves and our understanding and experience gained through the development of these proofs of concept improves.

Decentralised finance more generally. Blockchain is also the underlying technology facilitating developments in decentralised finance or DeFi. At its core, DeFi has no centralised authority, removing intermediaries through utilising smart contracts.

As with all new developments, there are opportunities and risks. DeFi promises cheaper, more efficient and transparent processes and systems in financial services. 

During the MiCA negotiations, it was agreed that DeFi should be excluded as it was too early, and greater clarity on how best to regulate DeFi was needed. It was decided not to rush into or shoe-horn DeFi into MiCA, but rather wait, learn, understand, then regulate appropriately. MiCA has promised a report on DeFi 18 months after it goes live so continued monitoring and consideration are current actions.

At the international level, IOSCO, the International Organisation of Securities Commissioners, is taking a leading role DeFi. It has established a Working Group dedicated to the topic. We are members. The group is primarily focused on analysing and responding to market integrity and investor protection concerns within DeFi. The DeFi working group is looking to build a shared understanding of emerging DeFi trends and risks and will look to deliver a report setting out guidance to IOSCO members on how to manage these risks within their regulatory frameworks. 


This brings me to the new Markets in Crypto Asset regulation or MiCA. MiCA, will be a first step in regulating crypto. It is designed to support its further development while ensuring that the risks are addressed. We have been closely involved, together with our colleagues in the Department of Finance, in the EU legislative process to finalise this important regulation.

You may have seen that the MiCA proposal was approved by the European Parliament in April, and the Economic and Financial Affairs Council of the European Union unanimously approved MiCA on May 16. The regulation will become applicable to issuers of ARTs and issuers of EMTs around July 2024 and for CASPs and utility tokens at the beginning of 2025.

EMT’s and ART’s:

MiCA brings clarity to 3 types of crypto asset, E-Money Tokens, EMTs, Asset Referenced Tokens ART’s, and Utility Tokens and sets requirements for their issuers. EMTs and ARTs are examples of backed crypto as I have been discussing above.

EMT’s or E-Money Tokens, purport to maintain a stable value by referring to the value of one fiat currency that is legal tender. As such, EMT’s are similar in concept to Electronic Money (regulated under the E-Money Directive - EMD).

ART’s or Asset Referenced Tokens are a type of crypto-asset that purports to maintain a stable value by referring to the value of several currencies that are legal tender (fiat currencies), one or several commodities, or one or several crypto-assets, or a combination of such assets.

Consumer protection features strongly, with obligations to act fairly and in the best interests of EMT and ART holders. EMT issuers will be required to offer and ensure redemption at par (1:1) while both EMT and ART issuers will have clearly disclosed redemption obligations. 

They will be subject to prudential requirements including capital requirements and reserves obligations including detailed policies and safe custody of same.

For both EMT and ART issuers, there will be restrictions for investment of reserves and the expectation of robust governance, including business continuity, control and risk assessment, and appropriate 3rd party contractual agreements.

So, this is really important. For the first time there will be regulation designed to ensure that so-called stablecoins live up to their name. This will be a challenge also for supervisors to implement effectively.

MiCA also recognises the potential for EMT’s or ART’s to reach large scale. Such large scale global stablecoins bring additional risks including financial stability risks. In this regard, the EBA will lead the supervision of issuers of significant EMT’s, or significant ART’s and establish a College of Supervisors comprising the ECB, the ESA’s, the home NCA and other NCA’s where the EMT or ART is trading. Issuers of significant EMT’s will be subject to more stringent requirements around the custody and investment of the reserve assets, higher capital requirements, more stringent liquidity management policies, and the establishment of liquidity and redemption procedures to ensure normal operation during liquidity stressed scenarios, along with orderly wind-down plans.

In terms of regulated products, fully decentralised, unbacked assets are not included in MiCA’s issuer / product framework. Not only do they lack a central governance structure to engage with, this approach reflects our own view that such assets, having no underpinning value, should not be regulated as financial products. To do so would provide them with a problematic veneer of credibility.

However, CASP’s providing services in respect of unbacked assets, will have robust obligations to ensure their trading, custody, and engagement with consumers around these products meets high standards. This brings me to the topic of MiCA and the obligations on CASP’s.


As well as issuers, MiCA will also regulate crypto asset service providers. CASPs are firms that provide crypto asset services to third parties on a professional basis. This will include, for example, trading platforms; exchanges; custody providers; execution firms; and advice providers. This aspect also includes unbacked assets.

MiCA will impose important consumer protection measures on CASPs, with governance obligations, minimum capital requirements, and transparency requirements. MiCA will also provide for prohibitions on insider dealing, market manipulation and the unlawful disclosure of inside information.

MiCA will introduce requirements for CASPs to issue consumer warnings where the consumer has not satisfied the conditions of the required appropriateness test. It will also introduce minimum standards for advertising and marketing.

CASPs will need to maintain segregated accounting practices to properly keep customer funds separate and suitably protected from incidents such as insolvency. And they will be required to maintain a suitable insurance that will cover its exposures in case of a partial or total technical failure.

Climate impact

The climate impact of crypto is an aspect that has given rise to considerable concern including during the MiCA negotiations. Addressing the scale of energy use in a range of crypto models will be essential to future success. It has been good to see the attention being given to this aspect over the recent period and some of the progress that is being made in this regard. It will be crucial to maintain this focus and progress. MiCA contains important disclosure requirements in this respect and, importantly, requires the European Commission to produce a report in two years on the climate impact aspects and implications of the crypto market and the potential introduction of mandatory minimum sustainability standards for consensus mechanisms

Implementing MiCA

MiCA will become applicable to issuers of ARTs and issuers of EMTs 12 months after entry into force and for CASPs and utility tokens, 18 months after entry into force. The text provides for a potential transition phase of up to 18 months for CASPs already operating in accordance with applicable law in order to prevent a cliff-edge occurring as MiCA takes effect. We are engaged with the Department of Finance who will consult on the exercise of this discretion in due course. 

This brings me to an area that we are particularly concerned about in the Central Bank of Ireland – that is ensuring the necessary coordination and consistency across Europe as we implement MiCA in the 27 jurisdictions of the Union. We think that there is a real risk of sub-optimal outcomes if this is not given the attention that it deserves starting now.

MiCA will come into effect in the middle of 2024. That is a very short time from now. In Ireland we are seeing considerable activity from a material number of firms who are getting ready now for the formal authorisation process – for example we see a great deal of activity in the Virtual Assets Service Providers (VASPs) registration space and in respect of e-money authorisations as firms ready themselves. So the process is starting now.

We also know that firms are looking at multiple jurisdictions across Europe as the work out how best to position themselves for the new regulatory regime.

At the same time there are a range of important issues still to be resolved as we move through the implementation process. These include the usual questions for the degree of rigour and emphasis with which the different provisions are applied. But also more specific ones such as what are different regulators’ views of different types of crypto model. For example if most regulators think that a model is not sustainable, but one or two think that it is, then the activity will simply migrate to that jurisdiction and avail of the passporting rights available.

Moreover, there is the group complexity point that I have mentioned earlier, and on which IOSCO focused as part of its consultation paper issued last week. It is going to be extremely challenging, and extremely important, to develop an effective approach to considering the impact of the overall group model and structure, on the governance, quality, and sustainability of entities authorised in Europe. It will be extremely important that we pool our regulatory resources and achieve a well-coordinated approach to this question.

Such convergence will bring clarity to industry - aiding firms in their approaches towards transitioning to MiCA, while also ensure a strong grounding for this new important regulation.

MiCA represents major European-led progress in relation to creating a high quality supportive context for technological innovation in financial services. To reap the benefits of this, it is vital that we have a strongly convergent and coordinated approach across the different EU jurisdictions. It is particularly important to success and credibility that there is no room for jurisdiction shopping based on actual or perceived differences in approach.

During the Brexit-related migrations, ESMA established a very effective Supervisory Coordination Network to drive consistency. There would be real merit in the EBA establishing a similar mechanism for crypto-related applications during the current period leading up to MiCA implementation. 


Let me conclude here.

You will have seen from my comments that at the Central Bank of Ireland, we are committed to implementing the regulatory, supervisory and approvals approaches which allow all of us to unlock – for the benefit of consumers, businesses and the wider economy – the potential of blockchain and other technological innovation.

You will also have seen that to achieve this we will all – innovators, service providers, and regulators alike – have to work hard to address the range of challenges that confront us at this stage in the evolution of tech-driven financial services.

Thank you very much for your attention.