CoinDesk
Europe's landmark Markets in Crypto Assets (MiCA) regime is moving past the licensing phase into a harder test: whether smaller crypto firms can afford the long-term cost of full regulatory compliance. As the Financial Conduct Authority's (FCA) proposed UK crypto framework nears finalisation, lawyers expect comparable standards, built by weaving crypto firms into Britain's existing financial services regime rather than a bespoke one.
For established banks and investment firms already operating under those prudential, operational and client-asset rules, adapting to crypto is relatively straightforward. For newer crypto businesses, building governance, capital and custody from scratch looks considerably more burdensome, particularly under the FCA's proposed client-asset regime, which would apply the Clients Asset Sourcebook (CASS) to crypto firms, requiring segregation of customer assets under trust arrangements plus crypto-specific safeguards around private keys and reconciliations.
"The CASS requirements are very onerous," said Steven Lightstone, a partner at Morgan Lewis' London office. "That could encourage those newcomers to merge [with], be acquired by, a traditional firm that's already subject to CASS and has those controls in place."
Why it matters
The structural shift recasts the European crypto industry's competitive axis. Speed and product velocity, the advantages that built the last cycle, are giving way to scale, compliance infrastructure and bank-grade custody. Simon Schneider, CEO of Sygnum Europe, told the publication that less than 20% of European banks currently offer any crypto service, calling the market "heavily underserved" and pointing to Switzerland as the adoption trajectory worth tracking. After that country's distributed-ledger legislation landed several years ago, roughly three-quarters of major Swiss banks now offer digital asset services, a path Schneider believes Europe could eventually follow.
Frequently asked questions
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What is MiCA and how does it affect crypto firms in Europe?
MiCA, the Markets in Crypto Assets regime, is the EU's landmark crypto rulebook. After the licensing rush, it is now testing whether smaller crypto firms can sustain the ongoing cost of full regulatory compliance, pushing some toward acquisitions or bank partnerships.
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How will the UK's FCA crypto framework compare to MiCA?
Lawyers expect the FCA's proposed framework to be similarly demanding, but built by integrating crypto firms into Britain's existing financial services regime rather than running a bespoke one, so firms face the same prudential, operational and client-asset rules as traditional finance.
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Why are crypto firms likely to be acquired by banks?
Building governance, capital and custody infrastructure to FCA standards is costly for newer firms. Morgan Lewis partner Steven Lightstone said CASS-level requirements could push newcomers to merge with or be acquired by traditional firms that already have those controls.
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How many European banks currently offer crypto services?
Sygnum Europe CEO Simon Schneider said less than 20% of European banks currently offer any type of crypto service, calling the market heavily underserved compared with Switzerland, where roughly three-quarters of major banks now offer digital assets.
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Will self-custody survive Europe's regulatory shift?
Yes, but it is likely to coexist with institutional custody. Schneider expects assets to migrate toward regulated providers over time while self-custody remains an option, with the gravity tilting toward regulated institutions.
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