Passporting Dilemma: Balancing EU Crypto Cohesion with Individual State Authority

The European Union’s Markets in Crypto-Assets (MiCA) regulation, intended to standardize cryptocurrency oversight across its 27 countries, is coming under increased examination as national authorities question the effectiveness of its passporting system. This system enables companies licensed in one EU state to operate throughout the bloc without obtaining separate approvals. Detractors claim this could weaken local regulatory controls and enable regulatory arbitrage, especially as global crypto oversight evolves. The debate highlights a clash between the EU’s unified regulatory stance and the more localized, country-specific approaches taken by other leading jurisdictions.

MiCA, which was implemented in 2024, introduces a broad legal structure for crypto-asset service providers, stablecoin issuers, and token creators. It enforces robust reserve requirements for stablecoins, demands transparency from token issuers, and institutes a licensing regime for crypto businesses. The passporting rule—central to MiCA—is designed to ease cross-border compliance for businesses. Nonetheless, regulators in nations such as France and Germany have voiced worries that this feature might undermine their ability to enforce local laws, particularly for companies active across several EU markets.

By contrast, the United States maintains a patchwork of crypto regulations. Oversight is shared by agencies like the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN), resulting in sometimes overlapping or contradictory rules. The new GENIUS Act (Global Economic and National Security in the Use of Stablecoins) attempts to address regulatory gaps by setting reserve and licensing requirements for stablecoin issuers. Although the law echoes MiCA’s focus on stablecoins, the U.S. lacks a passporting process, so firms must obtain licenses state by state.

The United Kingdom’s approach after Brexit adds another layer of complexity. Retaining several MiCA-inspired rules, the UK has chosen to implement a more adaptable system, especially regarding stablecoins. Unlike MiCA’s strict transaction ceilings and reserve obligations, the UK categorizes stablecoins as payment methods without placing usage caps, potentially making it more attractive to issuers seeking fewer restrictions. Meanwhile, Singapore’s Payment Services Act represents a compromise, promoting innovation while requiring licenses for providers, but leaving broader token classification and systemic risk regulation more ambiguous.

Asia’s varied regulatory approaches highlight the EU’s distinctive stance. China’s outright ban on crypto trading stands in stark contrast to Japan’s detailed licensing model and Singapore’s pro-innovation stance. While MiCA’s harmonized rules simplify compliance for EU-based businesses, its stringent standards—such as required stablecoin reserves and comprehensive governance rules—may drive some firms to jurisdictions with looser regulations.

Debate around the passporting system has grown more heated as policymakers worldwide strive to balance innovation and market stability. Supporters believe MiCA’s single rulebook encourages cross-border business and lowers operational costs, while opponents caution that inconsistent enforcement among member states could lead to regulatory loopholes. The EU’s continued ability to pursue a unified strategy will rely on resolving national-level objections without sacrificing the advantages of passporting.

As the digital asset sector evolves, the relationship between MiCA and new global regulatory models will influence its future direction. The U.S. GENIUS Act’s focus on stablecoins and the UK’s adaptable post-Brexit rules underscore different regulatory priorities. While MiCA’s comprehensive structure could serve as a blueprint for harmonization, its effectiveness will depend on managing internal EU disputes and responding to pressures from abroad. Currently, the passporting model remains at the center of attention, symbolizing the larger challenge of coordinating international crypto regulations.