Europe's high regulatory bar could spark new crypto industry M&A wave

The race to secure Markets in Crypto Assets (MiCA) licenses may be over, but Europe's landmark crypto rulebook is already entering a new phase, one that could reshape the industry's ownership structure.

Firms now facing the ongoing cost of operating under comprehensive regulation, suggesting the next chapter won't be defined by licensing victories, but by mergers, acquisitions and collaborations between crypto-native firms and established financial institutions.

That trend could accelerate further in the U.K., where the Financial Conduct Authority's (FCA) proposed crypto framework is expected to impose standards comparable to MiCA by weaving crypto activities into Britain's existing financial services regime.

"The FCA is trying to help competition, and it really is trying to help newcomers," said Steven Lightstone, a partner at Morgan Lewis' London office and co-leader of the firm's global fintech industry team. But, he added, "it does have very high standards, particularly where consumers are involved."

Unlike the EU's standalone MiCA framework, the U.K.'s proposals would integrate crypto firms into the same regulatory architecture that governs traditional investment firms. That means businesses would face familiar prudential, operational and client asset requirements rather than a bespoke crypto regime.

"As it uses existing rules, it's going to be much less like a standalone framework," Lightstone said. "A crypto firm will be treated like any normal traditional financial institution," adding that "it will still be hard to get FCA authorization."

For established banks and investment firms already operating under those rules, adapting to crypto may be relatively straightforward. For newer crypto businesses, however, the cost of building governance, capital and custody systems from scratch could prove considerably more burdensome.

That challenge is particularly evident in the FCA's proposed client asset regime, applying the Clients Asset Sourcebook (CASS) framework, which would require firms to segregate customer crypto assets from company funds under trust arrangements while introducing crypto-specific operational safeguards around private keys and reconciliations.

"The CASS requirements are very onerous," Lightstone said. "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."

The prospect of consolidation comes as banks themselves appear more willing to enter digital assets now that regulatory uncertainty is beginning to lift.

"As of today, there is less than 20% of all the banks in Europe [that] offer today any type of crypto services, so it's heavily underserved," said Simon Schneider, CEO of Sygnum Europe.

Schneider argues that MiCA's greatest contribution isn't simply creating new licensing categories but giving financial institutions the legal certainty they have long lacked.

He points to Switzerland as a potential blueprint. Following the introduction of the country's distributed ledger technology legislation several years ago, crypto adoption among major Swiss banks accelerated dramatically. Today, roughly three-quarters of the country's leading banks offer digital asset services, according to Schneider, a trajectory he believes Europe could eventually follow.

Rather than replacing crypto-native firms entirely, banks are more likely to rely on infrastructure providers for custody, brokerage, staking and tokenization services. Sygnum itself has increasingly focused on supplying regulated digital asset infrastructure to financial institutions rather than competing for retail customers.

"We see a clear tendency towards regulated institutions," Schneider said. "Banks have the relationships today already, they have the distribution network today, and they have all the compliance regulatory framework in place today."

The executive also expects assets to migrate toward regulated providers as firms that failed to secure MiCA licenses wind down parts of their European operations, although he believes self-custody and institutional custody will continue to coexist.

"We will remain to have these two concepts," Schneider said. "But I see a clear tendency towards regulated institutions."

As the U.K. moves closer to implementing its own crypto framework, that trend may only intensify. While Britain's proposals are designed to encourage innovation, they also reinforce a broader regulatory direction emerging across Europe: one in which success depends not only on technological innovation, but on the ability to operate like a regulated financial institution.

For an industry built on lean startups challenging incumbents, the next competitive advantage may no longer be speed, it may simply be scale.

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