The crypto fund domicile decision.

Opinion by: Julie Bourgeois, Head of Legal and Compliance, 6 Monks

Digital asset regulations are rapidly evolving to ensure the transparency and safety of all market participants. This is no more evident than in Europe, where two different regulatory models have emerged.

On one side is the European Union’s Markets in Crypto-Assets (MiCA), which offers precise regulation for all 27 member countries. On the other side is the UK which, after Brexit, still has no common regulation such as MiCA.

With its new “Plan for Change,” the UK claims it wants to be “the best place in the world to innovate,” and it’s working on new laws to better protect people and support crypto growth. 

For fund managers, these differences can become a difficult puzzle to solve. Should they favor the legal certainty offered by the MiCA-compliant EU? Or should they bet on the UK’s upcoming changes?

What can MiCA promise? 

MiCA has clarified questions on crypto in the EU. Today, the regulation provides a comprehensive and, more importantly, harmonized framework across all member states. 

Perhaps MiCA’s most significant advantage is its passporting mechanisms, from which many companies already benefit. Once the grandfathering period has elapsed and the national competent authority has provided its green light through the MiCA license, a crypto service provider can offer crypto asset services to any country in the EU. This is desirable for companies planning to scale their activities at the EU level — no more fragmented regulation.

MiCA’s positive influence, especially at the stage of business scaling, can be seen in the region. Previously, launching in another EU country meant re-legalization and months of approvals. Now, an approved licensed CASP status in one country means you are legally operating throughout the EU. This saves tens of thousands of euros and months of work.

The UK’s agile approach

Across the Channel, there is the UK, which has a more adaptive but fragmented approach. So far, the UK does not have a MiCA-like unified law, but it has a bold vision of integrating crypto into existing systems.  

The UK’s draft crypto legislation, part of its “Plan for Change,” promises the creation of laws that will ensure greater transparency. For the first time, official laws, not just recommendations, are being created to regulate the crypto industry in the UK. 

The country’s primary goal is to protect crypto users by establishing clear laws for risk disclosure when buying crypto assets and precise terms of service. Considering that crypto could boost the UK economy by 57 billion British pounds ($77 billion), these new rules might significantly influence the UK’s crypto environment.

Recent: Digital euro, not MiCA, key to managing crypto risks: Bank of Italy chief

Although making the regulations stricter, it leaves room for innovation. The UK is discussing with the United States the creation of a joint sandbox — a regulated environment for testing new crypto products. 

Crypto fund domicile decision

Choosing where to set up might be a difficult decision considering these differences. Especially for crypto funds. It is not just a legal question but a strategic decision, as they work closely with crypto asset service providers. What should they consider when making this choice?   

Thanks to MiCA as a unifying law, EU-based CASPs can benefit from a more stable compliance environment. The regulation creates a single licensing regime for crypto asset service providers. 

MiCA offers certainty for managers and custodians today, which is especially important for institutional adoption. That predictability can become a significant competitive advantage for the EU and may drive more companies to domicile there. This especially relates to those companies that target cross-border expansion or institutional clients. 

Luxembourg can become a potential place for setting up a fund within the EU. It has a strong history as a top financial center and successfully creates and manages funds. Its clear rules and support for new ideas make it a smart option for starting and running crypto investment funds under MiCA.

On the contrary, the UK offers something more flexible and easier to develop. This draws its audience from, for example, fintech pioneers who are testing new highs. As the UK is willing to experiment with the sandbox regulation mentioned earlier, it can become the point of attraction for domicile purposes. 

Two paths with different strengths 

The UK is aiming to bring crypto into its traditional financial system. It is more open to new decentralized products to enter the market. That said, the UK’s flexibility is a significant advantage. If, in the near future, the UK can balance innovation with some investor protection, it could become a leading hub for DeFi.

Meanwhile, the EU’s MiCA regulation provides a consistent legal environment. With strong rules, the EU is positioning itself as a safe haven for crypto funds and a global example of how regulation can introduce clarity and make markets more appealing.

Ultimately, it is not a matter of one region beating the other. Rather than competitors, they may complement each other in shaping the future of digital assets.

Opinion by: Julie Bourgeois, Head of Legal and Compliance, 6 Monks.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.