Europe’s crypto industry is moving beyond the race to obtain Markets in Crypto Assets (MiCA) licenses and into a new phase shaped by the continuing cost of regulatory compliance. Lawyers and industry executives say the region’s higher regulatory bar could encourage mergers, acquisitions and deeper cooperation between crypto-native companies and established financial institutions.

MiCA, the European Union’s landmark crypto rulebook, has pushed regulatory efforts past the question of licensing and toward whether smaller crypto firms can sustain the governance, capital, custody and operational systems needed to operate under comprehensive oversight over the long term. Because MiCA creates a harmonized framework across the EU, authorization can also be commercially important for firms seeking to serve customers across multiple member states rather than navigating a patchwork of national regimes.

A similar dynamic could emerge in the U.K., where the Financial Conduct Authority’s (FCA) proposed crypto framework is expected to impose standards comparable to MiCA by bringing crypto activities into Britain’s existing financial services regime rather than creating a standalone framework.

“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. proposals would place crypto firms within the same regulatory architecture that applies to traditional investment firms. As a result, companies would face familiar prudential, operational and client asset requirements instead of 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 banks and investment firms already operating under those rules, adding crypto services may be relatively straightforward because much of the compliance infrastructure is already in place. For newer crypto businesses, however, building governance, capital and custody systems from the ground up could be significantly more burdensome.

That challenge is especially visible in the FCA’s proposed client asset regime, which would apply the Clients Asset Sourcebook (CASS) framework. Under that approach, firms would be required to segregate customer crypto assets from company funds under trust arrangements while also 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.”

Banks weigh digital asset expansion

The prospect of consolidation is emerging as banks appear increasingly willing to enter digital assets while regulatory uncertainty begins 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 said MiCA’s most important contribution is not only the creation of new licensing categories, but also the legal certainty it gives financial institutions that have long waited for clearer rules. For institutions with existing risk, compliance and client onboarding systems, that clarity can make digital asset services easier to assess within established governance processes.

He pointed to Switzerland as a possible model. After the country introduced distributed ledger technology legislation several years ago, crypto adoption among major Swiss banks accelerated sharply. Today, roughly three-quarters of Switzerland’s leading banks offer digital asset services, according to Schneider, a path he said Europe could eventually follow.

Banks are unlikely to replace crypto-native firms entirely, Schneider said. Instead, they are more likely to depend on infrastructure providers for custody, brokerage, staking and tokenization services. Sygnum itself has increasingly focused on providing regulated digital asset infrastructure to financial institutions rather than competing directly 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.”

Schneider also expects assets to move toward regulated providers as companies that failed to secure MiCA licenses wind down parts of their European operations. At the same time, he said self-custody and institutional custody are likely to continue existing side by side.

“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 could strengthen. Although Britain’s proposals are intended to support innovation, they also reflect a broader regulatory direction developing across Europe, where success depends not only on technological innovation but also on the ability to operate like a regulated financial institution.

For a sector built around lean startups challenging incumbents, the next competitive advantage may be less about speed and more about scale.