Europe’s Strict Crypto Rules Could Trigger Wave of Industry Consolidation

As Europe’s Markets in Crypto Assets regulation matures and the UK finalizes its own crypto framework, stringent compliance costs could push smaller crypto firms toward mergers, acquisitions, and partnerships with established banks.

Licensing Race Gives Way to Compliance Costs

With the MiCA licensing rush largely complete, firms now face the ongoing expense of operating under comprehensive rules. Morgan Lewis partner Steven Lightstone said the UK’s Financial Conduct Authority framework aims to support newcomers but sets high standards, particularly around consumer protection, by folding crypto firms into existing financial services regulation rather than creating a standalone regime.

Client Asset Rules Seen as Major Burden

The FCA’s proposed client asset requirements would force firms to segregate customer crypto holdings under trust arrangements with strict safeguards around private keys and reconciliations. Lightstone said these rules are demanding enough that smaller firms may prefer merging with established institutions already equipped to handle them.

Banks Show Growing Interest in Digital Assets

Sygnum Europe CEO Simon Schneider noted that fewer than 20% of European banks currently offer crypto services, calling the market underserved. He pointed to Switzerland, where roughly three-quarters of major banks now provide digital asset services following clear legislation, as a possible model for the rest of Europe. Schneider expects banks to lean on infrastructure providers for custody, staking, and tokenization rather than building crypto operations from scratch.