Internal Market Principle and Bitcoin Regulated Market

If someone wants to set up a Bitcoin market in the EU and get a license under the MIFID (Market in Financial Instruments Directive), they would have one strategic advantage compared to getting such a license in the United States.

I have not studied American law on the point in detail, but I understand that you need to get a license as a “money transmitter” in 48 States to start a Bitcoin exchange. That is a significant regulatory burden. Essentially you need to tell 48 times the same story, and pay some lawyers to do that. This recent article at FoxNews titled “Could Bitcoin go legal” gives some interesting background on the cost involved for getting those licenses in the United States.

In contrast, if someone gets a “regulated market” licensed under the EU MIFID Directive, they need to deal only with the regulator of their own Member State. You don’t need to run around all the 27 Member States applying for licenses. Article 42 Paragraph 6 of the Directive reads:

 Member States shall, without further legal or administrative requirements, allow regulated markets from other Member States to provide appropriate arrangements on their territory so as to facilitate access to and trading on those markets by remote members or participants established in their territory.

The regulated market shall communicate to the competent authority of its home Member State the Member State in which it intends to provide such arrangements. The competent authority of the home Member State shall communicate, within one month, this information to the Member State in which the regulated market intends to provide such arrangements.

The competent authority of the home Member State of the regulated market shall, on the request of the competent authority of the host Member State and within a reasonable time, communicate the identity of the members or participants of the regulated market established in that Member State.

This is of course a general principle of EU law. For a business that needs a license, have them apply for that license only once, and then give them the right under that license to serve the whole internal market.

I think this is a much smarter way to handle things than what the Americans do. The large burden of needing licenses in 48 States increases the cost of entering the market for money transmitting. That restricts competition and harms consumers (who are supposed to be protected by these rules in the first place). It is more a protection racket for established market participants than actual consumer protection.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003,

7 thoughts on “Internal Market Principle and Bitcoin Regulated Market

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