The European Union's Markets in Crypto Assets Regulation — MiCA, formally Regulation (EU) 2023/1114 — was Europe's first serious answer to stablecoin issuance and crypto-asset service provision. It defines requirements around authorisation, reserves, redemption, governance, disclosures, and supervision for issuers and crypto-asset service providers. It is among the most comprehensive stablecoin regulations in any major jurisdiction.
But MiCA should be understood as Phase 1 of digital asset regulation. It regulates the asset and the actors closest to the customer. It does not yet create a PFMI-style regime for the settlement architecture through which regulated digital assets move.
That distinction matters. A MiCA-compliant euro stablecoin may move across a public blockchain, a corporate permissioned ledger, a custodial off-chain network, or a purpose-built institutional settlement chain. The token is regulated. The crypto-asset service provider is licensed. But the rail itself is not regulated as financial market infrastructure.
This article examines why the settlement layer matters, what the institutional frameworks for traditional settlement already require, and why Phase 2 of digital asset regulation will have to translate those requirements — finality, liquidity transparency, resilience, supervisory observability — into the digital asset stack rather than leave them to issuer-by-issuer interpretation.
What MiCA actually regulates
MiCA primarily regulates issuers, crypto-asset service providers, disclosures, conduct, and prudential requirements. Its core provisions cover:
- Asset-Referenced Tokens (ARTs) — stablecoins backed by a basket of assets, with rules on reserve composition, holding limits, redemption rights, and governance
- Electronic Money Tokens (EMTs) — single-currency stablecoins functioning as electronic money
- Crypto-Asset Service Providers (CASPs) — exchanges, custodians, OTC desks, and advisers, with authorisation, conduct, and supervisory requirements
- Issuance disclosures — whitepapers, ongoing reporting, governance, market-conduct rules
This covers the asset, the issuer, and the customer-facing service provider. It does not create a PFMI-style regime for the settlement architecture between them. A euro stablecoin payment moving from a MiCA-licensed CASP in Frankfurt to a MiCA-licensed CASP in Madrid passes through whatever blockchain or payment rail the parties use to clear. The block confirmations, the netting (or lack thereof), the finality semantics — these are governed by the protocol's design and the participants' bilateral arrangements, not by an institutional settlement standard.
For low-value retail flows, this is acceptable. The asset is regulated, the on-ramps and off-ramps are licensed, and the settlement risk on any individual transaction is small.
For institutional flows — wholesale interbank transfers, tokenised asset DVP settlement, treasury operations between subsidiaries of a multinational — the silence on the settlement layer becomes a structural concern.
CPMI-IOSCO PFMI: the existing standard for traditional settlement
Traditional settlement infrastructure is governed by the Principles for Financial Market Infrastructures (PFMI), published jointly by the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements and the International Organization of Securities Commissions (IOSCO) in 2012. Twenty-four principles cover governance, risk management, settlement, default management, transparency, and operational resilience.
Several PFMI principles have specific implications for any settlement infrastructure handling institutional flows:
Principle 8 — Settlement Finality. Settlement must be defined as final at a specific moment in time, supported by enforceable legal opinions in each jurisdiction where the infrastructure operates. The principle distinguishes between operational finality (the system has executed the settlement) and legal finality (the settlement is irreversible under applicable law). Both are required.
Principle 9 — Money Settlements. Settlement should occur in central bank money where possible, and where commercial bank money is used, the credit and liquidity risks should be minimised and managed.
Principle 4 — Credit Risk. A financial market infrastructure should have effective credit risk frameworks, including credit limits, margin requirements, and default fund arrangements where relevant.
Principle 7 — Liquidity Risk. A financial market infrastructure should have effective liquidity management, including stress-tested liquidity resources sufficient to settle obligations in extreme but plausible scenarios.
Principle 15 — General Business Risk. A financial market infrastructure should hold sufficient liquid net assets funded by equity to cover potential operational losses.
PFMI is the institutional standard. CLS is PFMI-aligned. CHIPS is PFMI-aligned. TARGET2 is PFMI-aligned. Major financial market infrastructures handling material flows are generally evaluated against PFMI by their supervisors.
For digital asset settlement — including stablecoin and tokenised asset flows that increasingly cross the regulatory perimeter into supervised institutions — there is published guidance from international standard-setters on applying PFMI principles to systemically important stablecoin arrangements. But there is not yet a universally adopted, binding settlement-layer standard equivalent to how PFMI operates for traditional FMIs. Regulators evaluating MiCA-licensed stablecoins do not have a corresponding mandatory framework to evaluate the rails those stablecoins move on.
Why settlement infrastructure matters for capital regulation
The Basel Committee's BCBS 248 framework — Monitoring tools for intraday liquidity management — requires banks and supervisors to measure intraday liquidity usage, time-specific obligations, available liquidity, and related settlement exposures. The framework is the practical reason multilateral netting matters for institutional settlement: net settlement can reduce intraday liquidity peaks, improve treasury visibility, and lower the amount of liquidity that must be held idle against settlement obligations.
A bank moving stablecoin obligations through a settlement infrastructure that does not net is exposed to gross intraday liquidity demands. A bank moving the same obligations through a multilateral netting layer compresses those demands materially, reducing the intraday liquidity buffers required.
This is not academic. It is the daily working reality of treasury teams at every institution operating cross-border at meaningful scale.
When a regulated bank evaluates a stablecoin payment rail for institutional use, the relevant questions are:
- Does the rail provide multilateral netting, or does every obligation settle gross?
- Is settlement finality achieved in a way that supports BCBS 248 reporting?
- Can intraday liquidity exposure be measured and reported to supervisors?
- What is the operational resilience profile under stress?
MiCA does not require its licensed issuers to operate on rails that answer these questions. CASPs are not required to provide settlement infrastructure that meets institutional standards. The market has filled the gap with whatever rails are available — public chains, corporate-owned permissioned ledgers, custodial off-chain settlement networks.
For retail flows, this is workable. For wholesale institutional adoption, it is the constraint.
How central banks are responding
The BIS Innovation Hub has been the most prolific source of multi-CBDC settlement experiments. Project Agora (announced 2024) explores tokenised deposits and central bank digital currencies with seven central banks and around forty private financial institutions, focusing on cross-border settlement architecture. Project mBridge (2021 to 2024) connected four central banks for direct CBDC-to-CBDC settlement across multiple currencies. Project Dunbar (2021 to 2022) tested multi-CBDC platforms with the Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore, and the South African Reserve Bank. Project Icebreaker (2022 to 2023) explored cross-border retail CBDC settlement across the Nordic and Israeli central banks.
Common findings across these projects:
- Cross-border CBDC settlement requires shared infrastructure, not just bilateral integration
- Multilateral netting and shared infrastructure are recurring design considerations, not optional add-ons
- Settlement finality semantics need to be specified in advance, not derived from blockchain confirmation rules
- Privacy controls — between participants, between participants and operators, and between operators and supervisors — are an essential design dimension
These findings are not yet codified into regulatory standards. They are research outputs. The translation into binding rules — for both CBDC and stablecoin settlement — is the work of the next phase of digital asset regulation.
The European Central Bank's investigation phase for the digital euro, the Bank of England's design phase for the digital pound, the Hong Kong Monetary Authority's Project Ensemble, and similar initiatives in Singapore, Switzerland, and Canada all touch on settlement infrastructure questions that MiCA and analogous regulations elsewhere do not address directly.
What the gap looks like in practice
A concrete example illustrates the issue.
A Tier-2 European bank wants to use a MiCA-licensed EMT — a euro stablecoin — to settle interbank obligations with counterparties in Singapore, Brazil, and the UAE. The asset is regulated. The bank's MiCA-licensed CASP is regulated. The bank's local operations are regulated.
The settlement layer — the actual mechanism by which the EMT moves and clears between the bank's counterparties — is not regulated under MiCA, and is not regulated by any equivalent framework in the destination jurisdictions for the digital asset leg of the transaction.
The bank's risk officers face questions MiCA does not answer:
- If the rail is a public blockchain, what is the settlement finality model? Probabilistic reorgs versus deterministic finality? How is it documented for the bank's PFMI-aligned supervisors?
- If the rail nets bilaterally but not multilaterally, what is the bank's intraday liquidity exposure under BCBS 248? Can it be reported in the format the bank's supervisor requires?
- If the rail is custodial, what is the legal status of obligations in transit? Whose balance sheet are they on?
- If the rail experiences operational disruption, what is the resilience and recovery profile? Is it stress-tested in a manner equivalent to PFMI Principle 17 expectations?
These are the questions an institutional bank's risk and compliance functions must answer before approving any new rail for material flows. MiCA helps with the asset, but does not help with the rail.
The bank is not asking only whether the euro stablecoin is redeemable. It is asking whether the settlement rail can support internal risk approval, supervisor reporting, settlement finality analysis, operational resilience review, and intraday liquidity monitoring. Those are infrastructure questions, not issuer questions.
The result is that institutional adoption of MiCA-licensed stablecoins for wholesale flows is bottlenecked not on the asset side, but on the settlement infrastructure side.
What the next phase of digital asset regulation should specify
The natural progression of digital asset regulation — whether through MiCA amendments, equivalent frameworks in other jurisdictions, or a new BIS-coordinated standard — needs to address the settlement layer directly. Several requirements stand out:
1. Settlement finality semantics. Any rail used for institutional digital asset flow should specify finality unambiguously: at what moment does settlement become irreversible, under what legal framework, with what enforceability across jurisdictions? Probabilistic or protocol-defined finality may be acceptable for low-value retail flows, but wholesale institutional settlement requires a documented legal finality moment that supervisors, risk officers, and auditors can rely on.
2. Multilateral netting as a recognised settlement mode. MiCA implicitly assumes gross settlement. Future regulation should explicitly recognise multilateral netting as a settlement mode, specify the disclosure and audit requirements for netting platforms, and clarify how netted positions interact with reserve attestation and redemption rights.
3. Intraday liquidity transparency. Settlement infrastructure handling institutional flows should support BCBS 248 intraday liquidity reporting natively. This means the rail must produce auditable records of intraday exposures, not require off-ledger reconstruction.
4. Privacy and supervisory access tiering. Participants need privacy from each other (commercial confidentiality). Supervisors need granular access to settlement records (oversight). The architectural answer — tiered view keys with cryptographic enforcement — is well-understood in the research literature but not yet specified in any major digital asset regulation.
5. Operational resilience equivalent to PFMI Principle 17. Settlement infrastructure should meet documented standards for availability, recovery time, and stress testing. Immutable smart-contract execution alone does not satisfy institutional resilience requirements. Wholesale settlement infrastructure also needs documented recovery procedures, governance controls, incident response, and continuity planning — applied at the protocol layer where the settlement logic actually runs.
6. Cross-jurisdiction interoperability. Most institutional flows cross borders. Settlement infrastructure standards need to specify how rails operating under different regulatory regimes interoperate without creating legal uncertainty about finality, liability, or supervisory access.
These are not novel requirements. They are the digital asset translation of the same requirements the existing PFMI framework imposes on traditional settlement infrastructure. The work is to translate them, codify them, and incorporate them into the next phase of regulation rather than leaving them to bilateral interpretation between rails and supervisors.
The institutional opportunity in clarity
For settlement infrastructure providers — whether public blockchain protocols, permissioned consortium ledgers, or purpose-built institutional L1s — regulatory clarity on settlement standards is a strategic accelerant rather than a constraint.
Infrastructure that is explicitly designed to support PFMI-aligned settlement, BCBS 248-compatible intraday liquidity reporting, and multi-jurisdictional finality semantics has a clear advantage in institutional adoption. Infrastructure that relies on regulatory ambiguity is fragile — every supervisor's eventual position has the potential to render it non-compliant.
The infrastructure providers actively engaged with regulators on these questions — submitting to sandboxes, contributing to BIS working groups, publishing self-assessments against PFMI principles, designing for regulatory observability rather than against it — are positioning themselves for the regulatory environment that is coming, not the one that exists today.
The infrastructure providers ignoring these questions are building for a regulatory perimeter that is likely to tighten, not stay where it is.
What FiatRails is building for
For FiatRails, this is the design premise: digital asset settlement infrastructure should not wait for regulators to impose PFMI-style expectations after the fact. It should be built from the beginning around deterministic finality, multilateral netting, ISO 20022-compatible messaging, corridor-level configurability, auditability, and supervisory observability — so that when Phase 2 standards arrive, the infrastructure already meets them.
That is not a positioning choice. It is the only sustainable approach for any settlement infrastructure that intends to handle institutional flows over the long term.
What comes next
MiCA was a first move, not a final answer. It brought discipline to issuers, reserves, redemption rights, and crypto-asset service providers. The next regulatory frontier is the settlement layer itself.
The BIS multi-CBDC projects are producing concrete findings. National central banks are publishing detailed design phases for retail and wholesale CBDCs. The European Banking Authority and the European Securities and Markets Authority are developing technical standards under MiCA implementation. The US GENIUS Act stablecoin legislation, the UK's regulatory framework for stablecoins under the Financial Services and Markets Act 2023, and the Singapore stablecoin regulatory framework are all working through the same fundamental questions about settlement infrastructure.
For institutional digital asset adoption, the question is no longer whether the token is regulated. The question is whether the rail can satisfy the same standards of finality, liquidity transparency, resilience, and supervisory observability expected of traditional financial market infrastructures.
The settlement infrastructure of the next decade will not be defined by a split between regulated and unregulated rails. It will be defined by which rails are built to institutional standards before those standards become mandatory.
This article is part of the FiatRails Insights series on institutional settlement infrastructure.