MiCA – introduction
The European Council has just approved a groundbreaking regulation that is set to reshape the cryptocurrency landscape.
Known as the Markets in Crypto-Assets (MiCA) Regulation, this legislation marks the world’s first major attempt to regulate the cryptocurrency industry on a comprehensive scale.
It’s a significant milestone that is set to position the EU as a regulated base for cryptocurrency traders, leaving behind the UK and US regulatory frameworks.
What is MiCA?
Unlike previous directives, MiCA is a regulation that applies directly to market actors, eliminating the need for national-level transposition.
This move aims to create a harmonized framework for crypto-assets at the EU level, streamlining the regulation of distributed ledger technology (DLT) and virtual assets.
One of the key goals of MiCA is to protect users and investors from potential risks, such as market manipulation and money laundering, while fostering innovation and competitiveness in the crypto-asset sector.
The application of MiCA is split into two parts.
The first part, focusing on stablecoins, will take effect after 12 months from June 30, 2024.
The second part, addressing Crypto-Asset Service Providers (CASPs), will apply after 18 months from December 30, 2024. This phased approach allows for a systematic implementation of the new rules.
Definitions of crypto-assets under MiCA
MiCA defines crypto-assets as “digital representations of value or rights that may be transferred and stored electronically using distributed ledger technology (DLT) or similar technology.”
The regulation distinguishes between three sub-types of crypto-assets:
- Asset-referenced tokens (ARTs): These include crypto-assets that maintain a stable value by referencing other values or rights, often linked to official fiat currencies.
- Electronic money tokens (EMTs): These are crypto-assets used as a means of payment, maintaining a stable value by referring to the value of a single legal tender fiat currency.
- Other crypto-assets: This category covers all remaining crypto-assets that don’t fall under ARTs or EMTs, including utility tokens and popular cryptocurrencies like Ether and Bitcoin.
MiCA also introduces a detailed regulatory framework for issuers of crypto-assets. The regulation outlines requirements for public offerings of crypto-assets in the EU, including the preparation and circulation of a crypto-asset white paper.
This white paper must provide essential information about the issuer, the crypto-asset, project timelines, circulation, and more. The goal is to ensure transparency, disclosure, and investor protection.
Issuers of ARTs and EMTs
For issuers of ARTs and EMTs, the regulation imposes stricter requirements due to their potential impact on financial stability and their role as monetary intermediaries.
An authorization requirement is applied to ARTs issuers, along with a prior approval process for their white papers. EMTs can be offered or listed on trading platforms only by authorized credit institutions or e-money institutions. Issuers of ARTs also need to maintain a reserve of assets.
MiCA designates “significant” ARTs and EMTs, subject to more stringent rules and supervision by the European Banking Authority (EBA) and the European Central Bank (ECB).
These significant tokens must meet additional criteria related to remuneration policies, interoperability requirements, liquidity management policies (for ARTs), rules on reserve asset custody, rules on reserve asset investment (for EMTs), and must have an orderly wind-down plan.
CASPs
The regulation extends to Crypto-Asset Service Providers (CASPs) intending to offer services to EU customers.
CASPs providing crypto-asset services, such as investment advice, portfolio management, brokerage services, or operating trading platforms, require prior authorization and a presence within Europe.
MiCA creates various categories under which crypto-asset services can trigger the authorization requirement, accompanied by governance and transparency rules for CASPs.
MiCA – Conclusion
This ambitious and comprehensive regulatory framework highlights the EU’s commitment to fostering a secure and innovative environment for the crypto-asset sector.
It provides legal clarity, protects users and investors, and supports fair competition. While the UK and the US face regulatory challenges and ambiguities, the EU is setting the stage for a dynamic crypto industry.
Companies across the globe, large and small, will need to navigate the new EU framework to access the vast European investor pool.
MiCA is potentially a game-changer that will impact the entire sector, creating a new standard for cryptocurrency regulation.
If you have any queries about this article on MiCA, or crypto assets in general, then please get in touch.