Introduction
After more than two years in the making, the Markets in Cryptoassets Regulation (MiCA) has finally reached the finishing line, signaling a new era of crypto regulation in Europe.
This comprehensive framework is designed to bring clarity and consistency to the crypto market and, hopefully, benefiting businesses and investors alike.
In this article, we’ll delve into the key takeaways from MiCA and its potential impact on crypto-markets.
What is MiCA?
The Regulation aims to establish a comprehensive regulatory framework for crypto-assets in the European Union (EU). It was originally proposed in September 2020.
It applies to all crypto-assets that are not already regulated by existing EU law, such as Bitcoin, Ether, and stablecoins.
The Regulation will set out a number of requirements for issuers of crypto-assets, service providers, and trading venues.
The key stated objectives of the MiCA Regulation are as follows:
- To protect consumers and investors from risks associated with crypto-assets
- To promote market integrity and financial stability
- To foster innovation and enable the development of a well-functioning crypto-asset market in the EU
Timing
MiCA took effect on 29 June 2023.
However, it’s important to note that some provisions will be applied later:
- Provisions related to asset reference tokens (ARTs) and e-money tokens (EMTs) will come into force on 30 June 2024.
- Other provisions will be effective on 30 December 2024.
Transitional and grandfathering arrangements will apply in certain scenarios, allowing crypto-asset service providers (CASPs) to continue their operations for an additional 18 months after MiCA takes effect.
Simplified authorisation procedures may also apply to firms already authorized under national law to provide crypto-asset services.
Impact on Crypto Businesses
MiCA’s impact on businesses, especially those not currently authorized, will be significant.
The obligations imposed by MiCA will vary depending on the types of crypto-assets and activities involved.
Companies should be prepared to assess MiCA’s scope, apply for authorisation if necessary, and integrate MiCA requirements into their systems and processes.
Key considerations
Key considerations include:
Authorisations and Notifications
Businesses must determine whether their activities fall under MiCA’s purview and, if so, decide whether to notify the relevant national regulator or seek authorisation based on their current regulatory status.
Compliance Framework
MiCA introduces requirements akin to those in MiFID for CASPs and issuers, including obligations regarding conflicts of interest, transparent communication, and various organisational, conduct, and prudential rules.
Repapering
Firms may need to update written agreements, client terms and conditions, and white papers to align with MiCA’s mandatory requirements.
Sustainability
MiCA’s commitment to sustainability encompasses the assessment of energy consumption, waste production, and greenhouse gas emissions in the crypto-asset sector.
This move towards greater sustainability may impact businesses using energy-intensive crypto mining techniques.
Liability
MiCA introduces liability for CASPs providing custody and administration services, capped at the market value of lost crypto-assets.
Firms must demonstrate that certain incidents were independent of their services to avoid liability.
Non-EU Businesses
MiCA extends its jurisdiction to non-EU businesses involved in the issuance, offering, and trading of crypto-assets within the EU or with EU customers.
These businesses should carefully evaluate how MiCA’s territorial scope will affect their current and future operations.
Similar to certain existing financial services legislation, MiCA incorporates “reverse solicitation” rules, allowing EU clients to initiate the provision of crypto services by non-EU firms under certain conditions.
Impact on EU Crypto-Markets
MiCA’s effect on EU crypto-markets remains to be seen. However, several key issues are worth monitoring:
White Paper Requirements
MiCA imposes white paper requirements on stablecoins, potentially reducing their availability within the EU.
Transaction Caps
MiCA places limits on the issuance of certain ARTs and EMTs, which could affect the use of foreign currency-referencing stablecoins.
Interest Payments
The ban on interest payments by CASPs and issuers may make certain crypto-assets less attractive to investors.
Ongoing Developments
While MiCA sets the framework for crypto regulation in the EU, several details will be defined in technical standards and delegated acts.
ESMA will work on sustainability-related standards, and legislative proposals may accompany the interim and final reports on MiCA’s application.
Furthermore, the EU is already contemplating MiCA 2.0, which may expand the regulation to cover crypto-assets staking, lending, DeFi, and assets without identifiable issuers.
The UK’s Perspective
In the UK, HM Treasury has been consulting on the future regulatory regime for crypto-assets.
An overview of the UK’s progress so far can be found here.
Conclusion
MiCA marks a significant milestone in the regulation of crypto-assets in Europe.
While the full impact of MiCA on the crypto market remains uncertain, it is clear that this regulation aims to bring transparency, sustainability, and investor protection to the industry.
Crypto businesses must prepare for the changes ahead and stay vigilant as further details and regulations are developed.
As the crypto landscape evolves, staying informed and adaptable will be key to success in this rapidly changing environment.
If you have any queries about this article, or crypto in general, then please get in touch.