MiCA is an important EU regulation that controls the issuance and provision of services related to crypto assets and stablecoins. Adopted on April 20, 2023, by the European Parliament, it is the first law of its type in the world and a landmark for other jurisdictions. MiCA comes into force between mid-2024 and early 2025. This regulation replaces all existing crypto asset laws in the EU. In this article, we look at MiCA, who it applies to, and how it will affect the crypto sphere.
Why was it adopted, and who will regulate it?
As clarified in the May 16, 2023, EU Council press release, the MiCA regulatory framework aims to ensure investor protection, maintain financial stability, foster innovation, and make the crypto asset sector more attractive. MiCA also creates a single regulatory mechanism across the EU, which is a significant improvement, as there will no longer be a need to comply with regulations in each EU member state.
ESMA and EBA will be given new powers to regulate cryptocurrency services in the EU. They will be able to intervene and stop illegal activities related to cryptocurrencies, as well as control the marketing, distribution, or sale of crypto assets. ESMA (European Securities and Markets Authority) will supervise European financial markets, ensure investor protection and maintain market stability. In turn, EBA (European Banking Authority) will supervise the banking system, protect consumer rights and ensure financial stability in the EU.
Who is covered, and what assets are covered by MiCA?
Companies covered by MiCA, or crypto asset service providers (CASPs), include:
exchanges for transactions between cryptocurrencies or between cryptocurrencies and fiat currencies
crypto asset advisory firms and crypto portfolio managers
issuers of all types of tokens
MiCA regulates three types of assets:
utility-tokens — crypto-assets that provide access to the issuer's goods or services
asset-referenced — crypto-assets that maintain a stable price based on the value of multiple fiat currencies, commodities, crypto-assets, or a combination thereof
e-money — crypto-assets used as a medium of exchange that maintains a stable price linked to fiat currency
MiCA does not apply to:
NFT (non-fungible token), unless the NFT has characteristics similar to regulated assets. If NFT tokens are issued in large series, they may be considered fungible and require authorization
decentralized exchanges (DeFi)
crypto assets which are regulated under other EU financial services laws, such as assets qualifying as financial instruments, pensions, or insurance products
crypto asset service providers operating exclusively for their affiliates, liquidators, and administrators in bankruptcy proceedings
European Central Bank, national central banks, European Investment Bank, European Financial Stability Facility, European Stability Mechanism, and public international organizations
A little about the requirements under MiCA Regulation
MiCA regulates all aspects of crypto asset-related activities, including the issuance, public offering, and admission to trading of crypto assets and the provision of services in relation to crypto assets. Next are some of the key requirements.
publish a technical document on crypto assets and any marketing information on their website
be liable for damages in the event that incorrect information is provided in the white paper
provide crypto asset holders with a right of withdrawal, etc.
*Offerer means a natural or legal person, other entity, or issuer that offers cryptoassets to the public or persons seeking admission to trading in cryptoassets, excluding asset-linked tokens and e-money tokens.
Issuers of asset-referenced tokens that offer them to the public or seek to admit participants to trading on a cryptoasset trading platform must:
be a legal person or a designated entity located in the EU
be authorized by its EU member state
or be a credit institution that issues a white paper on crypto assets approved by a competent national authority
redeem its asset-linked tokens at any time at the request of holders at the market value of the linked assets or by delivery of the linked assets
publish a white paper and any marketing communications on its website and be liable for damages caused by incorrect information contained in the white paper
communicate with actual and potential token holders in a fair, clear, and non-misleading manner
act in the best interests of token holders and treat them equally
establish and maintain effective and transparent procedures to deal with complaints in a prompt, fair, and consistent manner
identify, prevent, manage, and disclose any conflicts of interest
maintain at all times a reserve of assets to cover liabilities to token holders and hold its own funds (amount varies)
A crypto asset service provider (CASP) is required to:
register an office in one of the EU member states
obtain service provider authorization
meet organizational and reputational requirements as well as minimum crypto asset custody regulations
Have a minimum authorized capital, which varies from €50,000 to €150,000 depending on the services provided
fulfill obligations to comply with transfer rules before making a transaction
MiCA sets out comprehensive requirements for all crypto market participants in the EU. Offerors, token issuers, and cryptoasset service providers must fulfill a number of conditions, which include requirements to have legal status in the EU, maintain a minimum share capital, and must also be liable for providing incorrect information. All of this aims to create a safe and transparent crypto asset market but may increase the complexity and cost of compliance, especially for new and small market participants.
With all the regulations and requirements presented by MiCA, companies that plan to enter the EU crypto market will find it difficult to comply with the legislation without legal support. Our team can help you navigate and minimize your risks. If you have plans to enter the EU crypto market, do not hesitate to contact us and make an appointment for a consultation.