The Council of the European Union adopted the Regulation on Markets in Crypto-Assets (MiCA) on 16 May 2023, after a legislative process lasting more than two-and-a-half years. MiCA introduces a harmonized framework in the 27-member bloc of nations for regulating most forms of cryptocurrencies.
What is a crypto-asset?
A crypto-asset is “a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology”.
What crypto-assets does MiCA regulate?
MiCA regulates all types of crypto-assets, except those that are specifically excluded (see below).
For regulatory purposes, MiCA divides crypto-assets into three classes:
What crypto-assets are not regulated by MiCA?
MiCA does not regulate crypto-assets that are unique and non-fungible or that fall within the scope of other EU legislation, such as those that qualify as financial instruments.
What activities does MiCA regulate?
MiCA regulates three classes of activities:
A ‘crypto-asset service’ is any of the following relating to any crypto-asset:
Who can issue basic tokens?
Apart from qualifying small offers, only a legal person which notifies and publishes a compliant white paper and complies with business conduct regulations (such as acting honestly, fairly and professionally) may issue a basic token or admit it for trading.
Who can issue asset-referenced tokens?
Except in certain cases, only (a) a legal person established in the EU and authorised in its home EU country, or a qualifying credit institution or (b) a person acting with the written consent of the person in (a) may offer an asset-referenced token to the public or admit it for trading.
There are restrictions on the issuance of asset-reference tokens. For example, the reserves underlying asset-referenced tokens must be managed to cover risks related to the referenced assets and to address liquidity risks related to redemption rights.
Who can issue e-money tokens?
Only authorised credit institutions and electronic money institutions registered in the EU that notify and publish a compliant white paper can issue e‑money tokens.
Who can provide crypto-asset services under MiCA?
Crypto-asset service providers (CASPs) must be (a) a legal person authorised under MiCA or (b) a person authorised under certain other financial regulatory regimes, such as for credit institutions, investment firms or electronic money institutions, provided they have notified the relevant competent authority before they start providing those services.
How does MiCA regulate CASPs?
CASPs must, among others:
When does MiCA become effective?
MiCA enters into force 20 days after its publication in the Official Journal of the European Union, which is expected in late May or early June 2023. Provisions relating to asset-referenced tokens and e‑money tokens apply 12 months after MiCA enters into force. The remainder of MiCA applies 18 months after MiCA enters into force.
Are there transitional provisions for current issuers and providers of crypto-asset services?
Yes.
MiCA is a significant, if harmonised, expansion of regulation of the crypto industry in the European Union – the world’s third largest economy. As with all major new legislative schemes, there will be opportunities and challenges for existing and new market players. Issuers, offerors, service providers and others interested in the EU’s crypto market must understand MiCA and factor compliance with it into their future plans.
OrionW regularly advises clients on matters involving the regulation of digital assets. For more information about cryptocurrency regulation, or if you have questions about this article, please contact us at fintech@orionw.com.
Disclaimer: This article is for general information only and does not constitute legal advice.