Crypto Regulation: What You Should Know About MiCA

The European Union Markets in Cryptoassets Regulation (MiCA) marks a significant milestone in the world of digital finance. It was published in the EU's official journal on June 9, 2023, but it's planned enforcement date is June 29, 2023. MiCA is set to reshape the regulatory landscape for cryptoassets in the EU. Let's delve into the key aspects of MiCA, its scope, implications, and the steps that cryptoasset firms need to take to ensure compliance.

Vasco Alexandre
Co-founder & CEO

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August 30, 2023

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The Foundation of MiCA

MiCA is designed to bring about a harmonized and unified regulatory framework for crypto assets within the EU. Its core objectives include safeguarding investors, and upholding financial stability. It also aims to promote innovation and enhance the appeal of the cryptoasset sector. This regulation supersedes existing domestic laws across EU member states. MiCA is all about streamlining and unifying the regulations, ensuring alignment in the world of crypto assets and related activities.

Defining the Scope of MiCA

MiCA broadly defines crypto-assets as digital representations of value or rights transferable through distributed ledger technology. Unlike previous legislation, MiCA extends its regulatory reach to previously unregulated crypto assets. It also covers the assets that fall outside the existing perimeter. The new regulation categorizes crypto assets based on perceived risks and provides tailored regulations for different types.

In-scope Cryptoassets

MiCA categorizes crypto assets into several distinct groups. Each group is subject to varying degrees of regulatory oversight:

  • Utility Tokens: These tokens offer digital access to goods or services on distributed ledger technology. They are considered less risky with lighter regulatory requirements. The issuers must follow the obligations outlined in Title II of MiCA.
  • Stablecoins (Asset-referenced tokens and E-money tokens): Aim to maintain stability by referencing fiat currencies, commodities, or other crypto assets. They are subject to more stringent requirements due to their increased risks.
  • Significant Tokens: The European Banking Authority has the authority to label tokens as "significant." These tokens pose great risks to financial stability and consumer protection. MiCA outlines the criteria for identifying significant tokens. These assets are subject to the strictest regulatory requirements.

Applicability of MiCA

MiCA applies to both issuers of in-scope crypto assets and crypto asset service providers. These services include providing advice, executing orders, custody, trading platforms, and more. While MiCA sets the stage for EU-wide regulation, some areas, like crypto asset lending, remain outside its scope.

Businesses covered by MiCA, or crypto-asset service providers (CASPs), include:

  • Custodial wallets
  • Exchanges for crypto-to-crypto transactions or crypto-to-fiat transactions
  • Crypto-trading platforms
  • Crypto-asset advising firms and crypto-portfolio managers

Obligations and Compliance

Cryptoasset firms must adhere to various obligations outlined in MiCA. It regulates, among others, offering and marketing of crypto assets or prudential and conduct requirements for issuers. The focus is also on specific requirements for different types of tokens like significant tokens, e-money tokens, and more. MiCA also sets a tailored market abuse regime for crypto assets. It aims to prevent market manipulation, or unlawful disclosure of inside information.

Some of the new requirements for CASPs under MiCA will include (but are not limited to):

  • Having an office in an EU country and having at least one director residing in the EU
  • Implementing anti-money laundering (AML), continuity of services, and data security policies and procedures
  • Publishing a whitepaper similar to prospectuses published under the prospectus regulation
  • Adopting certain practices to prevent market abuse and correctly handle complaints. For instance, CASPs will need to warn both their clients and their users about the risks of transactions they make
  • Acting honestly, fairly, and professionally
  • Publicly sharing pricing, cost, fee policies, and information on the environmental impact of the crypto asset activities.
  • The necessity to be authorized to issue crypto-assets

Implementation and Timeline

MiCA is set to come into force 20 days after publication. However, most provisions are becoming applicable 18 months later. Asset-referenced tokens and e-money tokens face regulations after 12 months. Existing licensed crypto asset service providers may benefit from certain provisions. Non-regulated entities, on the contrary, need to prepare for big changes to follow MiCA's rules.

Steps Toward Compliance

Cryptoasset firms must act promptly to ensure compliance with MiCA. Conducting a thorough gap analysis and impact assessment is essential to gauge the regulation's implications on their business models. This may include seeking authorization or notifying regulators, depending on their existing status. Implementing MiCA requirements into systems and processes will be time-consuming, emphasizing the importance of early action.

MiCA represents a pivotal shift in the regulatory environment for crypto assets in the EU. Its comprehensive framework aims to balance investor protection, financial stability, and innovation. It also aims to bring much-needed consistency to the evolving cryptoasset sector. As the enforcement date approaches, cryptoasset firms should proactively navigate the new landscape to ensure seamless compliance with MiCA's provisions.

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