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Crypto Regulation: What You Should Know About MiCA

The European Union Markets in Cryptoassets Regulation, also known as MiCA, marks a significant milestone in the world of digital finance. With its publication in the EU's official journal on June 9, 2023, and a planned enforcement date of June 29, 2023, MiCA is set to reshape the regulatory landscape for cryptoassets in the EU. This blog post delves 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

Posted :

August 30, 2023

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Regulatory

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The Foundation of MiCA

MiCA is designed to bring about a harmonized and unified regulatory framework for cryptoassets within the EU. Its core objectives include safeguarding investors, upholding financial stability, promoting innovation, and enhancing the appeal of the cryptoasset sector. This regulation supersedes existing domestic laws across EU member states, streamlining and unifying the regulations governing cryptoassets and related activities.

Defining the Scope of MiCA

MiCA casts a wide net in terms of its scope. It defines a crypto-asset as a digital representation of value or rights that can be electronically transferred and stored using distributed ledger technology or similar mechanisms. Unlike existing legislation, MiCA extends its regulatory reach to previously unregulated cryptoassets that fall outside the existing perimeter. The regulation establishes a hierarchy of cryptoassets based on their perceived risks, aiming to provide tailored regulations for different types.

In-scope Cryptoassets

MiCA categorizes cryptoassets into several distinct groups, each 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 and are subjected to a lighter regulatory touch, though issuers must comply with the obligations outlined in Title II of MiCA.
  • Stablecoins (Asset-referenced tokens and E-money tokens): Asset-referenced tokens aim to maintain stability by referencing fiat currencies, commodities, or other cryptoassets. They are subject to more stringent requirements due to their increased risks. E-money tokens, serving as a means of exchange, also fall under this category and are considered higher risk.
  • Significant Tokens: The European Banking Authority has the authority to label tokens as "significant." These tokens pose substantial risks to financial stability and consumer protection. Criteria for identifying significant tokens are outlined in MiCA, and they are subject to the strictest regulatory requirements.

Applicability of MiCA

MiCA applies to both issuers of in-scope cryptoassets and firms providing cryptoasset services on a professional basis. These services include providing advice, executing orders, custody, trading platforms, and more. While MiCA sets the stage for EU-wide regulation, some areas, like cryptoasset 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 familiarize themselves with MiCA's various obligations to ensure compliance. The regulations cover a range of areas, from the offering and marketing of cryptoassets to prudential and conduct requirements for issuers. The focus extends to specific requirements for different types of tokens, including significant tokens, e-money tokens, and more. Furthermore, MiCA introduces a tailored market abuse regime for cryptoassets to prevent insider dealing, market manipulation, and 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-resident of the EU country
  • Implementing anti-money laundering (AML), continuity of services, and data security policies and procedures
  • The publication of a whitepaper having some similarities with prospectuses published under the prospectus regulation
  • Adopting certain practices for preventing market abuse and handling complaints correctly. An example of a new practice is that CASPs will need to warn both their clients and their users about risks of transactions they make
  • Acting honestly, fairly and professionally
  • Publicly sharing pricing, cost, and fee policies along with information on the environmental impact of the crypto-asset activities.
  • The necessity to be authorised to issue crypto-assets

Implementation and Timeline

MiCA is set to come into force 20 days after its publication, with the majority of its provisions becoming applicable 18 months later. Notably, asset-referenced tokens and e-money tokens will face regulations after 12 months. Existing licensed cryptoasset service providers may benefit from certain provisions, while non-regulated entities need to prepare for substantial changes to meet MiCA's requirements.

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.

In conclusion, MiCA represents a pivotal shift in the regulatory environment for cryptoassets in the EU. Its comprehensive framework aims to balance investor protection, financial stability, and innovation, while bringing 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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