A guide to the Markets in Crypto-Assets (MiCA) regulation
In a landmark development for cryptocurrencies, the European Union (EU) Parliament approved the Markets in Crypto-Assets (MiCA) regulation on 20th April 2023 and MiCA was adopted by the Council on 16 May 2023. This comprehensive regulatory framework, the first of its kind in a major jurisdiction, aims to standardise the rules for issuers, offerors of crypto-assets, and regulated crypto-asset service providers.
What is MiCA?
MiCA is a comprehensive regulatory framework for cryptoassets aimed at providing a harmonised set of rules for crypto-related activities across the EU and thereby enhancing consumer protection and ensuring a level playing field for cryptoasset service providers.
What does MiCA cover?
MiCA categorises crypto-assets into three groups, each subject to different regulatory requirements:
- Asset-Referenced Tokens (ART): Crypto-assets that reference other values or rights to maintain stable value but are not e-money tokens.
- E-Money Tokens (EMT): Crypto-assets that maintain stable value by referencing the value of one official currency.
- Other Crypto-Assets: This category includes cryptocurrencies (such as Bitcoin and Ethereum), and types of investment and utility tokens that do not qualify as transferable securities under existing EU financial regulations.
Other regulated instruments, such as central bank digital currencies and non-fungible tokens (NFTs), remain outside the scope of MiCA. Utility tokens offering access to existing goods or services also escape the new requirements, unless used for fundraising for future infrastructural developments.
Who will it apply to?
MiCA applies to entities involved in the issuance, offering to the public, and admission to trading of crypto-assets or providing services related to crypto-assets in the EU. It also impacts non-EU entities looking to offer services or conduct crypto-asset activities within the EU. It is important to note that under MiCA, crypto-asset service providers (CASPs) and ART issuers must have a registered office in the EU.
When will it come into force?
MiCA is anticipated to enter into force in July 2023 following its publication in the Official Journal. The provisions relating to ARTs and EMTs will be applicable a year later, in July 2024. The remaining provisions will come into effect in January 2025.
What does MiCA mean for crypto businesses?
The implementation of MiCA brings about several changes that crypto businesses need to be aware of:
- Authorisation: Crypto businesses will need to determine whether their existing activities fall within the scope of MiCA. If so, they will need to either notify the relevant national competent authority (NCA). Authorisation as a CASP should be granted, refused, or withdrawn by the NCA of the Member State where the entity has its registered office. Where an authorisation is granted, it should indicate the crypto-asset services for which the CASP is authorised and should be valid for the entire Union.
- Control measures: MiCA emphasises that CASPs should be subject to strong organisational requirements. CASPs should have appropriate arrangements to keep records of all transactions, orders and services related to the crypto-asset services that they provide. They should also have systems in place to detect potential market abuse committed by clients.
- Contractual obligations: Agreements with third parties and client terms and conditions may need to be revised or rewritten to comply with MiCA. This includes outsourcing contracts and agreements regulating the flow of information to enable the issuers of ARTs to perform their functions as custodians.
- White Paper: Issuers of EMTs and ARTs will need prior approval of their white paper from a competent authority before being able to issue, offer, or market their tokens. The white papers should contain certain mandatory disclosures. The information contained in the crypto-asset white paper as well as in the relevant marketing communications, such as advertising messages and marketing material, and including through new channels such as social media platforms, should be fair, clear, and not misleading.
- Liability: Businesses should be aware of the liability attached to their services under MiCA. For instance, CASPs providing custody and administration services will be held liable for the loss of any crypto-assets due to an incident that is attributable to their provision of service. The liability of the crypto-asset service provider shall be capped at the market value of the crypto-asset that was lost, at the time the loss occurred.
What is the UK’s approach?
The HM Treasury is currently conducting consultations on future financial services regulatory regimes for crypto-assets. A recent report by the House of Commons Treasury Select Committee suggested that retail trading and investment activities in crypto-assets should be regulated as gambling rather than as a financial service. The final direction of the UK’s crypto regulation strategy will likely depend on the outcomes of these consultations and the speed at which the government proceeds with its plans to regulate cryptoassets.
Businesses should be aware that MiCA incorporates review mechanisms, which may result in the development of further regulations referred to as MiCA 2.0. These future regulations could cover areas such as DeFi, lending and borrowing of cryptoassets, and NFTs. Therefore, it is essential to stay up-to-date with the latest developments in the regulatory framework and take specialist advice to ensure compliance.
Pleas contact Ludovico Luganani to see how we can help you stay compliant in the fast-paced regulatory environment of Web3.