On Monday May 16 2023, the European Council formally adopted the regulation on markets in crypto-assets (referred to as ''MiCA''), officially marking the beginning of regulating crypto-assets by providing a harmonised EU-wide regulatory framework for crypto-asset regulation.
The aim of the new framework is, inter alia, to increase investor protection, create legal and regulatory certainty, preserving financial stability while allowing innovation and fostering the attractiveness of the crypto-asset sector.
- Key Dates
Monday's formal adoption of MiCA was the final step in the legislative process. MiCA is anticipated to enter into force 20 days after its publication in the Official Journal of the EU which is expected to occur soon. Rules on stablecoins are anticipated to apply 12 months thereafter (adoption + 20 days + 12 months) while all other rules are anticipated to start applying 18 months thereafter (adoption + 20 days + 18 months).
MiCA applies to natural and legal persons, certain other undertakings and to crypto-asset services and activities performed, provided or controlled, directly or indirectly, by them, including when part of such activities is performed in a decentralised manner. It covers the rights and obligations of issuers of crypto-assets, persons seeking admission to trading of crypto-assets and crypto-asset service providers.
MiCA expressly excludes from its scope:
- crypto-assets that qualify as financial instruments as defined in Directive 2014/65/EU,
- deposits as defined in Directive 2014/49/EU, including structured deposits as defined in Directive 2014/65/EU,
- funds as defined in Directive 2015/2366 (except if the qualify as e-money tokens),
- securitisation positions as defined in Regulation (EU) 2017/2402,
- non-life/life insurance, pension products or schemes and social security schemes,
- crypto-assets that are unique and not fungible with other crypto-assets, including digital art and collectibles,
- Crypto-assets representing services or physical assets that are unique and non-fungible, such as product guarantees or real estate,
- Digital assets issued by central banks acting in their monetary authority capacity, including central bank money in digital form or crypto-assets issued by other public authorities, including central, regional and local administrations,
- Crypto-asset services provided in a fully decentralised manner without any intermediary.
Other than the above-mentioned exclusions, MiCA covers all other forms of crypto-assets, including token offerings, stablecoin issuance as well as crypto asset services.
- Key Legislative Provisions
- Classification of Crypto-assets
Crypto-asset is defined as a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or a similar technology.
MiCA classifies crypto-assets into 3 types that are distinct, have their own definitions and are subject to different requirements depending on the risks they entail:
- E-money tokens
- Asset-referenced tokens
- Other Crypto-assets (crypto-assets other than asset-referenced tokens and e-money tokens and covers a wide variety of crypto-assets including utility tokens).
- Rules on Issuers of Crypto-assets
Subject to specific exceptions, when making an offer to the public of crypto-assets (other than asset-referenced tokens or e-money tokens) or when seeking admission to trading for such crypto-assets, in the Union offerors or persons seeking admission to trading should draw up, notify their competent authority and publish an information document containing mandatory disclosures ('a crypto-asset white paper').
- Rules for Crypto-Asset Service Providers (''CASPs'')
A CASP means a legal person or other undertaking whose occupation or business is the provision of one or more crypto-asset services to clients on a professional basis, and that is allowed to provide crypto-asset services in accordance with the relevant article of MiCA.
Entities that provide services on a professional basis related to crypto-assets in accordance with MiCA include:
- Category 1: Operation of a trading platform for crypto-assets, exchanging crypto-assets for funds or other crypto-assets, providing custody and administration of crypto-assets on behalf of clients, and providing transfer services for crypto-assets on behalf of clients.
- Category 2: placing crypto-assets, the reception or transmission of orders for crypto-assets on behalf of clients, the execution of orders for crypto-assets on behalf of clients, providing advice on crypto-assets and providing portfolio management of crypto-assets.
In Cyprus, crypto-asset services providers are currently regulated in the context of anti-money laundering and counter terrorist financing (''AML and CTF'') legislation and through procedures for registration. Strictly speaking, the registration framework is not an authorisation framework and therefore not a license.
MiCA introduces a licensing process, whereby companies that seek to offer one of the following crypto-asset services will need to become licensed as a CASP by one of the EU national competent authorities:
- Custody and administration of crypto-assets
- Operation of a crypto-asset trading platform
- Exchange of crypto-assets against fiat or against other crypto-assets
- Placement of crypto-assets
- Reception and transmission of crypto-asset orders
- Advice and portfolio management of crypto-assets.
Each of the above CASP functions have their own specific regulatory requirements.
Conversely, certain firms subject to EU MIFID may be allowed to provide all or some crypto-asset services without being required to obtain an authorisation as a CASP under MiCA if they notify their competent authorities with certain information before providing these services for the first time. In these cases, these firms are deemed CASPs and the relevant administrative powers granted to national competent authorities, as well as CASP requirements provided by MiCA (with the exception of authorisation requirements, own funds requirements and approval procedures for qualifying holdings) apply with respect to them.
In order to enable effective supervision and elimination of the possibility of evading or circumventing supervision, crypto-asset services should only be provided by legal persons that have a registered office in a Member State in which they carry out substantive business activities, including the provision of crypto-asset services.
Crypto-asset service providers should have their place of effective management in the Union, and at least one of the directors should be resident in the Union.
- Market Abuse Rules
Title VI of MiCA sets out rules for the prevention and detection of market abuse involving crypto-assets. It shall apply to acts carried out by any person concerning crypto-assets that are admitted to trading or in respect of which a request for admission to trading has been made. It shall also apply to any transaction, order or behaviour concerning crypto-assets, irrespective of whether such transaction, order or behaviour takes place on a trading platform. Finally, it applies to both actions and omissions in the Union and in third countries, concerning crypto-assets admitted to trading/of which a request for admission to trading has been made.
D. Concluding Remarks
As emphasised in MiCA itself, any legislative act adopted in the field of crypto-assets should be specific and future-proof, be able to keep pace with innovation and technological developments and be founded on an incentive-based approach. MiCA also emphasises the importance and interconnection between offering services that fall within the scope of MiCA and compliance with AML and CTF rules of the Union.
The much-awaited formal adoption of MiCA is a landmark development in crypto-asset regulation. It is hoped that MiCA will constitute the cornerstone of the crypto-asset regulatory framework, providing legal and regulatory certainty, as well as enhancing investor confidence, ensuring market integrity and promoting innovation in the crypto market. It remains to be seen how the various provisions of MiCA will ultimately be implemented and enforced by national competent authorities in practice – a critical element for its ultimate success.
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