On 9 June 2023, Regulation (EU) 2023/1114 on markets in crypto assets (MiCA) and Regulation (EU) 2023/1113 on information accompanying transfers of funds and certain crypto-assets (the Recast Funds Transfer Regulation) were published in the Official Journal of the European Union.
The regulations will enter into force on 29 June 2023 giving effect to a new regulatory regime for crypto-assets across the European Union.
A first step towards a regulated crypto industry
MiCA introduces a supervisory regime for issuers of crypto-assets and crypto-asset service providers (CASPs). Whilst ambitious in intent and contrasting with the current approach of the regulators in U.S., the new regime is relatively narrow in scope.
Only the issuers of crypto-assets falling within definitions of Asset Reference Token or Electronic Money Token (i.e. most stablecoins) are required to be regulated and supervised.
The licensing regime for CASPs does not extend to DeFi (decentralised finance or peer-to-peer financial services on public blockchains) or DOAs (decentralised autonomous organisations). Also excluded are NFTs (non-fungible tokens, unless they are fractionalised) and the lending and borrowing of crypto assets.
Tokenised traditional financial instruments will be governed by the existing EU securities law framework provided for under Directive 2014/65/EU - Markets in Financial Instruments Directive II (MiFID II).
In contrast to MiFID II, which was required to be implemented by each member state legislature, MiCA takes the form of a Regulation which is directly effective in each member state. This should help to ensure a consistent application of the new regime across the EU.
The Travel Rule
The Recast Funds Transfer Regulation introduces traceability of transactions in crypto-assets conducted through an intermediary or service provider and provides for the detection of suspicious transactions, bringing crypto-assets in line with traditional financial products.
The rules require information on the source of the crypto-asset and its beneficiary to "travel" with the transaction and to be stored on both sides of the transfer. True peer-to-peer transfers (i.e., those conducted between two self-hosted private wallets) will fall outside the scope of the rules.
Implementation timeline
MiCA and the Recast Funds Transfer Regulation enter into force on 29 June 2023.
The European Supervisory Authorities have been tasked with producing secondary legislation by 30 June 2024 when the rules on asset-referenced tokens and electronic money tokens will come into effect.
The remainder of MiCA and the Recast Funds Transfer Regulation will apply from 30 December 2024.
The text of MiCA can be found here and the text of the recast transfer regulation can be found here.
The authors would like to thank Daniel Kehoe for his contribution to this article.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
