How MiCA crypto regulation impacts crypto companies: a quick look at the compliance needs

The number of people investing in digital assets skyrocketed, and cryptocurrencies, which have been around for a decade, are becoming more and more popular. In this blog post, we will take a quick look at MiCA crypto regulation and how it impacts crypto companies.

What is DORA and MiCA Crypto Regulation?

The Digital Operational Resilience Act (DORA) is a set of regulations that sets out requirements for the operation and supervision of crypto asset service providers. It is a part of the Digital Finance Package and aims to consolidate ICT risk and outsourcing requirements across EU into one single legislative act. Designed to support the potential of digital finance while mitigating associated risks, DORA is due to come into effect in 2023 and applies to almost all financial entities.

The Markets in Crypto-Assets (MiCA) is the EU's new regulatory framework for crypto assets. It is designed to provide legal certainty for the industry and to protect investors in digital assets. The framework consists of two separate regulations, the MiCA Regulation and the Markets in Financial Instruments Regulation (MiFIR).

MiCA is the primary regulation, while MiFIR is a secondary regulation that focuses on the trading of crypto assets. MiCA applies to crypto assets that are not classified as financial instruments, such as digital tokens, digital coins, and other forms of digital assets.

The MiCA Regulation defines crypto assets as "a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes". This definition includes digital tokens, digital coins, utility tokens, and other types of digital assets. MiCA also sets out requirements for the registration, operation, and supervision of crypto asset service providers (CASPs).

A major benefit for CASPs is that MiCA provides legal certainty and a level playing field within the industry. For customers and traders, MiCA provides greater protection. It ensures that CASPs are subject to appropriate customer protection rules and that they are compliant with all applicable laws and regulations. Additionally, it helps to ensure that customer funds and data are properly protected.

The risks of non-compliance with MiCA crypto regulation are significant. Failing to comply with MiCA can result in significant fines and other penalties. Additionally, it can lead to reputational damage and customer mistrust.

What Are the Requirements of MiCA Crypto Regulation?

The MiCA Regulation sets out a number of requirements for crypto asset service providers:

1. A CASP must be registered with the relevant national regulator.
2. A CASP must have sufficient capital and liquidity to meet its obligations.
3. A CASP must have appropriate risk management systems in place.
4. A CASP must have systems in place to detect, report, and prevent money laundering, terrorist financing, and other criminal activities.
5. A CASP must have processes in place to ensure compliance with all applicable laws and regulations.
6. A CASP must have systems in place to protect customer funds and data.
7. A CASP must have a governance structure that is designed to ensure proper oversight of its operations.

What Are Other Crypto Regulatory Compliance Requirements?

In addition to MiCA and DORA, there are a number of other regulatory needs to consider:

1. The Markets in Financial Instruments Directive (MiFID)
2. The Payment Services Directive (PSD2)
3. The European Electronic Money Directive (E-Money)
4. The Anti-Money Laundering Directive (AMLD)
5. The Fourth Anti-Money Laundering Directive (AMLD4)
6. The Fifth Anti-Money Laundering Directive (AMLD5)
7. The General Data Protection Regulation (GDPR)

Each of these directives and regulations has its own set of requirements, and crypto companies must comply with all of them in order to be compliant with MiCA.

Conclusion

The MiCA crypto regulation is an important regulatory framework that provides legal robustness for the crypto industry and helps to protect investors in digital assets. It defines a number of new requirements for crypto asset service providers to consider when going into 2023.

Grand Q&A

What’s MiCA?

MiCA (Markets in Crypto-Assets is the European Union's regulatory framework for crypto assets) - provides legal certainty and protects investors in digital assets. Consists of MiCA Regulation and Markets in Financial Instruments Regulation (MiFIR).

What’s DORA?

DORA (Digital Operational Resilience Act) - regulations outlining requirements for the operation and supervision of crypto asset service providers (CASPs). Requires proper governance and risk management systems, detection and prevention of money laundering and other criminal activities, protection of customer funds and data, and compliance with laws and regulations.

What’s CASPs?

CASPs (Crypto Asset Service Providers) - companies that provide services related to crypto assets, such as trading, storage, and payment processing. Subject to MiCA and DORA regulation.

What’s MiFIR?

MiFIR (Markets in Financial Instruments Regulation) - secondary regulation under MiCA focused on the trading of crypto assets.