The MiCA (Markets in Crypto-Assets) regulation is a proposed EU framework that aims to provide legal certainty and consumer protection for crypto-assets . This regulation will affect the crypto industry by imposing new rules on issuers of utility tokens, asset-referenced tokens, and stablecoins . Furthermore, MiCA will also regulate crypto-asset service providers, such as exchanges, wallet providers, and custodial services . This comprehensive approach is expected to promote innovation and growth within the crypto industry while ensuring a high level of protection for investors and users . The European Union's Markets in Crypto-assets (MiCA) regulation provides a comprehensive regulatory framework for digital assets. It primarily covers three types of crypto-assets: asset-referenced tokens (ART), electronic money tokens (EMT), and other cryptocurrencies not classified as financial instruments under the existing MiFID II framework . The MiCA regulation aims to create a standardized set of rules across the EU to ensure the protection of investors and consumers, as well as to promote innovation, market integrity, and financial stability . It also seeks to address market fragmentation and regulatory arbitrage by providing a harmonized approach to crypto-assets regulation . By understanding and adhering to MiCA regulation, businesses operating with crypto-assets can ensure compliance with legal requirements and foster trust with their users .
MiCA: The Regulatory Framework for Crypto-Assets in the EU
The Markets in Crypto-assets Regulation (MiCA) represents the unified legal framework for crypto-asset markets within the European Union (EU), as legislated by the European Parliament and Council. This regulation supplements Directive (EU) 2019/1937 and received political endorsement from the EU in October 2022, with the European Parliament officially accepting it on April 20, 2023. It is projected to feature in the official gazette in the summer of 2023. The majority of MiCA articles will be enforced in January 2025 (20 days post-adoption plus 18 months). However, provisions specifically addressing asset-referenced tokens and e-money tokens will be applied 12 months after the rules are enacted (20 days following adoption plus 12 months).
MiCA constitutes a comprehensive and multifaceted new legal framework, introducing standard rules for transparency and disclosure requirements for issuing and admitting crypto assets to trading. It covers the approval and supervision of crypto-asset service providers and issuers; execution, structure, and governance of issuers and service providers; consumer protection rules for issuance, trading, exchange, and custody of crypto assets; and measures against market abuse to uphold the integrity of crypto-asset markets.
Crypto-assets under MiCA are broadly defined as digital representations of value or rights that can be transferred and stored electronically, using distributed ledger technology or similar. MiCA identifies three distinct types of crypto-assets with different regulatory requirements: Utility tokens, Asset-referenced tokens, and E-money tokens.
Certain crypto assets not previously governed by existing financial services laws within the EU fall under the jurisdiction of MiCA. Crypto-assets that qualify as other regulated instruments, such as transferable securities, structured deposits, e-money, or securitisations, remain outside its purview. Central bank digital currencies and those issued by other public international organizations are also excluded from the regulation.
Crypto asset service providers need to obtain licensing from the national competent authority in their established EU member state to provide services under MiCA. This involves compliance with various organizational, governance, conduct, and information requirements applicable to crypto asset service providers.
More than two years since its proposal, MiCA is now available in its approved form, aiming to regulate the issuance, intermediation, and transaction of crypto-assets. Certain aspects of MiCA are expected to be effective from spring 2024, which necessitates familiarization with these regulations for issuers of stablecoins and other crypto-assets, custodians, and other crypto service providers.
MiCA does not regulate security tokens qualifying as transferable securities and other crypto-assets that qualify as financial instruments under MiFID II, deposits, securitisation positions, insurance, or pension products. It also excludes Decentralized Finance (DeFi) protocols and unique non-fungible tokens (NFTs). However, specific regulatory regimes might be introduced for these in the future based on a review clause in the regulation.
MiCA is part of the European Commission's broader digital finance strategy, which also includes the Regulation on digital operational resilience (DORA), applicable to crypto-asset service providers, and a new Regulation on a distributed ledger technology (DLT) pilot regime for financial market infrastructures.
MiCA carries several requirements for crypto-asset issuers, including additional obligations for issuers of asset-referenced tokens or e-money tokens. These include the need to be a legal entity in the EU, publish a white paper for the relevant crypto-assets, and notify such to the competent authority.
MiCA: Crypto-Asset Classification, Licensing, and Market Abuse Regulations
Under MiCA, crypto-asset service providers are considered to be legal persons or enterprises whose profession or business is providing one or more crypto-asset services to third parties professionally. These services include custody and administration of crypto-assets, operating trading platforms, exchange services, executing orders in crypto-assets, reception and transmission of orders for crypto-assets, placement of crypto-assets, portfolio management services, transfer services for crypto-assets, and provision of advice on crypto-assets.
The Regulation establishes a framework for oversight and cooperation among competent authorities (CAs) in member states. "Significant" crypto-asset service providers (CASPs) are subject to supervision by both their national CAs and the European Securities and Markets Authority (ESMA). ESMA can restrict or prohibit the provision of crypto-asset services if they pose a threat to market integrity, investor protection, or financial stability. The ESMA also has the authority to maintain a crypto blacklist to warn investors about CASPs that fail to comply with MiCA requirements.
To ensure market integrity, MiCA introduces market abuse regulations for crypto-asset markets, including provisions on the disclosure of inside information, the prohibition of insider dealing and market manipulation.
Following the implementation, additional technical guidance will be provided, and the scope of MiCA may be expanded in the future. The regulation includes a provision for EU authorities to review its application to decentralized finance (DeFi) and non-fungible tokens (NFTs), which could lead to specific regulatory regimes for these areas.
MiCA offers a broad classification of a crypto asset as a digital representation of value or rights that can be transferred and stored electronically. It utilizes distributed ledger technology or akin technology by distinguishing the following three types of crypto assets, for each of which a separate set of regulatory requirements will apply:
• Utility token – A crypto asset designed to provide access to goods and services offered by their issuers
• Asset-referenced token – A crypto asset that aims to provide a stable value based on various fiat currencies that are legal tender, commodities, crypto assets, or a mix of these assets.
• E-money token – A crypto asset primarily intended to be used as a means of exchange and is only tied to a nominal monetary currency for stabilizing its value (for instance EUR, GBP, or US$).
The framework imposes regulations on all issuers of crypto assets and stipulates additional, or different, obligations on issuers of asset-referenced tokens or issuers of e-money tokens. An issuer of crypto assets needs to be a legal entity in the EU and is required to publish a white paper for the relevant assets and notify such white paper to its competent authority.
Crypto service providers must obtain licensing to provide crypto asset services under MiCA by the national competent authority in the EU member state where they were established. To obtain authorization, they will need to ensure compliance with various organizational, governance, conduct, and information requirements applicable to crypto asset service providers under the new regime, who are defined as legal persons (or other enterprises) whose profession or business is the provision of one or more of the following crypto-asset services to third parties on a professional basis.
In addition to the licensing and operational conditions , the regulation contains requirements for all crypto service providers, including the obligation to act honestly, fairly, and professionally. This includes prudential safeguards, organizational requirements, rules on the safekeeping of clients' crypto assets and funds, the obligation to establish a complaint procedure and rules on conflict of interest.
Furthermore, MiCA introduces market abuse regulations to ensure market integrity in the crypto-space, prohibiting market manipulation and insider trading. The European Securities and Markets Authority (ESMA) will oversee the supervision of significant crypto-asset service providers (CASPs) and has the power to restrict or prohibit the provision of crypto-asset services if they pose a threat to market integrity, investor protection, or financial stability. ESMA can also maintain a crypto blacklist to warn investors about CASPs that fail to comply with these requirements.
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