Introduction
The Markets in Crypto-Assets Regulation (MiCA) has been in the works seemingly forever. Since an early version of the proposal was made available in 2019, much has been written about it, awaiting its imminent approval. Now that the final version of the Regulation has been officially published, it provides an ideal opportunity to review its contents, hopefully helping companies and interested parties be prepared to navigate this novel legal framework upon its entry into application, in mid to late 2024.
Background The MiCA Regulation aims to bring the current fragmented regulation on crypto-assets, which differs in each Member State, under the EU umbrella, providing a harmonised Union-
wide set of rules. This concern with harmonisation is anything but surprising, especially considering the cross-border nature of the subject at hand.
MiCA’s main goals, as laid down in its recitals are to:
- boost innovation and competition;
- protect consumers and retail holders;
- maintain the integrity of the crypto-asset markets.
Moving beyond these general objectives and looking at the Regulation as a whole, it is evident that its main intent is to regulate stablecoins and initial coin offerings (ICOs), despite never referencing them by name. Clear attention has been paid to these topics during the legislative process, in line with the EU’s approach to crypto-assets over the last five years. For instance, the European Securities and Markets Authority (ESMA) has been keeping an eye on ICOs since as early as 2017, when it issued an alert regarding coin offerings. The same can be said with regard to stablecoins, which are mentioned in studies from 2018 and 2019 published by the European Parliament and the European Banking Authority (EBA), respectively. The focus on these specific assets is thus not surprising, nor is the fact that other, more recent, asset types have been left out of the Regulation.
In typical EU fashion, the Regulation adopts the principles of “same activities, same risks, same rules” and of technology neutrality when dealing with crypto-assets. Therefore, any assets already covered by existing Union law should be regulated by those acts and not by this Regulation.
Scope – Crypto-assets
According to the MiCA Regulation, there are three categories of crypto-assets, distinguishable by whether they seek to stabilise their value by referencing other assets and how they accomplish this, namely e-money tokens (EMTs), asset-referenced tokens (ARTs) and other crypto-assets. Both the first and second category aim to regulate stablecoins – even though the term is never mentioned in the text – with certain key differences between them. In the first case, the
crypto-asset stabilises its value by referencing one official currency. In the second case, the crypto-asset’s value is stabilised by referencing other assets or rights, which may include one or more official currencies. Another difference between the two is that e-money tokens provide their holder with a claim on the underlying asset – EMTs can be redeemed for their respective currencies, whereas this is not always the case with other ARTs. Despite their differences, both categories act together to regulate all stablecoins, whether through a more specific clause (EMTs) or a broader one (ARTs). With this, the legislator hopes to future-proof this Regulation against new developments regarding this type of token.
Finally, the third category of crypto-asset provides yet another catch-all clause, which encompasses a wide range of crypto-assets, not limited to stablecoins.
Two notable types of assets that are excluded from the scope of the Regulation are unique or non-fungible tokens (NFTs) and decentralised finance (DeFi) tokens. The first of these is explicitly excluded by the Regulation. As for the second type, it should be noted that MiCA does not intend to regulate crypto-assets that already fall within the scope of existing EU law, namely MiFID, which regulates financial instruments.
Scope – Entities
Under MiCA, rules will apply to two sets of entities: issuers of crypto-assets and crypto-asset service providers (CASPs). The first set includes entities that issue, offer or admit to trading crypto-assets, whereas the latter refers to entities that offer any of a wide array of crypto-asset services, as defined by the Regulation, such as:
- providing custody and administration of crypto-assets on behalf of clients;
- operating a trading platform for crypto-assets;
- exchanging crypto-assets for funds;
- exchanging crypto-assets for other crypto-assets;
- providing advice on crypto-assets;
- providing portfolio management on crypto-assets.
Requirements
Different requirements are imposed for the different types of crypto-assets, organised from least to most stringent.
To issue crypto-assets other than ARTs or EMTs:
- the issuer must be established in the form of a legal person;
- the issuer will have to provide a white paper, whose content must be in accordance with the Regulation;
- any marketing communications relating to the crypto-assets in question must also be in accordance with the Regulation.
Additionally, the would-be issuer of ARTs needs to have the referred white paper approved prior to issuance.
Entities who want to issue EMTs should also be authorised as an electronic money institution or as a credit institution, in accordance with Directive 2009/110/EC (E-Money Directive, or EMD).
Another key innovation introduced by MiCA is the imposition of rules regarding issuers’ own funds and asset reserves. ARTs issuers are subject to own funds requirements proportionate to the issuance size of the asset-referenced tokens, starting at 2% of the issued tokens, while also being subject to asset reserve requirements. The latter is awaiting the development of technical standards by the EBA, which should be published by June 2024.
Besides issuers, CASPs are also subject to capital requirements, depending on the type of service provided or the percentage of their fixed overheads, which in no case should be less than EUR 50 000.
Finally, ARTs and EMTs may be classified as significant if they reach certain thresholds in terms of number of holders, market capitalisation or total number of transactions. Issuers of tokens that reach any of these criteria will be subjected to a higher level of oversight by the national competent authorities (NCAs). In the same way, CASPs may also be deemed significant if they have a high number of active users, leading to increased scrutiny from the NCAs.
Environmental Concerns
As of late, the impact of crypto-assets, especially those that use proof of work as a consensus mechanism, on the environment cannot be ignored. This issue was widely debated during the legislative process related to the Regulation. Key measures in this regard include the obligations of issuers and CASPs alike to provide disclaimers regarding the adverse impact of their products on the climate, when applicable, and the development of draft regulatory technical standards by ESMA, which has already published a consultation paper on this issue.
Entry in to force & applicability
The MiCA Regulation entered into force in June 2023; however, it will only become applicable in 2024, in two distinct phases: first Titles III and IV, which regulate ARTs and EMTs, respectively, in June followed by the remaining Titles in December.
Transitional measures
Member States are provided with the option to implement transitional measures that would include:
- the possibility of CASPs already operating under applicable national law to continue to do so until 1 July 2026 or until they are granted an authorisation under the new regime; and
- a simplified authorisation procedure for CASPs in the situation above.
Conclusion MiCA defines three categories of crypto-assets and excludes a couple more. While this scope might appear limited, it should be broad enough to encompass most crypto-asset players that are not subject to other EU legislation or whose activity is not explicitly excluded by the text of the Regulation. Furthermore, the fact that certain types of assets are mentioned therein, even if they have not been regulated as of yet, signals that the legislator is paying attention to them and could point to upcoming regulation in that area. From the get-go, the regulation of these three categories of crypto-assets is extensive and apparently set to achieve the main goals and concerns mentioned in the recitals, without compromising technological development or stifling innovation. Whether this actually happens remains to be seen.