EU crypto-assets regulatory framework: application of the landmark Markets in Crypto-Assets Regulation MiCA

• Thiago Eleocadio
• 21 de novembro de 2023
• FinTech
• 0 Comments

MiCA Regulation represents a significant milestone in the regulation of digital assets in the European Union. With the development of blockchain technology and the growing https://www.xcritical.com/ popularity of cryptoassets, the EU is actively implementing a legal framework to regulate this sector. The adopted Regulation on Cryptoasset Markets aims to eliminate legal uncertainty and create a transparent, fair and stable market. It covers utility tokens, asset-referenced tokens and e-money tokens, setting out rules for virtual asset service providers, including licensing requirements, minimum capital and compliance with anti-money laundering measures. This scenario is likely to change with the introduction of MiCA, as it provides a well-defined regulatory framework which can instill a higher level of confidence among institutional investors. This development is a strong indication of the growing institutional interest and investment in the EU crypto market spurred by MiCA.

Potential Slowdown in Innovation

EU consumers would either be cut off from innovation or continue to use (and mica regulation be exposed to) the largest offshore pools of liquidity and utility. The future of MICA presents a landscape of opportunity for innovative regulatory compliance and growth in the crypto-asset sector. MICA introduces clear guidelines and compliance standards, aiming to fortify the stability and transparency of stablecoins within the cryptocurrency market. MICA’s transformative regulations introduce a framework of comprehensive standardization, which bodes well for crypto markets. First, it establishes a comprehensive framework for the issuance and provision of services related to crypto-assets.

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The members of the issuer’s management body should be fit and proper and their shareholders should be of sufficiently good repute. Issuers of ARTs should establish a business continuity policy, have strong internal control mechanisms and effective procedures for risk management. They are subject to own funds requirements, proportionate to the issuance size of the ARTs. They should also constitute and maintain a reserve of assets, and set Non-fungible token up an adequate custody policy. Although CASP and VASP refer to similar kinds of service providers and have a lot of overlap, the terms should not be used interchangeably in the context of MiCA because of regulatory variances. To name just one example of this, the Central Bank of Ireland has noted that a CASP authorisation assessment is more involved than a VASP registration.

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• Other small-sized offers, while being in scope of MiCA, benefit from a lighter regime as they neither require the preparation of a white paper nor to publish marketing communications.
• In Germany, the provision of certain crypto-asset services (in particular crypto-asset custody) has been regulated since 2020, although the definition of these crypto-asset services differs from the definitions under MiCA.
• As companies strive to adhere to MICA standards, they anticipate financial and operational adjustments.
• By the sheer size of its market, MiCA will likely persuade many companies around the world to adopt MiCA operating standards, possibly on an international scale in order to maintain globally streamlined operations and products.
• This framework is crucial for creating consistent standards across European Union member states, reducing the disparities previously encountered.

In France, providers of services of digital assets (DASPs) were already regulated by the PACTE law and required a mandatory registration or optional authorisation, depending on the service provided. This is the term MiCA used to refer to any provider that offers services related to crypto assets, such as trading platforms, exchanges, and custodians. MiCA’s full implementation on January 1, 2025, marks a significant milestone for the crypto industry.

Markets in Crypto-Assets (MiCA)

The added financial burden could deter new entrants into the market and stifle the entrepreneurial spirit that drives the industry. MiCA’s rigorous disclosure rules, liquidity guarantees, and corporate governance standards offer essential safeguards for crypto investors. This enhanced protection can attract more mainstream market participants, resulting in a more diverse and resilient investor base. As with any new regulation, MiCA is expected to offer businesses operating in the European digital currency market diverse opportunities and certain challenges. This article will explore the MiCA regulation summary, its potential impact on the crypto industry, and what it means for businesses operating within the EU. The United States, under the second Trump administration, is expected to make a pivot on its crypto policy.

Tamta’s writing is both professional and relatable, ensuring her readers gain valuable insight and knowledge. For instance, consider an infrastructure platform that enables exchanges and custodians to handle client funds and crypto assets. Even if the platform itself may not qualify as a CASP, its provision of services to regulated entities places it within the MiCA regulatory nexus. If you are a software vendor specializing in blockchain and digital assets, understanding and addressing these requirements is crucial to maintaining compliance and protecting your business. Choosing the right jurisdiction for tokenisation projects is one of the key success factors. Countries such as Germany and France already have well-developed legal frameworks for dealing with tokenised assets.

In particular, only authorised electronic money institutions or authorised credit institution are allowed to issue EMTs. CASPs also need to make sustainability disclosures on the environmental impact of their crypto operations, both within the “white papers” (project prospectus) they submit under MiCA, and also on their websites. In short, CASPs under MiCA must be licensed, protect customers, operate transparently, hold enough financial reserves, and comply with security and anti-money laundering rules. Find out how Fireblocks helps your digital asset business to grow fast and stay secure. The regulation is expected to foster growth by reducing regulatory uncertainty and creating a level playing field for businesses operating across the EU. MICA’s framework can serve as a robust foundation for future innovation, guiding a stable and transparent market environment.

I expect major European banks will roll out crypto-asset services in the next 48 months, be it custody, exchange, or the issuance of e-money tokens or asset-referenced tokens, colloquially referred to as stablecoins. With MiCA in force, offshore, unregulated companies will no longer be able to target EU consumers pro-actively. This may lead to MiCA-regulated crypto businesses gaining significant EU market share from their offshore, unregulated competitors. One of MiCA’s most profound impacts is the legitimacy it confers on the entire crypto ecosystem. By standardising regulations, MiCA may encourage governments and policymakers to view digital assets more favourably, potentially leading to increased support for the industry and its businesses.

The German legislator thus introduced the necessary changes allowing for a smooth application of MiCA in Germany and granting BaFin the supervisory powers to enforce compliance with MiCA-rules and requirements. Other small-sized offers, while being in scope of MiCA, benefit from a lighter regime as they neither require the preparation of a white paper nor to publish marketing communications. This is the case for offers made to fewer than 150 people per EU Member State, that are addressed solely to qualified investors or whose total consideration does not exceed EUR1 million over a period of 12 months. One notable development is Circle, the issuer of USDC and EURC, becoming the first global stablecoin issuer to secure a license under MiCA. Circle obtained an Electronic Money Institution (EMI) license from the French regulatory authority, which allowed it to issue both stablecoins in full compliance with MiCA. Companies already licensed as e-money institutions (EMIs) may face some new requirements to be fully MiCA-compliant, depending on the kind of services they offer.

And with that, new challenges are arising in navigating these new regulatory standards by 2025. Strong customer verification processes and regular security audits are a part of this. Get crypto market analysis and curated news delivered right to your inbox every week. MiCA will standardize compliance requirements across the EU, which is a huge positive. But many smaller VASPs may not survive the transition, especially those in countries where lenient registration processes previously prevailed.

Apart from properly registering and licensing their crypto businesses under MiCA, entrepreneurs must be on standby to detect and promptly resolve potential operational risks. Those guidelines will only apply three months after the publication of the translated versions on ESMAs website. White papers for ARTs should include specific information on the stabilisation mechanism, the investment policy of the reserve assets, the custody arrangements and the rights provided, as described under Annex II to MiCA. Additional requirements apply to public offerings or requests for admission of ARTs to trading.

For example, companies can issue tokens instead of traditional shares, giving investors access to stakes in the business via blockchain. MiCA has introduced new customer protection measures to safeguard customers involved in dealing with cryptocurrency businesses. These include clear risk disclosure requirements for businesses, transparency insured by crypto whitepapers, mandatory dispute resolution procedures, and stronger protection measures for consumer data. These processes provide customers with proof that the crypto businesses they interact with are compliant and serious about safeguarding any personal or financial information they share. Entities not established in the EU are not allowed to provide crypto-asset services in the EU.

By fostering innovation while ensuring investor protection and market stability, MiCA positions the EU as a global leader in crypto regulation. Plus, MiCA will, in all likelihood, lead to more institutional adoption and activity in the EU crypto market. According to Bloomberg, only 4% of institutional funds in Europe have exposure to crypto-assets. Regulatory uncertainty is one of, if not the main concern holding institutions back from entering the space.

While MiCA has been hailed as a positive step forward for regulating the crypto market, it has also drawn some criticism, particularly regarding its potential to stifle innovation. Critics argue that MiCA’s strict licensing and compliance requirements could disproportionately affect smaller companies and startups that lack the resources to meet these regulations. In the ever-evolving world of cryptocurrency, regulatory frameworks play a pivotal role in shaping the market’s future.