Breaking Down MiCA: Implications for Your Crypto-Asset Business | Law.com International
Many people reading this will already be aware of MiCA—the European Markets in Crypto-Assets Regulation—but not everyone may know the full implications of this new regulation for entities engaging in crypto-assets business in the European Union (EU).
For example, what are the regulatory requirements linked with providing services in crypto-assets and which of these are applicable to entities looking to issue various types of tokens to the public in the EU, such as stablecoins? And what are the cross-border implications of the upcoming UK regime for crypto-assets?
Understanding MiCA
MiCA introduces a harmonised framework for crypto-assets regulation in the EU. It replaces the fragmented and diverse national regimes that existed across the EU-27 Member States. MiCA attempts to address all key aspects of dealing in crypto-assets, such as offering these products to the public and admission of trading, provision of services and measures against market manipulation.
On June 30, 2024, MiCA provisions addressing stablecoins already became applicable; the remainder of the provisions—including a framework regulating the provision of services in crypto-assets—will come into force on December 30, 2024. Member States have, for the latter option, to allow a transitional period of maximum 18 months.
Setting Regulatory Perimeter for Services in Crypto-Assets
Dealing in crypto-assets will soon become a regulated activity in the entire EU, introducing a license requirement for 10 types of services or activities involving crypto-assets. In an attempt to clearly delineate the application of MiCA, it will apply only to those crypto-assets that are not already captured by other pieces of the European financial services legislation, such as the MiFID regime for financial instruments.
That said, largely mirrored on that MiFID framework, a MiCA license will be required for providing custody and administration of crypto-assets, operating a trading platform, exchanging crypto-assets for funds or other crypto-assets, placing, reception and transmission of orders, providing advice, portfolio management and transfer of crypto-assets.
Any person wishing to provide such services to customers in the EU will have to obtain the relevant license from a national competent authority. This is particularly important for service providers located outside the EU, as the legislation does not have a third-country regime and the boundaries of the reverse solicitation exemption have been set intentionally narrow.
Regulating Stablecoins
MiCA distinguishes three broad types of crypto-assets—“standard” tokens, asset-referenced tokens (ARTs) and e-money tokens (EMTs)—tailoring requirements concerning issuance, offer to the public and admission to trading accordingly. The latter two types, ARTs and EMTs, are jointly referred to as stablecoins, as their construction involves maintaining a stable value by reference to one or more official currencies, or other value or right (ARTs) or a single official currency (EMTs).
Depending on the type of token, various requirements apply—while the issuance of ARTs requires either a MiCA license or adjustments to a credit institution license, the issuance of EMTs is reserved for authorised European credit institutions and e-money institutions. Authorised stablecoin providers are subject to advanced organisational, governance, transparency and conduct requirements, including rules concerning redemption rights and management of reserve of assets as security, as well as liability for the information provided in the required white papers. While the supervision of stablecoin issuers in principle resides with the national regulators, MiCA foresees a mechanism of shifting the supervision to the EU-level if an ART or an EMT is to be deemed “significant” by the European Banking Authority.
Cross-Border Implication of the Upcoming UK Regime
For those who want to extend their crypto-asset business to the UK, a MiCA licence will not help. A separate authorisation for such activity may be needed from the Financial Conduct Authority, as the UK is well on its way to regulating a similar, but slightly wider, scope of crypto regulated activities.
The proposals suggest that much of the regime will apply to both businesses operating in the UK and those outside the UK where they provide services to persons in the UK and that there will be no overseas person exclusion. It remains to be seen whether any form of reverse solicitation or equivalence will assist but this seems optimistic.
The timeline should become clearer soon but there will be two phases, with issuance and custody of stablecoins being prioritised over the wider range of services and crypto-assets. Meanwhile, the UK’s money laundering registration and financial promotion rules continue to apply.
Challenge or Chance?
Achieving MiCA compliance will not be an easy task, there should be no doubt about it. The application process is documentation-heavy and the regulators will have to be convinced that the applicant’s proposed solutions are fit for purpose. That said, MiCA should be considered as a positive development as it provides clarity of regulatory expectations and a single framework that will be active throughout the whole of Europe.
Floortje Nagelkerke is a Norton Rose Fulbright financial services lawyer based in Amsterdam who advises clients on a wide range of regulatory matters.
Hannah Meakin is a Norton Rose Fulbright financial services regulation lawyer based in London with a particular focus on market infrastructure, commodities derivatives and Fintech and crypto regulation.
Anna Carrier is a Norton Rose Fulbright government and regulatory affairs advisor based in Brussels, as part of our government relations and public policy (GRPP) and financial services practice
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