An Overview of the MiCA Regulation: What you need to know!

Anna Stylianou | EIMF Industry Expert

MiCA, or the Markets in Crypto Assets regulation, is a proposed set of rules and standards for cryptocurrencies and other crypto assets in the European Union. MiCA aims to provide a unified regulatory framework that promotes investor protection, market integrity, and financial stability.

The regulation requires issuers of digital assets to be licensed and comply with specific operational and transparency requirements, while also imposing strict measures to prevent fraud and other financial crimes.

The European Parliament is expected to give its final vote on MiCA and the Transfer of Funds Regulation in April 2023, paving the way for a new era of crypto asset regulation in the EU.

 Definitions under MiCA

MiCA defines specific sub-classes of crypto-assets. The regulation provides clarity on what types of digital assets fall within its scope and differentiates between the following:

Crypto-asset: “generic terminology for a ‘digital representation of value or rights which may be transferred and stored electronically, using Decentralized Ledger Technology (DLT) or similar technology.”

 Stablecoins:

1. Asset-referenced token (ART): “a type of crypto-asset which is meant to maintain a stable value by referring to the value of several currencies that are legal tender (fiat currencies), one or several commodities, or one or several crypto-assets, or a combination of such assets.”

2. E-money token (electronic money token, EMT): a type of crypto-asset “which is meant to be a means of exchange and maintains a stable value by referring to the value of a fiat currency that is legal tender.”

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Utility token: a type of crypto asset which “provides digital access to a good or service available on DLT and is only accepted by the issuer of that token.”

 Requirements for issuers of crypto assets in the European Union

MiCA applies to crypto-asset service providers and establishes uniform requirements for entities that want to offer their services within the EU including:

1. – Persons that aim to offer crypto assets to the public or request approval to trade on a platform, need to comply with specific requirements including the obligation to establish as a legal person, draw up and publish a crypto-asset white paper and notify competent authorities.

2. ART issuers must be authorized by competent authorities and their white papers must comply with specific rules and be approved.

3. Issuers of ART must act honestly, fairly, and professionally. They also have liabilities for the information provided in their white papers, they have ongoing information obligations and must have in place complaint handling procedures.

4. Additional requirements are imposed to “significant asset-referenced tokens” such as higher own funds requirements and liquidity management policies.

5. E-money token issuers have similar obligations to ART issuers and must be authorized either as a credit institution or electronic money institution as per relevant regulations.

6. Issuers of crypto assets must also comply with specific rules to prevent market abuse and insider trading with the use of crypto assets.

7. Holders of e-money tokens are entitled to a claim on the issuers if they can provide proof for the impact of the issuer’s infringements on his buy/sell decisions.

 The impact of MiCA on the crypto industry

MiCA sets out a comprehensive framework for crypto asset service providers and crypto asset services and focuses on investor protection and market integrity. In combination with anti-money laundering (AML) rules, MiCA is set to reshape the landscape of the crypto industry across the EU affecting issuers, crypto service providers and investors.

Despite the challenges MiCA is a positive step towards the evolution of the crypto industry.