EU Markets in Crypto-assets Regulation (MiCA)
What is MiCA
MiCA is an EU regulation on crypto-asset markets.
MiCA aims to fill the gap in the regulation of crypto-assets at EU level and harmonise the existing legislation in EU Member States.
MiCA applies to the issuance, public offering and acceptance of crypto-assets for trading and the provision of certain crypto-asset services in the EU.
What MiCA covers
MiCA sets out uniform rules for:
- transparency and disclosure requirements for the issuance, offering to the public and the admission to trading of crypto-assets on a trading platform for crypto-assets;
- the authorisation and supervision of crypto-asset service providers;
- the operation, organisation and governance of issuers of asset-referenced tokens, issuers of electronic money tokens and crypto-asset service providers;
- protection of holders of crypto-assets in the issuance, offering to the public and admission to trading;
- protection of clients of crypto-assets service providers;
- measures to prevent market abuse and thereby ensure the integrity of the crypto markets.
What are crypto-assets
Definition of crypto-assets
MiCA defines crypto-assets as “a digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology”.
Crypto-assets are usually referred to as cryptocurrencies, however, considering the official MiCA translation, we will continue to use the term crypto-asset.
Categories of crypto-assets
MiCA further defines three subcategories of crypto-assets, namely:
- Asset-referenced tokens (ARTs) that aim to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets.
- Electronic Money Token (EMTs), which is a type of crypto asset whose main purpose is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender;.
- Utility token (UT), which is a type of crypto-asset that is intended to provide digital access to a good or service, available on DLT, and is only accepted by the issuer of that token.
Electronic money tokens and asset-referenced tokens are referred to as stable cryptocurrencies or stablecoins.
Exclusions from MiCA
MiCA will not apply to financial crypto-assets that are already regulated at EU level.
These include financial instruments and structured deposits within the meaning of the Markets in Financial Instruments Directive (MiFID). Similarly, issues of crypto-assets that are subject to the EU Prospectus Regulation (if they qualify as shares or bonds, for example) will not fall within the scope of MiCA.
MiCA will not apply to Non-Fungible Tokens (NFTs) (with possible exceptions); however, legislation is currently being prepared at EU level in relation to NFTs.
Crypto Asset Service Providers - CASP
Services related to crypto-assets
Crypto-asset-related services include any of the services and activities listed below that relate to crypto-assets:
- the custody and administration of crypto-assets on behalf of third parties;
- the operation of a trading platform for crypto-assets;
- the exchange of crypto-assets for funds;
- the exchange of crypto-assets for other crypto-assets;
- the execution of orders for crypto-assets on behalf of third parties;
- placing of crypto-assets;
- providing transfer services for crypto-assets on behalf of third parties;
- the reception and transmission of orders for crypto-assets on behalf of third parties;
- providing advice on crypto-assets;
- providing portfolio management on crypto-assets.
The MiCA will thus apply to crypto exchanges, crypto stock-exchanges, bitcoinmat operators, crypto wallets or platforms that enable the management, administration or other handling of crypto-assets.
Authorisation - Crypto-asset service provider licence
Only legal persons established in an EU Member State and authorised by the competent authority of an EU Member State under the MiCA may provide crypto-asset services.
The competent authority authorised to issue authorisations in the Czech Republic will be the Czech National Bank.
The application for authorisation shall include, but not be limited to:
- a programme of operations setting out the types of crypto-asset services that the applicant crypto-asset service provider wishes to provide, including where and how these services are to be marketed;
- a description of the applicant’s governance arrangements;
- a description of the applicant’s internal control mechanism, risk assessment process and business continuity plan;
- descriptions of the applicant’s IT systems and security arrangements;
- description of the procedure for the segregation of client’s crypto-assets and funds.
The competent authorities of the Member State shall, within 25 working days of receipt of the application, assess whether the application is complete.
If the application is incomplete, the authorities shall set a time limit within which the applicant for authorisation as a crypto-asset service provider must provide the missing information.
The competent authorities shall issue a decision to grant or refuse authorisation of a crypto-asset service provider within 40 days of receipt of a complete application.
Obligations of service providers related to crypto-assets
MiCA sets out quite extensive obligations that crypto-asset service providers must comply with, including obligations relating to:
- honest, fair and professional conduct that is in the best interests of our customers;
- providing transparent information to customers about the prices and risks associated with buying crypto-assets;
- the provision of prudential guarantees, which may be met through regulatory capital or insurance or a combination of both;
- custody of crypto assets and client funds;
- the complaints procedure;
- prevention, recognition, management and disclosure of conflicts of interest;
Crypto-asset service providers will continue to be obliged persons under the EU Money Laundering Directive.
They will thus be subject to the obligations of control and identification of the client, monitoring of transactions or regular reporting to the control authority.
Authorised crypto-asset service providers will be able to provide their services on a cross-border basis in all EU countries based on a so-called European passport.
If a provider of crypto-asset-related services wishes to provide its services in a Member State other than its home Member State, it will only need to submit the following information to the competent authority:
- a list of Member States in which the provider intends to provide crypto-asset-related services;
- the date of commencement of the intended provision of services related to crypto-assets;
- a list of all other activities carried out by the service provider related to crypto-assets that are not covered by this Regulation;
- the crypto-asset-related services it intends to provide across borders.
Non-EU crypto-asset service providers
Third-country providers without MiCA authorisation will only be able to provide crypto-asset-related services in the EU based on an explicit request (reverse solicitation) from an EU-based client.
MiCA mandates ESMA to develop guidelines as regards procedures and policies, including clients’ rights, for crypto-asset service providers in the context of crypto-asset transfer services.
Requirements set out for issuers of crypto-assets other than asset-referenced tokens or electronic money tokens
In the EU, an issuer of crypto-assets other than asset-referenced tokens or electronic money tokens may only offer these crypto-assets to the public or seek admission to trading on a crypto-asset trading platform if it has prepared, announced and published a white paper on crypto-assets.
The white paper on crypto-assets contains, among other things, the following information on:
- the offeror or person applying for admission to trading;
- the issuer and, where applicable, the operator of the trading platform, if different from the person referred to in the previous point;
- the risks associated with crypto-assets;
- the main adverse environmental and climate impacts of the consensus mechanism used to issue crypto-assets;
- offering crypto-assets to the public or accepting them for trading on a crypto-asset trading platform;
- rights and obligations associated with crypto-assets.
The requirements imposed on the content of the white paper will allow investors to understand the risks posed by the crypto asset and make an informed decision about their investment.
Issuers are required to notify the White Paper to the competent authority of the EU Member State at least 20 working days before publication. They shall then publish it on their website so that it is publicly available no later than the date of the launch of the public offer of crypto-assets or their admission to trading on a crypto-asset trading platform.
Right of withdrawal
Issuers of crypto-assets other than asset-referenced tokens or electronic money tokens are obliged to offer consumers a right of withdrawal.
Consumers have the right to withdraw from the contract for the purchase of crypto-assets within 14 calendar days without incurring any costs and without having to give a reason.
Requirements set for issuers of asset-referenced tokens
Issuers of asset-referenced tokens may not offer these tokens to the public in the EU or seek admission of these assets to trading on a crypto-asset trading platform unless they are authorised to do so by the competent authority of their home Member State under MiCA or have a credit institution licence.
An authorisation is not required if:
- over a period of 12 months, calculated as at the end of each calendar day, the average outstanding value of all issued asset-referenced tokens does not exceed EUR 5 000 000 or the equivalent in another currency; or
- asset-referenced tokens are traded, distributed and held by qualified investors and may only be held by qualified investors.
Only legal entities established in the EU can apply.
Issuers of asset-referenced tokens must also produce a white paper, the content of which is similar to that of issuers of crypto-assets other than asset-referenced tokens or electronic money tokens. The same rules as above apply to the notification and publication of the white paper.
In addition, however, white papers for asset-referenced tokens must be approved by the competent authority of the issuer’s home state.
Organisational, operational and business requirements
In particular, issuers of asset-referenced tokens must:
- keep holders of asset-referenced tokens publicly informed of, inter alia, the amount of asset-referenced tokens in circulation and the value and composition of reserve assets;
- develop governance and management systems;
- constitute and maintain a reserve of assets that must be segregated from the issuer’s own assets;
- always have capital equal to at least the higher of EUR 350 000 or 2 % of the average amount of the reserve assets;
- establish and maintain policies and procedures regarding:
- handling complaints;
- preventing, identifying, managing and reporting all conflicts of interest;
- asset reserves;
- custody of reserve assets;
- protocols for validating transactions with asset-referenced tokens;
- mechanisms to ensure the payment of asset-referenced tokens or to ensure their liquidity.
- develop a business continuity or business resumption plan in the event of closure.
Prior consent to acquire asset-referenced tokens
The MiCA introduces an obligation to provide prior written notice of any direct or indirect acquisition of a qualifying holding (greater than 10%) in an issuer of asset-referenced tokens.
The competent authority of the home State shall acknowledge receipt of such notification within 2 working days and shall subsequently assess the proposed acquisition of qualifying holdings within 60 working days of receipt of the notification.
Significant asset-referenced tokens
Asset-referenced tokens are classified as significant based on the following criteria, with at least three of the following criteria being met:
- the number of holders of asset-referenced tokens is greater than 10 million;
- the value of the asset-referenced tokens issued, their market capitalisation or the size of the asset reserve of the issuer of the asset-referenced token is greater than EUR 5 billion;
- the number and value of transactions in asset-referenced tokens exceeds 2 500 000 transactions and EUR 500 million per day;
- the significance of the asset-backed token issuer’s activities internationally, considering the extent to which asset-backed tokens are used for payments and transfers.
Requirements set for issuers of electronic money tokens
Only a credit institution (e.g. a bank) or an electronic money institution can be the issuer of electronic money tokens.
Electronic money tokens are considered to be electronic money within the meaning of the Directive on access to the activities of electronic money institutions. Electronic money tokens are thus subject to the rules of the Directive on the exercise of the activity of issuing electronic money and electronic money institutions are subject to the regulatory capital requirements applicable to electronic money institutions in relation to the average amount of electronic money in circulation.
Issuers wishing to offer electronic money tokens must notify the competent authority of the EU Member State 40 working days before the date on which they intend to issue them.
Issuers must issue electronic money tokens at par and provide holders with the right to redeem electronic money at par.
Furthermore, issuers may not provide interest, or any other benefit associated with the period during which the holder of electronic money tokens holds the electronic money tokens.
Issuers of electronic money tokens must also produce a white paper whose content is similar to the content of white papers produced by issuers of crypto-assets other than asset-referenced tokens or electronic money tokens.
Issuers must notify white papers to the competent authority of an EU Member State at least 20 working days before the publication of the crypto-asset white paper. They shall subsequently publish it on their website so that it is publicly available no later than the day on which the crypto-assets are launched to the public or admitted to trading on a crypto-asset trading platform.
Significant electronic money tokens
Electronic money tokens are classified as significant based on similar criteria as described above for significant asset-referenced cash flows.
The MiCA Regulation imposes certain additional requirements on issuers of significant electronic money tokens, including increased capital requirements and direct supervision by the EBA.
Preventing market abuse
MiCA sets out requirements to prevent market abuse involving crypto-assets. This regime applies in relation to crypto-assets that are admitted to trading on a crypto-asset trading platform operated by an authorised crypto-asset service provider or for which an application for admission to trading on that trading platform has been made.
The regime to prevent market abuse includes rules on the disclosure of so-called inside information to the public. Inside information means any information of a precise nature which has not been made public, relating, directly or indirectly to issuers of crypto-assets or crypto-assets and which, if it were made public, would be likely to have a significant effect on the prices of those crypto-assets.
MiCA approval process
On 5 October 2022, the European Commission published the final draft of the Markets in Crypto-assets Regulation (MiCA). This will be followed by the approval of the proposal by the European Parliament and publication in the Official Journal of the EU, which can be expected around the first half of 2023.
Assuming the MiCA proposal is approved, it will enter into force on the 20th day after its publication in the Official Journal of the EU. Certain provisions of the MiCA relating to issuers of asset-referenced tokens and electronic money tokens will apply from 12 months after the MiCA enters into force. All other provisions shall apply from 18 months after the date of entry into force of the MiCA.
The MiCA also introduces a transition period that can be used by crypto-asset service providers that were already providing crypto-asset services before the applicability date. For a period of 18 months from the date of application of the MiCA, these providers may continue to provide their services and obtain authorisation from the competent authority of the Member State. Member States may exclude or reduce the duration of the transitional period.