MiCA: A new era in crypto regulation
2022 was a challenging year for both crypto-assets and crypto-asset service providers. Fuelled by global crises, rising interest rates, the collapse of popular crypto projects like Terra Luna, major crypto-asset service providers like Celsius, and most spectacularly, FTX, the world’s second-largest crypto exchange, the crypto bull market of 2021 quickly turned into a bear market in 2022.
In terms of regulatory developments, nothing was as closely monitored by the European crypto sector in 2022 as the “Trilogue” negotiations between the Council of the European Union, the European Parliament (“EP”) and the European Commission on the proposal for a Regulation of the EP and of the Council on Markets in Crypto-assets (and amending Directive (EU) 2019/1937) (“MiCA”). After long and intense debate among co-legislators, a political agreement on the final text of the MiCA was reached at the end of June 2022.
What is being regulated by the MiCA?
The MiCA introduces a comprehensive (cross-border) regulatory framework for the offering and provision of services related to crypto-assets.
It lays down (i) transparency and disclosure requirements for the issuance, offering to the public and admission to trading of crypto-assets on a trading platform for crypto-assets, (ii) authorisation requirements for crypto-asset service providers, issuers of asset-referenced tokens and issuers of electronic money tokens, and (iii) provisions for the operation, organisation and governance of crypto-asset service providers as well as crypto-asset issuers.
In addition, the MiCA introduces measures to prevent insider dealing, unlawful disclosure of inside information and market manipulation related to crypto-assets, in order to ensure the integrity of crypto-asset markets.
What types of crypto-assets are covered by the MiCA?
For the purposes of the MiCA, the term “crypto-asset” is defined broadly and in a technologically neutral way in order to capture all present and future types of assets not covered by any other regulatory framework at an EU level.
The MiCA divides crypto-assets into the following sub-categories: (i) asset-referenced token (“ART”); (ii) electronic money token or e-money token (“EMT”); and (iii) utility token.
The MiCA does not apply, however, to crypto-assets that are unique and not fungible with other crypto-assets (though fractional parts of a unique and non-fungible crypto-asset are covered).
Which requirements will need to be observed by those seeking to issue and/or offer crypto-assets to the public in the EU?
In terms of disclosure and authorisation requirements, the MiCA distinguishes between ART, EMT and crypto-assets other than ART or EMT (including utility tokens). It sets forth specific requirements to be observed by issuers and offerors, covering aspects such as authorisations and whether a whitepaper needs to be prepared.
Under the MiCA, the provision of services related to crypto-assets will become subject to an authorisation and supervisory regime. The crypto-asset services licensable under the MiCA largely mirror the MiFID II investment services.
Crypto-asset service providers authorised under the MiCA will be able to passport their crypto-asset services to other EU Member States. This EU passport creates a new EU single market for crypto-asset services, eliminating one of the major hurdles faced by providers seeking to render their crypto-asset services throughout the EU so far.
Only legal entities established in the EU may obtain an authorisation under the MiCA regime and, hence, provide crypto-asset services to European customers.
To give market participants the time to prepare for, and adapt to, the new obligations imposed under the MiCA, most of its provisions will become applicable 18 months after its entry into force (i.e. in mid-2024).