Highlights of the Markets in Crypto Assets (MiCA) Regulation
The Markets in Crypto Assets Regulation, also known as MiCA marks the EU as the first major jurisdiction to introduce a comprehensive regulatory framework, with effect from the 20th April 2023.
The main questions on MiCA are answered briefly here:
When will MiCA come into force in each EU member state?
As a Regulation, MiCA is immediately effective in every EU member State starting from the 20th April 2023. This is not a directive which has to be transposed into law at a national level and permits scope for difference in interpretation or implementation. This should allow for an easier implementation of the passporting of crypto services across EU borders.
How is “Crypto” defined?
Terms such as ‘crypto-asset’ and ‘DLT’ have been defined so as to reflect the definition of ‘virtual asset’ set out by the Financial Action Task Force recommendations. This will support international regulatory coordination in this sphere of crypto.
Which crypto operators are within the scope of MiCA?
The starting point is that the MiCA Regulation applies to all issuers of crypto-assets and all services providers related to crypto-assets in the European Union, except for two categories of exemptions.
Which crypto-assets or services do not require authorisation?
First are those crypto-assets defined as financial instruments, electronic money, and deposits – since these are already regulated by an existing EU law, they are out of scope of MiCA to avoid overlapping regulation.
A number of trusted entities or bodies are also exempted from the remit of MiCA, such as the European Central Bank (ECB), the European Investment Bank and all EU member state Central Banks. Insurance and reinsurance undertakings would also benefit from the exemption when they are acting in the course of their business, as will liquidators or administrators when executing insolvency procedures.
MiCA will not apply to those companies who carry out crypto-asset services internally, which extends to entities providing crypto-asset services exclusively to their parent companies or other entities within the same corporate group.
Which crypto-assets are in scope of MiCA?
There are four principal categories of assets governed by MiCA, as explained below:
Cryptocurrencies
These are instruments of payment offered on a DLT platform that may be transferred and stored electronically, and whose price fluctuates freely in response to demand in the market.
E-money tokens
These are instruments of payment offered on a DLT platform priced in reference to a single fiat currency. Their value is stabilised by maintaining sufficient asset reserves to support requests for redemption by holders.
Asset-referenced tokens
These are instruments of payment offered on a DLT platform priced in reference to baskets of fiat currencies, commodities, possibly including other crypto-assets. Their value is stabilising by maintaining adequate asset reserves to meet redemption requests by holders.
Utility tokens
These are instruments offered on a DLT platform with the objective of granting digital access to applications or services provided only by their issuers.
Are any crypto-assets exempt from MiCA?
While most crypto-assets will require authorisation under MiCA, there are some exemptions.
Non Fungible Tokens (NFTs)
Non Fungible Tokens (NFTs) need to be carefully analysed as the extent of their uniqueness and non-fungibility could in some cases cause them to fall under the scope of MiCA.
Free Crypto-Assets
If Crypto-assets are offered for free, or are automatically created as a reward for services provided within the DLT, such as maintenance of the DLT or validation of transactions in the context of a consensus mechanism, they will be exempt.
Utility tokens
Utility tokens also require careful analysis as those that represent the purchase of an existing good or service, and when the crypto-asset may be exchanged for goods and services within the issuer’s limited network are also out of the scope of MiCA.
Which crypto-asset services are regulated by MiCA?
The services that require authorisation under MiCA closely mirror those found in MiFID and are:
- The custody and administration of crypto-assets for third parties, as provided by virtual wallets that directly control crypto-assets or access to private cryptographic keys
- Crypto exchanges, defined as the operation of trading platforms for the exchange of crypto-assets against fiat currencies, or against other crypto-assets, also all related brokerage activities, including execution and transmission of orders for third parties and placing (marketing) crypto-assets to specified purchasers.
- The provision of transfer services for crypto-assets for third parties.
- The provision of advice and portfolio management in relation to crypto-assets.
While the examples and/or definitions provided above serve the purpose of general guidance, the applicability of MiCA to a specific token or service must be analysed on a case-by-case basis with reference to the particular characteristics and nature of each crypto-asset, its asset class and the business model.