MiCA (Markets in Crypto Assets) regulation

What will regulate MiCA?

The provision introduces the following categories: a general definition of a cryptasset (a digital expression of value or rights that can be transferred and stored electronically,  using distributed registry technologies or similar technologies) and separately highlights the following forms of crypto-assets that are expected to fall into its sphere:

• The issue of ART MiCA is subject to increased requirements: only legal entities established in the EU can issue the issue (two exceptions: the issue amount is not more than EUR 5,000,000 or the offer is sent only to qualified investors), mandatory approval of the issue, other standards of white paper production, the issuer’s obligation to maintain reserves, including through investment of reserve assets only in highly liquid financial instruments with minimal market and credit risk, monthly disclosure.

• NFT (non-fungible token), non-replaceable tokens, also fall under the definition of a cryptasset under MiCA, but they are under the exception group and do not need to be published white paper.

What will MiCA NOT adjust?

• directly the blockchain itself or the distributed registry technology underlying the crypto assets;
• mining process;
• the so-called CBDC (Central Bank Digital Currency) – official government digital currencies that are currently being negotiated and/or developed independently in each country;
• financial instruments (incl. securities in the form of security tokens), securitization, electronic money and everything that falls under the scope of special regulation (MiFID II, E-Money Directive, etc.)

Who will MiCA regulate?

MiCA will affect individuals involved in the issuance and provision of crypto-assets services,  located in the EU, but equally affecting individuals outside the EU,  who, however, raise funds or provide services to EU clients. This principle of action stems from the objective of protecting EU consumers and investors.

For MiCA, two subjects become central:

1) The issuer of crypto-assets (issuer of crypto-assets) is a legal entity that offers any type of crypto-assets or seeks to admit such crypto-assets to the trading platform.

Issuers are required to:

• by form (mandatory – legal person),
• on the publication of the white paper (compile, notify the supervisory national authority, publish – except when the release falls under the exception, see more on the standards of white paper)
• conform to standards (act honestly, fairly and professionally; communicate honestly with crypto-asset holders, clearly and without misleading; prevent, identify, regulate and disclose any conflicts of interest that may arise; maintain all its access security systems and protocols in accordance with relevant EU standards.)

2) Provider of services in the sphere of crypto-assets (virtual asset service providers, VASP) – any person whose occupation or business is the provision of one or more crypto assets services to third parties on a professional basis;

The services cover the following activities:

(a) Storage and management of crypto assets on behalf of third parties;

(b) Provide a trading platform for crypto assets;

(c) Exchange of crypto-assets for fiat currency, which is a legal tender; (d) Exchange of crypto-assets for other crypto-assets;

(e) Execution of orders for transactions with crypto-assets on behalf of third parties; (f) location of crypto-assets;

(g) Receiving and transmitting orders for crypto-assets transactions on behalf of third parties; (h) Providing advice on crypto-assets.

Annex 4 to MiCA provides minimum capital requirements for VASP, divided into 3 classes:

General information

• The EU is considering an act that will regulate the market for crypto-assets – MiCA.
• MiCA will affect all cryptocurrencies that cannot be attributed to financial instruments, CBDC, including stakeblocoins.
• It is proposed to distinguish three special categories of crypto-assets: utility, ART, EMT.
• For crypto projects that fall under the definition of a financial instrument,  it is necessary to comply with the requirements of regulation of capital markets, in particular, the provisions on disclosure of information, registration of issues, compliance with MiFID II.
• There are requirements for persons involved in the circulation of crypto-assets. – Detailed requirements for the content of the white paper.
• Separate modes created for ART and EMT.
• The situation is still under consideration, but if adopted, crypto projects will be forced to provide another large area of compliance.

Current changes in the regulation of the crypto market in the EU: the background of MiCA

Despite such rapid development and the increasing importance of the crypto market, the EU has not yet had a unified surveillance regime. Although some EU member states have created their own sets of rules to regulate cryptocurrency markets under AMLD5 6, they are very different. As a result, there is no single regulation between the EU countries, no single consumer protection.

Thus, the main objective of MiCA is to create a single set of rules in the EU for dealing with crypto assets, which covers both the provision of relevant services and the regulation of products. It also includes measures to prevent abuse in the market and consumer protection aspects with respect to clients of crypto asset providers (VASP).

To achieve these goals, MiCA should apply to all individuals, entities and other companies that issue crypto assets, publicly offer them for trading, or offer other services related to crypto assets. In principle, any public activity related to crypto assets falls under the new MiCA regime in the EU.

Cryptocurrencies that are unique and non-reciprocal, such as NTF, are excluded under MiCA. However, the discussion will continue as the NFT proposed by the large series are likely to be interchangeable and therefore, in the case of a corresponding low set threshold, the NFT may also be subject to MiCA.

Regulation of cryptocurrency markets in Europe: MICA regulations

With the introduction of the MiCA regime in the EU, essentially three types of crypto-assets will be defined. These are value-based (ART) tokens, electronic money (EMT) tokens, and cryptocurrencies,  other than tokens tied to value and electronic money.

Thus, electronic money tokens are cryptocurrencies that must have a stable value by reference to the official currency (this is the official currency of the country,  issued by the Central Bank or other monetary authority).  In contrast, value-linked tokens are those that are not electronic money tokens and have a stable value by reference to any other value,  a right or a combination thereof, including one or more currencies.

To regulate the crypto market in the EU, the MiCA Regulation sets requirements in the following areas:

• public offer;
• access to the marketplace;
• the content and form of White paper, a document similar to the sales prospectus, and its publication;
• reporting and reporting obligations to oversight bodies;
• the issuer’s redemption obligations.

In the case of value-linked tokens and electronic money tokens, there are additional requirements in the following areas:

• the capitalization of the issuer;
• reserve assets;
• management requirements for the issuer;
• expanded information obligations to supervisory authorities.

Transitional provisions for crypto service providers

If you are interested in being licensed as a virtual asset provider, then consider that there are special transitional rules for crypto service providers that already have a license in a member state at the time MiCA comes into effect.

Under the MiCA Regulation, crypto service providers that have provided their services in accordance with applicable national law prior to MiCA’s entry into force may continue to do so within 18 months of the Regulation’s entry into force. Article 123, paragraph 3, MiCA also provides for simplified registration of crypto service providers in the EU for already active suppliers. In summary procedure.

The competent authorities should only check whether the provider of such services has fulfilled general obligations and commitments with regard to the provision of special crypto-services.

It will also play a role that the European passport, i.e. the right of VASP to provide services,  subject to registration in another EU country, will be faster than MiFID. Article 58 MiCA provides for a maximum period of 15 days, according to which the national authority of the country must send the passport information to the recipient country within 10 working days, and VASP may take action after receipt of the communication, but not later than 15 days after submission to the authority of the country of origin.

It should be mentioned that CRR credit institutions and securities institutions that are already under supervision must also apply to supplement their existing passport. The application must be submitted to the authorities of the country of residence/registration at least 40 days prior to commencement of work.

Customer-driven service only/reverse application

As we have said, the MiCA Regulation will require crypto companies to register and obtain appropriate permission from the national authorities. Many companies,  based in third countries, are asking whether the MiCA Regulation is relevant to them.  If they want to offer services to customers in the EU, they must comply with this regime,  establish a physical presence in the EU and obtain permission. The only exception is when the service is provided solely at the customer’s initiative, which is also called reverse request or passive service.

In accordance with the above mentioned registration requirement does not apply if the service is provided on the initiative of the client established or residing in the Union. What is new compared to MiFID is that MiCA already contains detailed provisions on reverse request. According to this, a third-country company can only provide a specially requested service. Other additional services are not allowed.