June 2023#Cryptocurrencies Regulation

Key provisions of theMiCA Regulation in the EU

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Alexander Shtyrov

Consultant, F&L


7 min


The rise of digital currencies has perplexed global regulatory authorities. Due to the arguable lack of clarity, crypto assets have forced the European Union to split over approaches to regulation. The Markets in Crypto-Assets (MiCA) regulation was introduced by the EU as a reasonable solution to legal clarity and a universal set of rules applied to those who issue and provide digital currencies. 

In this piece, we look into the main points of the MiCA regulation, such as rules on transparency, disclosure, consumer protection, and market abuse prevention. Moreover, we will review the measures dedicated to monitoring issuers of significant asset-referenced tokens and e-money tokens.

In general terms

Stablecoin regulations

Stablecoins are designed to minimize volatility and under MiCA, companies providing stablecoin services must adhere to specific rules. They would have to prepare a detailed white paper outlining important asset’s details, such as risks, operational principles, and the rights of holders. It is expected that this information will assist potential investors with making informed decisions.

Customer losses

Under the new regulations, crypto exchanges must take responsibility for any losses suffered by their customers. Additionally, companies issuing asset-referenced tokens must have a proper custody policy in place to prevent loss and preserve asset value. In the event of incidents related to Information and Communication Technology (ICT), such as cyberattacks or theft, crypto asset service providers will also be held liable for any resulting losses.

Taxation rules

MiCA also alters the way in which cryptocurrencies are taxed. EU countries must adjust their tax regulations to include cryptocurrency transactions, making it easier for those in higher income brackets to exchange information on tax matters.

Detailed tax policy for particular countries is still a work in a progress, as national authorities cooperate with European regulators to form the best-fitting local laws. 

Preventing illicit use of crypto

MiCA includes strict regulations to prevent money laundering through cryptocurrency transactions. All companies involved in crypto transactions must collect information about the parties involved, regardless of the amount, to prevent the misuse of cryptocurrencies for illegal activities.

Currently, a few European jurisdictions allow KYC-free purchases under €700 - 900 per person, but this practice is soon to be officially ceased, eliminating anonymity entirely. 

Obtaining a license

The EU has implemented new requirements for crypto exchanges and wallets to obtain a license to increase accountability and transparency within the cryptocurrency industry, ultimately making it safer and more dependable. 

According to MiCA, only a legal representative with an office registered in one of the European Union (EU) Member States is eligible to provide crypto asset services. Moreover, they should also obtain authorization from the relevant national competent authorities as a crypto asset service provider.

Key points

The goal of proposed regulation is to bring on clarity and consistency for digital assets that are not covered by the EU financial services laws. This strategy would involve replacing the existing national frameworks for such crypto assets and creating particular rules for stablecoins, including those that qualify as e-money.

The proposed regulation would require transparency and disclosure with respect to the issuance, operation, organization, and management of crypto service providers. It would also establish consumer protection measures and regulations to prevent market manipulation. 

White paper requirements

The regulation would specify the requirements for offerings and marketing of crypto assets, other than stablecoins and e-money tokens. These requirements would include guidelines for white papers and marketing materials, as well as exemptions from publishing a white paper and the authority of competent bodies to suspend offerings. 

For example, it indicates that an issuer shall be entitled to offer such crypto assets to the public in the Union or seek an admission to trading on a trading platform for such crypto assets if it complies with the requirements of Article 4. 

These requirements include:

  • An obligation to be established in the form of a legal person;
  • Alternatively, an obligation to draw up a white paper (Article 5); 
  • The notification of such a white paper to the competent authorities (Article 7); 
  • Publication of the white paper (Article 8). 

Once a white paper has been published, the issuer of crypto assets can offer its crypto assets in the EU or seeks an admission of such crypto assets to trading on a trading platform (Article 10).

Article 4 also includes some exemptions from the publication of a white paper, such as small offerings of crypto assets, below €1 million within a twelve-month period. 

Introduction of the clear procedure

The proposed regulation outlines a clear procedure for authorizing e-money token issuers, which states that only authorized credit or electronic money institutions can offer e-money tokens to the public or trade them on a crypto platform. 

It also specifies marketing communications and how funds received by issuers must be invested. 

Additionally, the regulation outlines the responsibilities of issuers of significant e-money tokens and includes provisions for authorizing and regulating crypto asset service providers. To facilitate oversight, the ESMA will introduce a register, and the regulation will also cover international provision of crypto-related services. 

Token criteria

Also, Article 39 sets out the criteria for EBA to use when determining whether a token is significant. 

These criteria are: 

  • The size of the customer base of the promoters of the asset-referenced tokens; 
  • The value of the asset-referenced tokens or their market capitalization; 
  • The number and value of transactions, size of the asset reserve; 
  • Significance of the issuers’ cross-border activities;  
  • The interconnectedness with the financial system.

Responsibilities of crypto service providers

The digital asset regulation outlines various responsibilities that apply to all providers of such services. These include the requirements to operate with integrity, fairness, and professionalism, as well as to implement practical security measures and meet organizational standards. 

In addition, providers must protect their clients' assets and funds and have procedures in place for addressing complaints. The regulation also covers rules pertaining to conflicts of interest and the outsourcing of services. 

For example, issuers of asset-referenced tokens shall disclose to the holders of their asset-referenced tokens the general nature and sources of conflicts of interest and the steps taken to mitigate them. Such disclosure shall be made on the website of the issuer of asset-referenced tokens in a prominent place.

Measures against market manipulation

Another point of regulation forbids any activities that may manipulate the market, including insider trading and the unlawful disclosure of insider information. 

Recognized authorities: EBA and ESMA

It recognizes the authority of national competent bodies and the EBA and ESMA, which includes the appointment of competent authorities, collaboration among authorities, duties of notification, guidelines for data protection and professional secrecy, complaint resolution, and administrative sanctions and measures. 

The EBA is also empowered to oversee the operations of issuers of significant asset-referenced tokens and significant e-money tokens. The regulation also refers to supervisory groups for issuers of significant asset-referenced tokens and the EBA's right to distribute non-binding opinions.

The regulatory proposal sets out guidelines for the oversight of significant e-money tokens and asset-referenced tokens, outlining rules for supervisory colleges and the competencies and powers of the European Banking Authority. It also establishes administrative sanctions and additional measures to be taken. 

Additionally, the regulation allows for specific supervisory duties to be delegated to competent authorities and for delegated acts to be adopted by the European Commission.

The bottom line

To summarize, the proposed MiCA regulation is intended to establish consistent and clear rules for crypto asset issuers and service providers in the European Union. 

It encompasses regulations for stablecoins and e-money tokens, mandates transparency and disclosure, provides consumer protection, and includes measures to prevent market manipulation. The regulation also outlines general obligations and requirements for all crypto-related service providers, as well as specific ones for custody, trading platforms, and other services. 

On top of that, it sets up conditions for the supervision of issuers of significant asset-referenced and e-money tokens, such as supervisory colleges and the competencies of the European Banking Authority. 

Overall, the proposed regulation is a crucial step towards building a more transparent and uniform regulatory framework for crypto assets in the EU, while safeguarding consumers and preventing market abuse.






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