The Markets in Crypto – Assets Regulation (MiCA) entered into force in July 2023. It was adopted by the European Parliament and EU Council as per the proposals of the Commission according to Article 114 of the TFEU.
The regulation covers crypto – assets that are not currently regulated by existing financial services legislation. Key provisions for those issuing and trading crypto-assets (including asset-reference tokens and e-money tokens) cover transparency, disclosure, authorisation and supervision of transactions. The new legal framework will support integrity in the EU Single Market and financial stability by regulating public offers of crypto-assets and by ensuring consumers are better informed about their associated risks.
MiCA provides for the publication of whitepapers for crypto-asset service providers (CASPs) while small and medium – sized enterprises (SMEs) shall be exempt when the total consideration of the offering is less than EUR.1 million. Issuers for stable coins do not need to get authorization by the Member – States’ Central Banks if they fall below the EUR. 5 million threshold.
MiCA is divided into nine Titles which aim to replace the national existing frameworks for crypto-assets not covered by existing EU financial services and adopt specific rules for stable coins. In this article we will briefly discuss the content of these Titles for the reader’s better understanding of MiCA’s fundamentals and to what extent it affects various players in the crypto industry going forward.
Tile I deals with the requirements for uniformity and rules in relation to issuance, operation, organization and governance of CASPs while focusing on consumer protection rules and measures to prevent market abuse. Finally, It lays down definitions on various classes of crypto-assets.
Title II regulates the offering and marketing to the public of crypto – assets other than stable coins and e-money tokens. It breaks down the admission criteria for trading on a trading platform and the obligation to the issuer to draw up a crypto – asset whitepaper. It specifies it will be notified to the national authorities whether a specific crypto – asset under assessment constitutes a financial instrument under the Markets in Financial Instruments Directive (MiFID II).
Title III describes the procedure for authorization of an asset – referenced token as well as the process of approval of the issuers’ whitepaper by the national competent authorities. In that context it clarifies that CASPs shall act honestly, fairly, professionally and abide by the rules on conflicts of interests (Chapter 2).
Tile IV describes the procedure for authorization as an issuer for e-money tokens. No e-money token can be offered to the public in the Union or admitted to trading on a crypto – asset trading platform unless the issuer is authorized as a credit institution or as an Electronic Money Institution (EMI). Article 44 focus on investors’ redemption rights i.e. issuer must be abe to redeem at any moment at par – value. Article 46 and Annex III sets out the requirements for the crypto – asset whitepaper accompanying the issuance of e-money tokens.
Title V sets out the provisions on authorization and operating conditions of CASPs. ESMA must establish and maintain a register of all CASPs including their whitepapers. Chapter 3 sets out requirements for specific services: custody of crypto – assets, trading platforms for crypto – assets, exchange of crypto – assets for fiat currency or for other crypto – assets, execution of orders, placing of crypto – assets, reception and transmission of orders on behalf of third parties and advice on crypto – assets. Chapter 4 deals with the acquisition of CASPs.
Tile VI puts in place prohibitions and requirements to prevent market abuse involving crypto – assets. Any inside information by an issuer whose crypto – assets are admitted for trading on a trading platform shall be disclosed to prevent market manipulation.
Tile VII provides details on the powers of national competent authorities, the EBA and ESMA. This includes the obligation on Member States to designate one or several competent authorities for the purpose of this regulation. In Cyprus the designated competent authority is the Cyprus Securities and Exchange Commission (CySEC). Chapter 2 details the administrative sanctions and measures that can be imposed by competent authorities, the exercise of their supervisory powers and powers to impose penalties, the right to appeal, the publication of decisions, the reporting of penalties to EBA and ESMA and the reporting of breaches and protection of persons reporting such breaches.
Tile VIII covers the exercise of the delegation with a view to adopt the Commission’s delegated acts as set out in the Regulation and specifically in Article 121.
Title IX includes the transitional and final provisions, including the obligation of the Commission to produce a report evaluating the impact of the Regulation. Other than e-money tokens and asset – references tokens whose provisions apply effective immediately as of 30/06/2024, the Regulation shall be applicable 18 months after its entry into force, being the 30/12/2024.
In a nutshell, MiCA is designed to expand the applicability and suitability of the existing EU financial services regulatory framework to crypto-assets since even though some crypto-assets could fall within the scope of EU legislation, effectively applying it to these assets is not always straightforward and it may inhibit the use of Distributed Ledger technology (DLT). Additionally, it will enchant existing EU legislation and market integrity on combatting money laundering and terror financing to cover most of the crypto – assets which fall outside the scope of the EU financial services legal framework thus posing a severe risk to the consumers and investors protection. Finally, MiCA aims at harmonizing the existing market fragmentation as many Member States have legislated partially on issues related to crypto – assets which implicates the jurisdictional applicability of such decision making throughout the Union.
It is our firm belief that MiCA’s unified code and harmonized set of rules, marks the beginning of a new era on the crypto – asset industry in the EU. A Single Market in the Union will emerge even stronger and appeal even higher to the eye of the consumer and investor as a stable, reliable and transparent environment under which they can perform faster transactions and grow their business in a more efficient way by bypassing traditional red tape banking hazards.
Disclaimer: This article is for informative purposes only. It does not constitute a legal advice nor can it be depicted for any professional use. For more information please contact its author, Mr. Paris Hadjhipanayis.at paris@pahalaw.com
