Legal, Risk & Compliance
Exciting news! The Markets in Crypto Assets (MiCA) regulation has been officially adopted! This means that the EU crypto market will be significantly affected by new regulation - probably even markets beyond.
We all know that the crypto industry has seen major problems and downturns. Investments of different sizes have vanished, some due to the false promises, lack of transparency and accountability. The spectacular stories about the downfall of FTX, Terra Luna, or Celsius, just to name a few. MiCA is part of the larger EU digital finance package and affects crypto assets and crypto asset service providers. But is MiCA the solution to all problems of the past? What changes will MiCA bring? Do we need to care about this new regulation at all?!
MiCA is a regulation that has been adopted by the EU to create legal certainty, prevent market abuse, protect consumers, support innovation, and establish a competitive EU financial sector. It will regulate issuers of crypto assets including stablecoins and crypto asset service providers such as exchanges and payment service providers, unless they’re already regulated as “financial instruments” under existing EU legislation.
At a first glance, NFTs seem to be out of scope. The Regulation states that digital assets representing real objects like art, music and videos, will be excluded from MiCa’s scope, unless they fall under the existing crypto-asset categories. National supervisors will check the fungibility of NFT projects on a case-by-case basis, and after 18 months, a report will be presented on the development of the NFT space and the necessity for further regulations.
MiCA has been officially adopted, pending final council approval and signature by co-legislators, with publication expected by the end of June this year. While the entry into force is expected for July 2023, it may not result in immediate changes. The regulation will be applicable to all parties from January 2025, except for the provisions on stablecoins, which will apply from July 2024. Crypto companies, therefore, have a bit of time to prepare and comply with the new regulation.
Becoming MiCA compliant is a complex and costly process. If you are an exchange or a crypto payment service provider (CASP), you will need to start preparing for a license application in order to be ready before January 2025 once MiCA will start to be enforced. The license process can take anywhere from 6-18 months.
As a CASP you would generally need to register and apply for the license application in one of the member states. There’s a variety of factors important during the licensing process, one of them being demonstrating that you have good, fair and transparent governance arrangements coupled with sufficient funds. Being transparent as a crypto business has been problematic on multiple occasions in the past, so this will be an interesting development to track.
Furthermore, CASPs that want to operate in the EU or address the EU market, are under an obligation to establish a subsidiary in the EU and be supervised by a EU Supervisory Authority. MiCA introduces the possibility of passporting your license across the EU.
If you are an issuer of crypto assets such as stablecoins you would have to prepare a white paper. MiCA introduces standardization for the white papers that crypto asset issuers would have to abide by. The white paper should inform potential investors all the relevant information such as risks, rights, obligations and negative environmental impact linked with the issued crypto-asset.
With the introduction of MiCA the EU regulators hope to protect customers and prevent market abuse while supporting innovation and establishing a competitive financial sector. There is still a long way to go before the regulation is enforced and companies have to comply with the new rules before January 2025. However, crypto-related companies would do well to start looking at the impact of MiCA on their business sooner than later. Applying for the license is a complex and costly process that involves demonstrating good governance arrangements and sufficient funds, among other factors. If you have any questions regarding MiCA, send us a message through the contact form below.