4.01 Markets in Crypto Assets (MiCA)

Markets in Crypto Assets (MiCA) aims to be the first comprehensive law regulating cryptocurrencies in the European Union. Its main objectives are to clarify the legal definitions of crypto assets and to provide guidance to EU businesses wishing to trade in the market.

In this lesson you will learn more about MiCA.

 

Contents

• What is MiCA
• The main idea behind the MiCA
• Main goals of MiCA
• How does MiCA define crypto assets?
• What does MiCA mean for EU businesses? 
• What are the risks of implementing MiCA?
• What are the opportunities offered by MiCA?

 

What is MiCA? 

Markets in Crypto Assets (MiCA) is a proposed Regulation of the European Parliament and of the Council on Markets in crypto assets, amending Directive (EU) 2019/1937. It’s part of a broader digital finance package, which also includes the Digital Operational Resilience Act (DORA) and the DLT Pilot Regime Regulation.

MiCA is expected to enter into force in 2024.

 

The main idea behind the MiCA

The idea of creating common rules across the European Union aims to promote the development of crypto assets and the wider use of DLT by establishing a secure and proportionate framework to support innovation and fair competition.

The different frameworks, rules and interpretations of both crypto assets and crypto asset services across the Union hinder the ability of service providers to scale up their activities across the entire EU.

This means that service providers of these inherently cross-border products and services are forced to familiarise themselves with the laws of several Member States, obtain multiple national authorisations or registrations and comply with often diverging national laws, sometimes having to adapt their business model across the Union.

A dedicated and harmonised framework should support innovation and fair competition while ensuring a high level of consumer protection and market integrity in crypto asset markets. 

 

Main goals of MiCA

1. Legal certainty – ensuring a legal framework for crypto asset markets, clearly defining the regulatory treatment of all crypto assets that are not covered by existing financial services legislation. 
2. Supporting innovation – supporting the development of crypto assets and the wider use of DLT by creating a legal framework that supports innovation and fair competition. 
3. An appropriate level of consumer and investor protection and market integrity.
4. Ensuring financial stability – creating safeguards to counter potential threats to financial stability and an orderly monetary policy.

 

How does MiCA define crypto assets?

The regulation introduces a number of definitions that allow to organize the world of crypto assets. The regulation contains, among others, definitions of:

1. Distributed ledger technology or DLT – a type of technology that supports the distributed recording of encrypted data
2. Crypto asset – a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology
3. Asset-referenced token – a type of crypto asset that purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto assets, or a combination of such assets
4. Electronic money token or e-money token – a type of crypto asset whose primary purpose is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender
5. Utility token – a type of crypto asset which is intended to provide digital access to a good or service, available on DLT, and is only accepted by the issuer of that token

 

Another important definition in MiCA: a crypto asset service provider

Crypto asset service provider – any person whose occupation or business is the provision of one or more crypto asset services to third parties on a professional basis.

Crypto asset service means any of the services and activities listed below relating to any crypto asset:

• The custody and administration of crypto assets on behalf of third parties;
• The operation of a trading platform for crypto assets;
• The exchange of crypto assets for fiat currency that is legal tender;
• The exchange of crypto assets for other crypto assets;
• The execution of orders for crypto assets on behalf of third parties;
• Placing of crypto assets;
• The reception and transmission of orders for crypto assets on behalf of third parties
• Providing advice on crypto assets;

 

What does MiCA mean for EU businesses? 

MiCA imposes many formal and legal obligations on all market participants. According to the regulation, they should be able to identify potential problems and prevent any threats.

All this should protect customers from situations such as the collapse of the Luna currency or the FTX exchanges.

The application that legal persons wishing to provide services in the field of crypto assets should submit to the competent authority should include, among other things:

• Name, including the legal name and any other commercial name to be used, the legal entity identifier of the applicant crypto asset service provider, the website operated by that provider and its physical address
• A business plan describing the types of crypto asset services that the applicant crypto asset service provider intends to offer, including where and how those services will be marketed
• For all natural persons involved in the management of the applicant crypto asset service provider and for all natural persons holding, directly or indirectly, 20% or more of the share capital or voting rights, evidence of no criminal convictions for breaches of national commercial, insolvency, financial services, anti-money laundering and anti-terrorism laws and professional liability obligations
• Description of the applicant crypto asset service provider's internal control mechanisms, risk assessment procedures and business continuity plan
• Descriptions, in both technical and non-technical language, of the applicant crypto asset service provider's IT systems and security measures

 

Other important information

Crypto asset services may only be provided by legal persons established in a Member State of the Union and authorised as crypto asset service providers.

An example of the documents required to obtain a licence and the conditions a company must meet shows how the European Union wants to protect customers from fraudulent companies. 

On the other hand, it will be a challenge for companies in the crypto asset market to adapt to all the formalities.

Especially considering that even though MiCA has a fairly wide scope, it does not cover certain sectors of the crypto asset markets that are very popular, such as: 

•  CBDC
•  NFT 
•  DeFi 

 

What are the risks of implementing MiCA?

• Transfer of requirements and regulations from the traditional financial world to the crypto world without taking into account the specificities of the crypto asset market, which may result in slowing down the development of entities operating in the crypto asset markets
• Problems with the understanding of the rules of operation of crypto asset markets by the authorities delegated to perform control functions, due to the lack of appropriate training and an inadequate number of specialists in this field

 

What are the opportunities offered by MiCA?

• The regulation of the cryptoasset market will open up the possibility of cooperation between crypto asset service providers and financial companies. 
• The introduction of common definitions across the market describing the world of crypto assets will make it easier to understand for people who have not been exposed to it before. This will be a step towards the adoption of DLT and crypto technologies by other sectors of the economy
• A common legal framework for the entire market, supporting innovation and fair competition, will drive out of the market entities that act dishonestly or illegally