European Commission Markets in Crypto-Assets Regulation
May 2023The European Commission introduced in September 2020 a proposal for a regulation on Markets in Crypto-Assets (MiCA) as part of its digital finance strategy.
MiCA will apply across the European Union without any need for national implementation laws. This approach is in line with consumer protection and ensuring effective and harmonised access to the innovative crypto-assets markets across the single market. The MiCA regulation has four essential objectives:
- Ensuring legal certainty by establishing a sound legal framework for crypto-assets in its scope that are not covered by existing financial services legislation;
- Supporting innovation and fair competition in order to promote the development of crypto-assets by instituting a safe and proportionate framework;
- Protecting consumers, investors and market integrity in consideration of the risks associated with crypto-assets; and
- Ensuring financial stability, with the inclusion of safeguards to address potential risks to financial stability.
MiCA will be phased in across the EU in two parts – the first part will deal with stablecoins which will become applicable within 12 months’ time (around Q2 2024), while the second part will address Crypto Asset Service Providers (CASPs) which will apply within 18 months (around Q4 2024)
Crypto-Assets in Scope of MiCA A majority of crypto–assets which are not already governed by other regulations, such as security tokens and central bank digital currencies, shall fall into the scope of MiCA:
Crypto-assets, other than e-money tokens or asset-referenced tokens, offered to the public are also in scope of the regulation, underlining the objective to have a broad scope.
Who will be caught by the legislation? Crypto-Asset Service Providers (“CASPs”) are defined in MiCA as “any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis.” The European legislators have opted for the term ‘Crypto’ as opposed to ‘Virtual’ which is used both in Ireland and internationally by the Financial Action Task Force (“FATF”).
Under MiCA, the definition of crypto-asset services is such that a business providing at least one of the following activities, may be classed as a CASP:
- exchanging crypto assets and fiat currency (e.g. using Euro to buy Bitcoin);
- exchanging one class of crypto assets for another (e.g. using Bitcoin to buy Ethereum);
- the custody and administration of crypto-assets on behalf of third parties;
- the operation of a trading platform for crypto-assets;
- the execution of orders for crypto-assets on behalf of third parties;
- the placing of crypto-assets;
- the reception and transmission of orders for crypto assets on behalf of third parties; and
- providing advice on crypto-assets.
The final category encapsulates the broad nature of MiCA as ‘providing advice’ and could be construed as a catch all for any operator in this space. These categories also go a lot further than the existing definition of a Virtual Asset Service Provider (“VASP”) under the Irish Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021.
Obligations of issuers of crypto-assets under MiCA - The publication of a whitepaper having some similarities with prospectuses published under the prospectus regulation
- The necessity to be authorised to issue crypto-assets
- Compliance with certain prudential rules when marketing crypto assets; and
- The obligation to act honestly, fairly and professionally vis-à-vis crypto-asset holders, in particular in relation to conflict management and prevention or maintenance of security access protocols.
The applicable regime depends on several elements considering notably the type of crypto-asset offered and the amount of the offered.
Read the recent European Council Press Release
here.