The Markets in Crypto-Assets (MiCA) regulation is a landmark framework created by the European Commission (EC) that focuses on maintaining financial stability. It also is designed to protect investors and promote widespread transformation in the crypto asset sector in European Union (EU) countries.
The key objectives of MiCA
- To replace individual regulations found within several EU nations with one unifying and comprehensive framework
- To set clearer rules for crypto-asset service providers and token issuers
- To provide more certainty in the regulation of crypto assets where it is not covered by the existing financial regulations
History of Markets in Crypto-Assets (MiCA)
On Oct. 10, 2022, the EC’s Economic and Monetary Affairs Committee overwhelmingly voted (28 to one) to approve the first-ever blockchain-related asset regulation, paving the way for a vote by the full European Parliament before the end of 2022. The bloc’s national governments had previously signed off on MiCA.
The regulation entered into force (became law) in June 2023, although three consultation packages were released for public feedback. By June 30, 2024, Title III and Title IV will become applicable (can be enforced), with five more Titles (I, II, V, VI, VII) applying in December 2024.23 Titles VIII and IX deal with delegated acts and transitional and final provisions, which do not require public feedback or Member State adjustment periods.
The law allows providers of digital wallets and other crypto services to market and sell across the EU bloc if they register with national authorities. They must also satisfy minimum guarantees to safeguard investors and sustain financial steadiness.
Who and what will MiCA apply to?
Businesses covered by MiCA, or crypto-asset service providers (CASPs), include:
- Custodial wallets
- Exchanges for crypto to crypto transactions or crypto to fiat transactions
- Crypto-trading platforms
- Crypto-asset advising firms and crypto-portfolio managers
In terms of assets applicability, MiCA covers three types of assets:
- Asset-referenced tokens (including stablecoins backed by commodities, or one or several currencies)
- E-money tokens (stablecoins backed by a single fiat currency)
- Other tokens, including utility tokens
What are the key points of MiCA Regulation?
- Unified Authorization System: MiCA introduces a single authorization system for Web3 projects across all EU countries. This means fewer licenses are needed for EU-wide operations.
- Increased Obligations for CASPs: CASPs (Crypto-Asset Service Providers) will have more responsibilities under MiCA, including:
- Having an EU office and at least one EU-resident director
- Implementing anti-money laundering measures and data security policies
- Following rules on marketing communication and preventing market abuse
- Token Issuance Rules: Web3 founders planning token issuance must publish a whitepaper and operate according to it. Decentralized token events without legal entities or anonymous issuers won’t be allowed, but there may be exemptions for smaller offerings.
- Stablecoin Regulations: MiCA bans algorithmic stablecoins and requires fiat-backed stablecoins to maintain a 1:1 reserve ratio. Stablecoin issuers must also implement procedures to safeguard assets and prevent market abuse.
Markets in Crypto-Assets Titles
MiCA has seven titles that address crypto-asset regulation, authorization, minimum requirements for providers, and jurisdiction responsibilities. The regulation defines three types of crypto-assets: asset-referenced tokens, e-money tokens, and crypto-assets other than the previous two.
Let’s break it down:
Title I: Regulation Scope and Definitions
- This title defines rules for offering and trading publicly offered crypto-assets.
- It clarifies who the regulation applies to and defines terms like distributed ledger technology and utility token.
Title II: Creation and Offer of Crypto-Assets
- This title outlines requirements for entities creating and offering crypto-assets.
- It includes criteria for whitepapers, marketing communications, and notification to authorities.
Title III: Asset-Referenced Tokens
- Covers tokens stabilizing their value using another asset, like stablecoins.
- Issuers must meet specific requirements.
Title IV: E-Money Tokens
- Defines e-money tokens and requirements for their issuance by authorized institutions.
Title V: Authorization of Crypto-Asset Service Providers
- Lists entities authorized to provide crypto-asset services.
- Includes provisions for cross-border services and obligations to clients.
Title VI: Market Abuse
- Addresses concerns about market abuse and outlines standard investment rules.
Title VII: Authorities and Jurisdiction Cooperation
- Instructs Member States to appoint competent authorities and cooperate with EU bodies.
Title VIII and IX: Reporting and Review
- Requires the Commission to present reports on the legislation’s impact to the European Parliament and Council.
When will MiCA become effective?
- By June 2024, the European Securities and Markets Authority (ESMA), in collaboration with the European Banking Authority (EBA), is expected to have prepared draft Delegated Acts. Around this same time, Titles III and IV of the MiCA regulation, which cover asset-referenced and e-money tokens, are set to begin application.
- Finally, by December 2024, the rest of the MiCA rules should be in full effect. Therefore, by the close of 2024, all components of the MiCA regulation should be actively governing crypto-business operations within the EU.
Controversy
| Advantages of MiCA | Disadvantages of MiCA |
|---|---|
| Legal certainty | Tough rules to meet |
| Rules tailored to fit crypto | Million-euro fines for getting it wrong |
| Credibility to wary customers | Caps on USD stablecoins |
| One license to operate across the bloc | NFTs a gray area |
| Attract TradFi investment | Unclear how overseas enforcement will work |
MiCA Compliance
Navigating MiCA compliance can be tricky, but we’re here to make it easier for you. Our team specializes in helping businesses like yours understand and meet MiCA regulations. Whether you’re a crypto service provider or token issuer, we’ve got you covered. Let us take the stress out of compliance so you can focus on what you do best—growing your business. Contact us now!
More about MiCA you can read here.
Interested in other FinTech-related regulations and standards?
If you’re interested in other regulations like this one, we highly recommend checking out DORA and PCI.
