What is the Markets in Crypto-Assets Regulation (MiCA)?
The Markets in Crypto-Assets Regulation (MiCA or MiCAR) is a regulation passed by the European Commission and effective from 2024, which aims to regulate and supervise the cryptocurrency asset market in the European Union (EU).
The regulation covers crypto assets that are not currently regulated by existing financial services legislation to help streamline distributed ledger technology (DLT) and virtual asset rules in the region while protecting users and investors.
It institutes uniform, EU-wide market rules to prevent inconsistencies across borders as member states develop crypto legislation.
MiCA was passed by the European Parliament on May 31, 2023, and will apply from December 30, 2024.
The regulation provides a legal framework for issuing and trading crypto assets (including stablecoins) covering transparency, disclosure, authorization, and the supervision of transactions.
The framework is designed to support market integrity and financial stability by regulating public crypto assets and ensuring consumers are better informed about the risks of owning and trading cryptocurrencies. It envisages including the environmental impact of cryptocurrencies in communications to investors.
The European Central Bank (ECB) will be responsible for the authorization and supervision of entities that will be subject to the regulation.
Requirements for Crypto Token Issuers
MiCA establishes new rules for asset-referenced tokens (ARTs), e-money tokens (EMTs), and utility tokens.
ARTs are defined as multiple currencies, commodities, or other crypto assets, EMTs refer to a single official currency, while utility tokens provide access to goods or services supplied by the token issuer.
Under the regulation, ART and EMT issuers will be obligated to:
- Receive authorization from the European Central Bank.
- Publish a white paper containing information on their token for investors.
- Meet governance requirements around marketing, information disclosure, and dealing with conflicts of interest.
- Meet prudential requirements to ensure sufficient liquidity and the ability to meet redemption requests.
The European Banking Authority (EBA) will have supervisory responsibilities for issuers of “significant” ARTs and EMTs, as they may pose additional risks because of their size or other factors.
Crypto-asset service Providers (CASPs) that provide the following services will require authorization to operate within the EU:
- Operation of a crypto trading platform.
- Custody and administration of crypto assets for clients.
- Crypto asset exchange.
- Receipt, transmission, or execution of orders.
- Third-party transfers.
- Providing advice on crypto assets.
- Portfolio management on behalf of clients.
CASPs authorized under MiCA will be subject to organizational, conduct, and prudential requirements. Like token issuers, they will have to have clear policies for safeguarding funds, business continuity, complaint handling, management of conflicts of interest, and outsourcing.
CASPs will be required to act honestly, fairly, and professionally to serve the best interests of their clients and prospective clients and provide fair and clear information that is not misleading and clearly identifies marketing communications.
They will need to communicate clear warnings regarding the risks associated with crypto transactions. And they must meet prudential requirements, such as holding certain amounts of capital in the form of funds or an insurance policy.
The legislation will come into effect for issuers of ARTs and EMTs on June 30, 2024, and for utility token issuers and CASPs on December 30, 2024.
MiCA also introduces new rules that prohibit market abuse, including illegal disclosure of inside information, insider trading and market disruption or manipulation.
Image source: ESMA
During the implementation phase, the European Securities and Markets Authority (ESMA) is tasked with holding public consultations on a range of technical standards that will be published sequentially in three packages.
The aim is to deliver draft Level 2 and 3 measures that incorporate the public feedback from the consultations as soon as possible.
By enhancing the protection of consumers and investors, supporting financial stability, and providing legal certainty to crypto developers and service providers, the regulation aims to promote innovation and the use of crypto assets in the EU.
The EU is the first major jurisdiction in the world to introduce comprehensive, tailored regulations for cryptocurrency assets.
MiCA is an EU-wide regulation that aims to provide regulatory clarity and supervision over the cryptocurrency asset market in Europe.
The legislation provides a legal framework covering crypto assets that are not currently regulated by existing financial services legislation in the region. MiCA aims to protect consumers and investors from the risks of owning and trading crypto and limit the impact on financial stability.