The European Union (EU) is on the cusp of adopting some of the most comprehensive and far-reaching regulations related to crypto-assets. The proposed Markets in Crypto-Assets Regulation (MiCA) could potentially set the standard for other jurisdictions across the globe. Presented by the European Commission in 2020, MiCA is part of a more extensive digital finance package, including the Digital Operational Resilience Act (DORA) and the Distributed Ledger Technology (DLT) pilot regime proposal.
The primary goal of MiCA is to create a conducive environment within the EU for crypto-asset service providers (CASPs) to conduct business on a global scale. Broadly, the regulation aims to oversee the issuance, public offering, and trading of crypto-assets. If enacted as currently drafted, MiCA will establish a comprehensive framework outlining the requirements for the operation and governance of significant crypto-asset issuers and service providers. Additionally, it will set forth detailed protections for crypto-asset holders and other clients of service providers.
One of the key features of MiCA is the introduction of a unified licensing regime for the EU. This eliminates the need for CASPs to seek permission from each individual EU country to offer their services within the preferred jurisdictions. Competent authorities at the member state level would be responsible for supervising all CASPs and enforcing MiCA requirements. In the case of ‘significant CASPs’ – those with over 15 million users – a higher level of supervision would be enforced. Furthermore, the European Securities and Markets Authority (ESMA) would possess intervention powers, allowing it to prohibit or restrict the provision of crypto-asset services by a CASP if concerns arise regarding the CASP’s operations.
The proposed MiCA regulation has four primary objectives:
(1) Provide legal certainty for crypto-assets not covered by existing EU financial services legislation.
(2) Replace existing national frameworks applicable to crypto-assets not covered by existing EU financial services legislation.
(3) Establish uniform rules for crypto-asset service providers and issuers at the EU level.
(4) Implement specific rules for stablecoins, including when these are marketed as e-money.
MiCA will apply to a broad range of digital representations of value or rights using DLT, with few exceptions. All CASPs operating in the EU would be subject to the regulation. Stablecoin issuers would face liquidity requirements and need to establish a presence in the EU. The European Banking Authority (EBA) would direct and supervise stablecoins with more than 10 million users or a reserve of assets worth over €5 billion. Non-fungible tokens (NFTs) that are individual and distinct would be excluded from the scope of MiCA unless the issuer creates a “collection” of assets for purchase.
The regulation also addresses environmental disclosures and market manipulation. Crypto businesses would be required to declare information on their environmental and climate impact, and specific forms of market manipulation in digital assets would be defined and banned. CASPs and regulators perceive MiCA as a catalyst for innovation and progression in the sector, offering legitimacy and credibility in the current financial market.
With the proposed text of MiCA being provisionally agreed upon by the European Parliament and Council of Ministers, both entities must vote to formally adopt the legislation before it can become EU law. The regulation is expected to be finalized and take effect by early 2024, with a transitional period in place for crypto-assets issued before the legislation comes into force.