MiCA – A new framework for crypto providers

The Market in Crypto Assets (MiCA) is a regulation that all EU member states must implement. The regulation will serve as a framework of rules and guidelines to ensure the crypto markets’ fair operation, prevent fraud, manipulation and other forms of financial harm and will promote transparency, accountability, and trust in the crypto market.

Do we need a crypto asset regulation?

Although crypto assets and crypto asset providers are required to comply with anti-money laundering (AML) regulations, most crypto assets fall outside the scope of the EU financial services legislation in the area of consumer and investor protection.

Currently, crypto asset investors have very limited rights for protection or redress for crypto assets. MiCA aims to protect customers against some risks associated with investment in crypto assets and help them avoid fraudulent schemes.

The main objectives

MiCA has the following objectives:

1. Provide a legal framework for crypto assets not covered by existing EU legislation on financial services.
2. Setting up a sound and transparent legal framework, supporting innovation, and promoting distributed ledger technology.
3. Secure an appropriate level of consumer and investor protection and market integrity.
4. Enhance financial stability since many crypto assets are widely accepted and may include systemic risks.

How MiCA will achieve its objectives

MiCA will implement the following measures to achieve its objectives:

1. Set rules on the authorization and supervision of crypto asset providers, which include:
   1. Issuers of asset-reference tokens (ART): issuers of ART must be incorporated in the form of a legal entity and authorized by an EU authority. Additionally, they must publish a crypto asset white paper which will again be approved by an EU authority.
   1. Issuers of electronic money tokens (EMTs): Issuers of EMTs must be authorized either as a credit institution or as an electronic money institution. A white paper must also accompany the issuance of EMTs.
   1. Other crypto assets: are all other crypto assets that do not fall within the two categories above, such as utility tokens.
2. Regulate the operation, organization, and governance of crypto asset providers above.
3. Provide consumer protection rules for issuance trading exchange and custody of crypto assets. This includes measures to prevent market abuse of the sector. Crypto asset providers will be liable if they lose investors’ crypto assets.
4. Set rules regarding stablecoins: See more on MiCA and stablecoins here.

MiCA also specifies the requirements that ART and EMT must fulfil to be considered “significant.” Issuers of “significant EMTs will have additional obligations.

Crypto asset services under MiCA

Crypto asset services that are required to comply with MiCA include:

1. Custody and administration of crypto assets on behalf of third parties: safekeeping or controlling on behalf of third parties crypto assets or the means of access to crypto assets such as private cryptographic keys.
2. The operation of a trading platform for crypto assets: management of one or more multilateral systems bringing together multiple third parties that buy and sell crypto assets per the system’s rules.
3. The exchange of crypto assets for funds: concluding purchase or sale contracts concerning crypto assets with third parties against funds by using proprietary capital.
4. The exchange of crypto assets for other crypto assets: concluding purchase or sale contracts concerning crypto assets with third parties against other crypto assets using proprietary capital.
5. The execution of orders for crypto assets on behalf of third parties: concluding agreements to buy or sell one or more crypto assets or to subscribe for one or more crypto assets on behalf of third parties and includes the conclusion of agreements to sell crypto assets at the moment of their issuance.
6. Placing of crypto assets: marketing on behalf or for the account of the offeror of crypto asset purchasers i.e., providing transfer services for crypto assets on behalf of third parties:
7. The reception and transmission of orders for crypto assets on behalf of third parties: reception from a person of an order to buy or to sell or subscribe for one or more crypto assets and the transmission of that order to a third party for execution.
8. Providing advice on crypto assets: offering, giving, agreeing to give personalized recommendations to a third party.
9. Providing portfolio management on crypto assets

Conclusion

MiCA will have significant benefits for the crypto asset sector across the EU by:

• Requiring uniform rules for crypto assets across the EU
• Replace existing national laws on crypto assets
• Set rules for stablecoins.

The final vote of MiCA by the European Parliament is expected in April 2023 and the regulation is estimated to come into force in 2024 as planned.