The Markets in Crypto-Assets regulation, part of the so-called digital finance package, focuses on certain categories of crypto-assets which are currently out of scope of existing regulations – i.e. it does not apply to security tokens qualifying as financial instruments under MiFID. MiCa regulation establishes a legal framework for crypto-asset services providers as well as consumer protection.
Context
Crypto-assets are one of the major applications of blockchain technology in finance.
Since the publication of the Commission’s Fintech Action plan, the Commission has been examining the opportunities and challenges raised by crypto-assets.
Following a surge in the market capitalisation of crypto-assets during 2017, the Commission mandated the EBA and ESMA to assess the applicability and suitability of the existing EU financial services regulatory framework to crypto-assets.
The advice, issued by ESMA in January 2019, argued that applying current EU legislation to crypto-assets is not always straightforward. At the same time, the EBA and ESMA underlined that – beyond EU legislation aimed at combating money laundering and terrorism financing – most crypto-assets fall outside the scope of EU financial services legislation and therefore are not subject to provisions on consumer and investor protection and market integrity, among others, although they give rise to some risks.
To respond to these issues and create an EU framework that both enables markets in crypto-assets as well as the tokenisation of traditional financial assets and wider use of DLT in financial services, the regulation will be accompanied by other legislative proposals: a clarification that the existing definition of ‘financial instruments’ – which defines the scope of the Markets in Financial Instruments Directive (MiFID II) – includes financial instruments based on distributed ledger technology (DLT), as well as a pilot regime on DLT market infrastructures for these instruments.
About MiCa regulation
The Markets in Crypto-Assets regulation has four essential objectives:
- Ensuring legal certainty by establishing an harmonised legal framework for crypto-assets 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.
Scope of MiCa regulation
The scope of MiCa regulation is limited to crypto-assets that do not qualify as financial instruments, deposits or structured deposits under EU financial services legislation:
- Utility Tokens
- Asset-referenced Tokens
- E-money Tokens
The regulation sets out the terms and definitions that are used, including ‘crypto-asset’, ‘issuer of crypto-assets’, ‘asset-referenced token’ (often described as ‘stablecoin’), ‘e-money token’ (often described as ‘stablecoin’), ‘crypto-asset service provider’, ‘utility token’ and others.
Crypto-asset means a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology
The regulation also defines the various crypto-asset services. Importantly, the Commission may adopt delegated acts to specify some technical elements of the definitions, to adjust them to market and technological developments.
Obligations for issuers of crypto-assets under MiCA
The regulation regulates the offerings and marketing to the public of crypto-assets other than asset-referenced tokens and e-money tokens.
It indicates that an issuer shall be entitled to offer such crypto-assets to the public in the Union or seek an admission to trading on a trading platform for such crypto-assets if it complies with, a.o., the obligation to be established in the form of a legal person or the obligation to draw up a crypto-asset white paper.
The regulation also describes the procedure for authorisation of asset-referenced token issuers and the approval of their crypto-asset white paper by national competent authorities.
Finally, the regulation sets out the obligations for issuers of asset-referenced tokens. It states they shall act honestly, fairly and professionally. It lays down the rules for the publication of the crypto-asset white paper and potential marketing communications and the requirements for these communications. Further, issuers are subject to ongoing information obligations and they are required to establish a complaint handling procedure.
Key dates and timeline of the Markets in Crypto-Assets regulation
The entry into application of the Markets in Crypto-Assets regulation was initially expected by mid-2023.
It is however likely to be delayed to 2024 as an 18-month period is foreseen to allow level 2 measures to be adopted prior to the application of MiCA.
24 September 2020 – Adoption by the Commission of the proposal for a regulation on Markets in Crypto-Assets
19 February 2021 – European Central Bank opinion
24 February 2021 – European Economic and Social Committee opinion
24 June 2021 – European Data Protection Supervisor opinion
30 June 2022 – Provisional agreement reached between European Parliament and Council
5 October 2022 – the European Council approved the final version of MiCA
10 October 2022 – the European Parliament’s Committee on Economic and Monetary Affairs approved MiCa
Q4 2022 – expected time for the vote by the EU Parliament and the publishing of the final text on the Official Journal
Q3-Q4 2024 – expected time for MiCA to enter into force.