EU Lawmakers Passed MiCA: Here’s What it Says
On October 10, European Union (EU) lawmakers passed the Markets in Crypto Assets regulation (MiCA), 28 to 1 in favor, almost guaranteeing its passage by the end of this year. The framework, focused on harmonizing crypto regulation, supporting innovation, and fair competition, will ensure market integrity and protection for retail users. MiCA broadly applies to crypto-asset service providers, with offerings to EU residents.
What’s Inside
Jurisdiction
Introduced in 2020 by the European Commission, MiCA was meant to provide a robust legal framework that promoted adoption by the traditional financial system by offering a single operating license to all crypto companies. This legislation extends the Financial Action Task Force’s Travel Rule to crypto assets, requiring both parties of a transaction to exchange identifying information.
MiCA also applies uniformly to the entire EU, eliminating the need for national implementation laws and supporting uniformity throughout the EU ecosystem.
Objectives
MiCA has four essential objectives:
- Guaranteeing legal clarity by establishing a framework in the crypto-asset regulation space which addresses gaps not covered by current regulation.
- Developing fair competition and supporting innovation so the development of digital assets is safe and fair for all.
- Protecting all the players within the digital asset ecosystem — consumers, investors, market makers — from the clear risks that have been identified in the market.
- Ensuring financial stability by providing safeguards that address potential risks in the digital asset space.
Scope
Because MiCA focuses on gaps in current digital asset regulation, the tokens it governs also fall outside current regulation, such as security tokens and CBDCs. MiCA has jurisdiction over the following tokens:
- E-money tokens
- Asset-referenced tokens
- Utility tokens
E-money tokens are assets that aim to stabilize their value by pegging to an official currency, like stablecoins.
Asset-referenced tokens maintain a stable value by referencing several currencies, digital or otherwise.
All other crypto-assets make up MiCA’s third subcategory: utility tokens.
Obligations of Service Providers
Under MiCA, potential users and holders of digital assets are required to be well-informed about the token’s characteristics, technology, risks, and functions prior to purchase. Crypto service providers will be under obligation to provide documentation detailing each digital asset for holders. Those obligations include:
- A whitepaper resembling a prospectus that details a digital asset
- Authorization to issue crypto-assets
- Compliance with prudential rules and regulations
- Obligation to act fairly, in good judgment and faith, to maintain security protocols protecting holders.
Further approval is needed for e-money tokens and asset-referenced tokens. All marketing relating to these two tokens will require prior approval to guarantee the messaging is fair, clear, not misleading, and reflects the information provided in documentation. These two tokens also require approval before launching new services and vetting key management. MiCA explicitly states that management must include robust governance, clear organizational structure, and effective risk management guidelines in place.
Implications
The goal of MiCA is to create a harmonized regulatory framework throughout the EU in support of digital asset businesses and new consumers. Overall, the framework has been well received as a much needed next step towards financial stability in the digital asset space.
MiCA is the first step in the European Commission’s digital finance strategy. It will also work towards passage of the Digital Operational Resilience Act (DORA) and the DLT pilot regime.
Before the law can be entered into the Official Journal, it must face a vote at a European Parliament plenary session, likely in November. If no amendments are proposed, the bill will be signed into law during December’s plenary session. After its formalized adoption, crypto firms will have up to 18 months to comply with new regulations taking effect in 2024.
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