Markets in Crypto-Assets (MiCA) EU Regulation - a new beginning for EU crypto-assets!
This summer, the first part of the EU’s MiCA Regulation came into effect. The law was adopted at the end of 2023 and will finally enter into force at the end of 2024. MiCA aims to combat money laundering through digital assets and regulates both decentralized crypto and stablecoins.
Although several established entities, such as authorized credit institutions, investment firms, AIFMs, and more, will not require a separate license to provide crypto-asset services, this licensing provision will allow a wider variety of firms aside from pre-authorized FIs to provide crypto-asset services. Exchanges, exchangers, and wallet operators will have to obtain licenses. Even cryptocurrency consultants and portfolio managers will be regulated.
Continue to read to find out more information about what are the most significant points of the MiCA Regulation and what are the consequences of its adoption for the global crypto market, and how will this impact EU crypto customers.
What is the MiCA EU regulation?
At the end of May 2023, the Council of the European Union (EU) adopted the Regulation on markets in crypto-assets (MiCA), establishing a single EU-level legal framework for these crypto-assets. The 27 EU member states unanimously supported the project. The document introduces institutional regulation of the issue of cryptocurrencies and establishes a uniform legal regime for crypto companies on the territory of the European Union.
The Markets in Crypto Assets Regulation (MiCA) entered into force in June 2023. The regulation includes a substantial number of Level 2 and Level 3 measures that must be developed before the entry into the application of the new regime (within a 12-to-18-month deadline, depending on the mandate).
In doing so, the European Union is presenting the financial industry with a framework to offer new digitalized products and services to their clients. This development is the beginning of a new era for the EU crypto market as it integrates crypto-assets into mainstream financial services and creates a legal framework for the operations, offering, and distribution of these products. Learn the essential tips on how to master risk management in crypto trading in our article.
In June 2024, the European Union started to apply part of the provisions of the Markets in Crypto-Assets (MiCA) Regulation, focusing first on Asset-Referenced Tokens (ARTs) and Electronic Money Tokens (EMTs).
MiCA's main priority is the protection of investors. Based on this, legislators want to uniformly regulate the issuance and turnover of crypto assets on all European platforms. To do this, requirements are established for such platforms and issuers of crypto assets in terms of management bodies, capital, content, and publication of decisions on the issue of crypto assets, as well as rules for their authorization to conduct business. The supervisory authority for the crypto asset market is the European Securities and Markets Authority (ESMA).
MiCA introduces clear criteria for working with different types of digital assets, and the riskier ones will be subject to more comprehensive regulation. Disclosure of customer, income, and business data makes crypto turnover transparent and protected from shady transactions. This will not affect the activities of the main operators of the crypto market in any way, since the leading companies adopted MiCA at the draft law stage in 2022.
The new regulation divides all crypto assets into three types:
E-money tokens or EMT - crypto assets that are designed to maintain stable value by linking to one official currency (USDT, USDC);
Asset-referenced tokens or ART - crypto assets that are designed to maintain stable value by linking to any other value, right, or a combination thereof, including one or more official currencies (DAI, LIBRA);
Other tokens - crypto assets that are not included in the previous two categories, including the so-called utility tokens (crypto assets intended only to provide access to a product or service provided by their issuer), but not limited to them (ETH, BTC).
Each crypto project is required to have a white paper, which details the conditions for issuing coins. Previously, a white paper was mostly an advertising brochure, but now it is becoming the "passport" of the project and a key information disclosure tool. Now the white paper should contain the following information:
About the offeror or the person requesting access to the auction;
About the issuer, if they differ from the offeror or the person requesting access to the auction;
About the operator of the trading platform specified in the white paper;
About the project related to the use of crypto assets;
On the public offering of crypto assets or their admission to trading on the crypto asset trading platform;
About Crypto Assets;
On the Rights and Obligations Following Crypto Assets;
About the original technology;
About the risks.
This is done primarily to protect ordinary investors. At the same time, the new law will significantly simplify the lives of those companies that initially focused on the EU market. Now they do not need to beat the thresholds of each regulator from the 27 EU countries in the hope of getting approval for their work, the requirements become transparent and unified. Furthermore, authorization obtained by crypto-asset service providers in one EU Member State enables them to operate across the entire EU as provided for by the cross-border notification mechanism set out in the MiCA Regulation.
It will become impossible to hide income and not pay taxes
MiCA is a revolutionary framework for the crypto industry that introduces full transparency, disclosure, and oversight of cryptocurrency transactions. Now, all transactions with cryptocurrencies will be monitored in the same way as regular bank transfers.
MiCA describes detailed regulations in preventing abuse, insider information, and manipulation in the cryptocurrency market, measures to prevent operational failures, introduces requirements for ICO projects, protects the interests of investors, and establishes mechanisms for handling and resolving disputes.
The new rules will impose requirements on crypto platforms, token issuers, and cryptocurrency traders. For example, platforms will have to inform customers about the risks associated with cryptocurrency transactions.
Together with MiCA, the eighth amendment to the Directive on Administrative Cooperation (DAC 8) was approved, which requires the exchange of information to search for defaulters on the entire digital asset market.
Thus, the EU countries will exchange information on tax reporting and the movement of cryptocurrencies. It will become impossible to open accounts in those countries where cryptocurrency taxation is not so strict, hide income, and not pay taxes. MiCA will protect consumers and investors, as well as create transparency in the crypto industry. There will be less fraud and scams. Read about common crypto scams and how to identify them here.
December 2024: The full provisions of the MiCA Regulation to come into effect
MiCA is a component of the European Commission's digital finance strategy, designed to support the growth of digital finance while mitigating the related risks.
The MiCA framework applies to:
legal and natural persons and companies involved in crypto-asset issuance, offers to the public, admission to trading or providing services related to crypto-assets in the EU, and any transactions or activities related to crypto-assets;
all types of crypto-assets that are not covered by any existing legal acts of the EU Member States governing financial services, including asset-referenced tokens, e-money tokens, and other crypto-assets other than asset-referenced or e-money tokens.
The full provisions of the MiCA Regulation will apply from 30 December 2024.
The MiCA framework – any exclusions?
The MiCA framework is not exhaustive and does not apply to crypto assets that are unique and non-fungible tokens, as well as crypto-assets that are classified as:
financial instruments governed by Directive 2014/65/EU on markets in financial instruments (MiFID II);
deposits (MiFID II);
deposits qualifying as funds, excluding e-money tokens (Payment Services Directive);
securitisation positions in the context of a securitisation;
non-life/life insurance product;
re-insurance and retrocession contracts;
individual pension products and occupational pension schemes;
social security schemes;
crypto-assets issued by public authorities, central banks, the European Investment Bank, and other international organisations (central bank digital currencies);
completely decentralized financial protocols;
funds that are not classified as e-money tokens and are governed by Directive 2015/2366 on payment services in the internal market (PSD2).
The MiCA framework also does not apply to the European Central Bank or EU national banks.
Conclusion
Before the adoption of MiCA, each EU country regulated the crypt independently, but there were general AML rules. The MiCA framework aims to create a completely new and unitary crypto-asset regulatory regime in all EU Member States, to force a wider use of distributed ledger technology (DLT) while maintaining financial stability and protecting investors against risks.
To date, MiCA is the most understandable and comprehensive law on the turnover of digital assets.
The new law requires market participants to act reasonably, professionally, and in good faith, and most importantly, to honestly and intelligibly convey information to consumers about their digital services.
This will certainly attract a large number of projects to Europe and countries that will bring their laws into line with MiCA.
MiCA framework will affect everyone — both persons located in the EU and persons who are outside the EU, but attract funds from customers from the European Union.
