MiCA is the European regulation of crypto-assets, which stands for Markets in Crypto-Assets.
The MiCA Regulation applies to any entity operating in the field of crypto assets (issuance, public offering, trading, provision of related services).
The journey of the European legislation concluded on May 31, 2023, when the Regulation was approved by the Finance Ministers of the European Union, who gave their final consent.
The crypto world is subject to changes and evolutions that deserve continuous reflection on their implications for society.
Objectives of MiCA for Cryptocurrencies
The objectives of MiCA are to create a clear and harmonized regulatory framework for cryptocurrency activities within the European Union, oversee cryptocurrencies and related services, support innovation, and ensure financial stability.
MiCA will provide greater legal certainty for investors and promote responsible innovation in the cryptocurrency sector and the growth of Distributed Ledger Technology (DLT).
The Regulation aims to prevent money laundering and terrorism financing through crypto assets.
Implementation in the 27 EU member states will allow for the tracking of numerous cryptographic transfers, just as with any other financial transaction.
This will enable the identification and blocking of suspicious transactions.
What does MiCA Entail?
MiCA, includes, specifically, the following provisions:
- A clear and specific definition of crypto-assets, encompassing both decentralized cryptocurrencies and crypto-assets issued by centralized entities.
- An authorization regime for crypto-asset service providers such as cryptocurrency exchanges and digital wallets. Anyone operating in the sector within the European Union must obtain authorization from their respective national supervisory authority and comply with specific prudential and governance requirements.
- Protection for investors and consumers using crypto assets. Service providers must provide clear and accurate information about their products and take all possible measures to prevent fraud and market abuse.
- Transparency from those operating in the crypto-asset market, requiring real-time trading data and ensuring fair and non-discriminatory access to market information.
- Compliance with anti-money laundering rules and combating the financing of terrorism to inhibit the illicit use of crypto assets.
- Customer identity verification and reporting of suspicious activities to the competent authorities by crypto-asset service providers.
- Cooperation among all supervisory authorities of EU member states to ensure effective and consistent supervision of cross-border crypto-assets.
MiCA and the Regulation of CASPs
Under MiCA, Crypto-Asset Service Providers (CASP) must obtain authorization from the competent national supervisory authority of the member state in which they operate to offer crypto-asset services within the European Union.
To obtain authorization, CASPs must demonstrate compliance with specific organizational, prudential, and governance requirements.
An extra-EU enterprise must have a presence in a member state, and at least one of the administrators must be a resident of the European Union. They must also obtain authorization if they intend to provide services to EU residents.
Authorization from one member state allows for the opportunity to offer services throughout the EU.
Therefore, it will be illegal to provide services on crypto assets without authorization from foreign countries, unless it is an exclusive initiative of the client.
Be careful, in case of problems, you must be able to demonstrate that you were contacted and invited to invest with an extra-EU company.
MiCA does not regulate Decentralized Finance (DeFi) unless the provision of crypto-asset services by individuals or legal entities is partially decentralized.
Requirements for CASPs
CASP is required to:
- Adopt adequate organizational measures to securely manage their clients’ crypto assets.
- Give primary importance to cybersecurity to protect crypto assets from unauthorized access, theft, or loss.
- Implement measures to manage conflicts of interest.
- Ensure the segregation of client funds to protect them in case of CASP’s failure or insolvency.
- Follow conduct rules aimed at protecting users’ interests.
- Provide clear and accurate information about the services and products offered, including hidden costs and risks associated with crypto assets. They must publish clear and understandable informative documents, even for less experienced users.
- Establish procedures for handling potential customer complaints.
The 9 Titles of MiCA
The MiCA Regulation is divided into 9 Titles:
- Title 1: Provides definitions of the most commonly used terms in the field of crypto-assets, specifies which subjects and activities the regulation applies to, and highlights transparency obligations.
- Title 2: is dedicated to the description of the White Paper that CASPs must compulsorily submit to the competent authorities and publish on their website, where it must remain freely accessible and available for the entire duration of the offering.
The White Paper is a document that must provide a comprehensive overview of the services offered and clearly warn about the risks associated with crypto assets, especially the fact that they can lose all their value, may not always be transferable, or liquid.
- Title 3: Relates to the offering of ART, which stands for asset-referenced tokens. Due to their nature, it is possible to prohibit their offering in case of a threat to financial stability or monetary sovereignty principles.
- Title 4: Describes the authorization procedure for electronic money token issuers (EMT).
- Title 5: Contains provisions regarding the authorization and operational conditions of crypto-asset service providers.
- Title 6: Introduces prohibitions and obligations to prevent market abuse concerning crypto assets. It defines the notion of insider information and imposes an obligation on the issuer of crypto assets admitted to trading on a trading platform to communicate insider information. The abuse of insider information, unlawful disclosure of insider information, and market manipulation are prohibited.
- Title 7: Provides detailed information on the powers of national competent authorities, the European Banking Authority (EBA), and the European Securities and Markets Authority (ESMA) and provides a detailed definition of sanctions and administrative measures that can be adopted by them.
- Title 8: Provides for the European Commission to exercise the power to adopt delegated acts to specify certain elements, requirements, and provisions as determined by the regulation.
- Title 9: Contains transitional provisions pending the entry into force of the law. It requires the Commission to prepare an impact assessment report on the regulation, considering that not all provisions will take effect immediately, with many waiting until 2024 to become effective.
Expectations for the MiCA Regulation are high. It is expected that the European regulation of the cryptocurrency market will serve as a stimulus for non-EU countries as well and make it easier to identify and deter those who speculate in the market, seeking to defraud investors.
Accordingly, for any further information, do not hesitate to contact the lawyers of the Cryptocurrency Department within Boccadutri International Law Firm.
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