Financial Crime World

European Union’s MiCA Framework for Crypto-Assets Set to Enter into Force

The European Commission has taken a significant step towards establishing a regulatory framework for distributed ledger technology (DLT) and crypto-assets in the financial services sector. The Markets in Crypto-Assets (MiCA) regulation, introduced in 2020 as a response to the global stablecoin initiative, is expected to enter into force in 2024, subject to ratification by the European Parliament.

Exemptions and Scope

  • MiCA exempts services provided by non-EU domiciled firms on a “reverse solicitation” basis, where they respond to an initiative from an EU customer under strict terms.
  • The framework also clarifies that tokens defined as financial instruments will be subject to existing financial services rules, while those classified as crypto-assets will fall under the bespoke pan-EU regime.

Products and Services

  • The majority of crypto-assets not already in scope of existing regulation will fall under MiCA’s purview.
  • These include:
    • Asset-referenced tokens (ART)
    • Electronic money tokens (EMT)
    • Utility tokens
  • The services governed by MiCA are largely similar to those regulated by MiFID, requiring licensing for crypto-asset service providers (CASPs).

Guidelines and Supervision

  • The European Securities and Markets Authority (ESMA) will issue guidelines on the criteria and conditions for designating digital assets either in-scope or out of scope within 18 months of MiCA’s entry into force.
  • The framework also introduces rules regarding regulated crypto-asset services, including:
    • Authorisation
    • Passporting
    • Ongoing supervision requirements

Lending and Digital Assets

  • MiCA does not specify whether lending of crypto-assets is a regulated activity.
  • If a digital asset is categorized as a financial instrument, lending of financial instruments will be governed by existing EU financial services legislative and regulatory instruments.

Significant Tokens and Stablecoins

  • MiCA may designate ARTs and/or EMTs (algorithmic crypto-assets and stablecoins) as “significant” based on factors such as:
    • Volume and frequency of transactions
    • Systemic risk impact
    • Additional requirements for CAIs, including higher regulatory capital requirements and specific liquidity and management policies

Key Compliance Obligations

  • Crypto-asset issuers (CAIs) will be required to meet certain obligations before making an offer of crypto-assets or requesting admission to trade on a trading platform.
  • These include:
    • Publishing a whitepaper describing the technical information of the crypto-asset online
    • Approval by the relevant authorities

As MiCA prepares to enter into force, industry players and stakeholders are closely watching its implementation, anticipating its impact on the European financial landscape and the global digital asset market.