Crypto Regulations in the European Union—Markets in Crypto-Assets (MiCA)

The European Union’s Markets in Crypto Assets (MiCA) regulations is a huge step for crypto regulations in the European Union (EU) and beyond. The new system promises to make the crypto industry safer for the investors and consumers, while providing a unifying standard for companies operating in the EU. Crypto asset service providers (CASPs) have until December 2024 to ensure they are compliant with MiCA.

To help companies get ready, Sumsub is here to explain what MiCA is and what it impacts. 

Historical background

The conversation around establishing a crypto regulatory framework in the EU started in 2017. Back then, the increasing popularity of crypto, such as Bitcoin, alerted regulators across the EU. 

As a consequence, the 5th Anti-Money Laundering Directive (5AMLD) was adopted in 2018, bringing CASPs within the scope of EU’s AML/CFT legislation for the first time. This required CASPs to comply with the same rules as traditional financial institutions, including customer identification, identity verification, transaction monitoring, and suspicious transaction reporting. 

Despite this, many crypto assets/service providers still didn’t fall under the regulatory scope—and these blindspots left consumers and investors exposed to substantial risk. 

Furthermore, some EU member states implemented their own crypto rules, falling outside current EU regulation. This leads to regulatory fragmentation, which distorts competition, makes scaling more difficult for CASPs, and gives rise to regulatory arbitrage.

As a result, the European Commission began outlining harmonizing regulations (MiCA) that would apply across the EU, finalizing the first draft in 2020. Since then, MiCA has been amended and improved to cover all types of crypto assets and possible issues that may arise.

What is the Market in Crypto-Assets (MiCA)?

MiCa Application

The purpose of MiCA is to establish uniform rules for issuers of crypto-assets that have so far not been regulated by other EU regulations (and any CASPs related to such assets). 

MiCA covers transparency and disclosure requirements for issuing, offering, and admitting crypto-assets to trading platforms. It includes authorization and supervision of CASPs and issuers of asset-referenced and electronic money tokens. Additionally, it sets standards for the operation, organization, and governance of issuers and service providers. 

MiCA also provides protection for crypto-asset holders and service provider clients, and enforces measures to prevent insider trading, unlawful disclosure of inside information, and market manipulation.

*CASPs is a legal entity or business that offers one or more crypto-asset services to clients professionally. 

**In turn, “crypto-asset service” means any of the following services and activities relating to any crypto-asset:

1. providing custody and administration of crypto-assets on behalf of clients;
2. operation of a trading platform for crypto-assets;
3. exchange of crypto-assets for funds;
4. exchange of crypto-assets for other crypto-assets;
5. execution of orders for crypto-assets on behalf of clients;
6. placing of crypto-assets;
7. reception and transmission of orders for crypto-assets on behalf of clients;
8. providing advice on crypto-assets;
9. providing portfolio management on crypto-assets;
10. providing transfer services for crypto-assets on behalf of clients.

MiCA distinguishes the following types of crypto-assets:

• Asset-referenced tokens or stablecoins (crypto-assets that stabilize their value in relation to other assets or a basket of assets);
• E-money tokens (crypto-assets that stabilize their value in relation to a single official currency);
• Crypto-assets other than asset-referenced tokens or e-money tokens (e.g., utility tokens, which mean a type of crypto-asset intended solely to provide access to a good or service supplied by its issuer).

MiCa Exclusions

The regulation does not apply to:

• Crypto-assets that are covered by other EU financial services acts (e.g. those that qualify as financial instruments, pensions or insurance products);
• Providers of crypto-asset services exclusively for their parent companies or subsidiaries, liquidators and administrators in insolvency proceedings;
• The European Central Bank and national central banks, the European Investment Bank, the European Financial Stabilisation Mechanism, the European Stability Mechanism and public international organizations;
• Crypto-assets that are unique and not interchangeable (“fungible”) with others (e.g. non-fungible tokens (NFT).

MiCA requirements

MiCA establishes uniform rules for issuers of crypto-assets that have so far not been regulated by other EU regulations (and any CASPs related to such assets).  

The rules cover:

Transparency and Disclosure

MiCA mandates that issuers of crypto-assets are required to meet specific transparency and disclosure requirements, including the publication of a crypto-asset white paper detailing the offeror, project, technology, risks, and environmental impacts. The white paper must be provided to supervisory authorities and made publicly accessible.

Authorization and supervision

MiCA establishes requirements for the authorization and supervision of CASPs, issuers of asset-referenced tokens, and issuers of e-money tokens. Issuers of asset-referenced tokens and issuers of e-money tokens also must maintain transparency about reserve assets, and comply with specific prudential requirements. Issuers of e-money tokens must be credit or e-money institutions and ensure tokens are redeemable at par value. The European Banking Authority (EBA) and the European Securities and Market Authority (ESMA) are empowered to develop technical standards and to supervise significant issuers and service providers.

Protection of Holders and Clients

According to MiCA, specific measures are put in place to protect holders of crypto-assets and clients of CASPs. These measures include rules on the custody and segregation of assets, as well as the right to redeem e-money tokens at par value.

Market Abuse

MiCA prohibits market abuse activities such as insider dealing, unlawful disclosure of inside information, and market manipulation related to crypto-assets. It outlines measures to prevent, detect, and address such practices.

MiCA does not explain how to comply with the provisions, placing the obligation on the European Securities and Markets Authority (ESMA) to clarify them. Under MiCA, the ESMA is required to develop several regulatory technical standards and guidelines to supplement and clarify MiCA’s provisions. As of June 2024, ESMA has published a series of consultations and draft guidelines on various topics, with more expected in the future.

Transitional measures

MiCA includes transitional measures to allow market participants time to adapt to the new requirements. Specific timelines are set for the application of different parts of the regulation: provisions on asset-referenced tokens and e-money tokens apply from 30 June 2024, and MiCA will fully enter into force by 30 December 2024.

FAQ

• What does MiCA mean for crypto?

  MiCA will provide more certainty to businesses working with crypto, creating a unified system across the EU. While regulations will most likely become stricter, this will minimize the risks both for companies and customers.

• What is the MiCA final regulation?

  MiCA officially came into force on June 9, 2023. Provisions on asset-referenced tokens and e-money tokens will apply from June 30, 2024, with full application by December 30, 2024. MiCA establishes a comprehensive framework for crypto-assets in the EU, covering issuance, offering, trading, and custody. It also introduces licensing requirements for CASPs, sets rules for stablecoins, prohibits market abuse, and strengthens consumer protection.

• What is the MiCA license in the EU?

  Companies wishing to legally operate in the EU will need to meet the minimal requirements outlined in MiCA and get authorized or registered in one of the EU Member States. After that, companies will be able to legally operate across the EU.