MiCA Landmark Crypto Regulation Approved by European Parliament

[ad_1]

Introduction

On April 20, 2023, the European Parliament gave its final blessing to the new regulation on crypto-asset markets (MiCA).

MiCA is part of the wider EU digital finance package, which includes the Digital Operational Resilience Act and the Distributed Ledger Technology pilot scheme. The package aims to foster innovation and the use of new financial technologies, while ensuring consumer protection and financial stability across the EU.

The reach of MiCA

MiCA is the first harmonized European framework governing crypto-assets. As a regulation (and not a directive), the MiCA will be directly applicable in all Member States – including Malta – without the need for transposition at national level. In 2018, Malta enacted the Virtual Financial Assets Act (Cap 590, Laws of Malta) (VFA Act) which demonstrates the foresight and willingness of jurisdictions to support financial innovation. The Malta Financial Services Authority (MFSA) has already started discussions with stakeholders to ensure a seamless transition to MiCA once the VFA Act is repealed.

The term crypto-asset under MiCA is broadly defined as any digital representation of value or right that can be transferred and stored electronically, using distributed ledger technology or similar technology. MiCA introduces 3 sub-categories of crypto-assets, namely:

asset-referenced tokens (ART); electronic money tokens (EMT); and other crypto-assets (a catch-all category for tokens that are not ARTs or EMTs) such as utility tokens and other cryptocurrencies including Bitcoin or Ether.

MiCA establishes three separate, but interrelated regulatory regimes, namely (i) a regime for issuers of stablecoins (ART and EMT), (ii) a regime for issuers of non-stablecoins (other crypto-assets), and (iii ) a regime for entities providing crypto-asset services, which are referred to as Crypto-Asset Service Providers or CASPs for short.

Primary market players (issuers of crypto-assets)

A fundamental requirement of the MiCA is that issuers of the three types of crypto-assets must publish a white paper containing details about the issuer, the characteristics of the crypto-assets, project timelines, risks and other matters. The aim is to achieve a harmonized information regime for issuers of crypto-assets, which appears to have been modeled on the EU Prospectus Regulation (Regulation (EU) 2017/1129).

For crypto-assets other than ARTs or EMTs, the MiCA establishes disclosure, transparency, and governance requirements. Offering these types of crypto-assets to the public (or listing them on a trading platform) does not require prior authorization from the national regulator. Instead, issuers will have to notify the regulator and publish the white paper in advance.

The stablecoin regime (ART and EMT) is more expensive. In essence, the MiCA will introduce an authorization requirement for ART issuers. On the other hand, EMTs can generally only be offered or listed on a trading venue by credit institutions or electronic money institutions authorized under Directive 2009/110/EC (EMD2). While there is no separate authorization requirement for EMT issuers under the MiCA, an EMT issuer will need to comply with the various requirements thereunder.

An application for approval of an ART issuer will mainly require:

an operations program, with the planned business model; proof of initial capital – 350,000 or 2% of the average of the ART reference values ​​in reserve (or at least the higher of these); details of the governance arrangements and shareholding structure of the issuers; a legal opinion confirming that the ART does not qualify as an EMT or a crypto-asset excluded from the MiCA; the crypto-asset white paper the various policies and procedures, the business continuity plan, the internal control mechanisms, the risk management framework and the security measures required under the MiCA. Crypto-asset service providers

The MiCA establishes general and service-specific rules for PSAPs. The list of crypto-asset services under MiCA is inspired by the MiFID II regime (Directive 2014/65/EU), which also served as the basis for the VFA law in Malta. A CASP intending to provide crypto-asset services (such as investment advice, portfolio management, brokerage services or the operation of a trading platform) in respect of clients of the EU will need a seat in Europe and authorization from the national regulator.

MiCA introduces 10 categories of crypto-asset services that trigger an authorization requirement for PSAPs. A license is required for (i) persons located or established in the EU and (ii) persons established outside the EU, such as the UK and Switzerland, targeting customers in the EU. Similar to other EU legislation, the MiCA introduces passport rights for PSAPs (and issuers). A CASP licensed in Malta can transfer its activities to other Member States, either on a cross-border basis or via a physical branch, and approach clients in those Member States without requiring additional authorization.

The MiCA also has implications for AIFMs, UCITS management companies, MiFID companies, credit institutions and electronic money institutions, which are authorized by other regulatory regimes but offer crypto-asset services. . Although separate authorization under the MiCA is not required, such entities will generally need to notify the national regulator at least 40 days prior to providing the crypto-asset service(s) as well as the trading schedule. and other documents required under the MiCA.

Next steps

After the formal (but early) approval of the Council of the EU, the MiCA will be published in the official journal of the EU and will enter into force 20 days later. MiCA will apply in two parts. The first part dealing with stablecoins should apply after 12 months (Q2 2024), while the second part dealing with CASPs should apply after 18 months (Q4 2024).

In the meantime, the European Banking Authority and the European Securities and Markets Authority will develop technical standards and guidelines to complement the MiCA. The industry will be eager to assess the criteria for the classification of crypto-assets under MiCA and the (dis)qualification of tokens as financial instruments under MiFID II. The classification has resurfaced as a hot topic, especially since Ether, the world’s second largest cryptocurrency, was labeled as a security – alongside stocks and bonds – by the New York Attorney General in beginning of last month.

Malta remains attractive for establishing crypto-asset operations. The jurisdiction already has a designated licensing regime for cryptocurrencies. The MFSA’s experience with licensees, including its oversight function, should give Malta an edge over other member states.

You can access our previous publications on MiCA at the following links:

[ad_2]