The European Council approves crypto assets regulation (MiCA)
European Council approved the final draft of the Markets in Crypto-Assets Regulation (MiCA). The compromise text was published on 5 October 2022. MiCA is an attempt to globally and comprehensively regulate the cryptocurrency markets. It is expected that MiCA will be ratified and published in the Official Journal in first half of 2023, and will enter into force within 20 days of the publish date (although most of the provisions will be covered by 12-18 months grace period).
MiCA was proposed by the European Commission in 2020 as part of a broader digital finance package, which also includes the Regulation on Digital Operational Resilience for the Financial Sector (DORA), and the Regulation of the European Parliament and of the Council on the pilot system for market infrastructures based on distributed ledger technology (DLT Regulation).
What will the MiCA regulate?
In summary, MiCA will regulate:
- transparency and disclosure requirements for the issuance and admission to trading of crypto-assets,
- the authorisation and supervision of crypto-asset service providers and issuers of asset-referenced tokens and issuers of electronic money tokens,
- the operation, organisation and governance of issuers of asset-referenced tokens, issuers of electronic money tokens and crypto-asset service providers,
- protection of holders of crypto-assets in the issuance, offering to the public and admission to trading,
- protection of clients of crypto-assets service providers,
- measures to prevent insider dealing, unlawful disclosure of inside information and market manipulation related to crypto-assets, in order to ensure the integrity of crypto-asset markets.
MiCA does not cover crypto-assets regulated by other EU financial law instruments; therefore, crypto-assets that qualify as financial instruments, electronic money, deposits, or securitization will fall outside the scope of MiCA.
MiCA applies to natural and legal persons and other undertakings that are engaged in the issuance, offer to the public and admission to trading of crypto-assets or that provide services related to crypto-assets in the European Union (with some exceptions specified in the Article 2).
MiCA distinguishes crypto-assets into 3 categories:
- asset-linked tokens, which are designed to maintain stable value by being linked to a range of currencies that are legal tender, to at least one commodity, to at least one crypto-asset or to a basket of such assets. Ensuring the stable value of such asset-linked tokens makes them often used by holders as a means of payment to purchase goods and services and as a means of storing value,
- tokens that are electronic money (e-money), which are primarily intended to serve as a means of payment and whose value is supposed to be stable due to the fact that they are linked to only one fiat currency. Like electronic money, such crypto-currencies are electronic substitutes for coins and banknotes for making payments,
- utility tokens, which are intended to provide digital access to a given good or service and are only accepted by the issuer of these tokens (e.g., tokens that trigger certain functionality on a given online platform).
Cryptoasset service providers (CASP) – authorization required
Provision of crypto-asset services will be a regulated activity and performed only on the basis of a granted permit (Article 53). Obtaining the permit will be valid in any EU member state and will allow providers to provide services throughout the European Union, either based on freedom of establishment, including through a branch, or based on freedom to provide services.
MiCA introduces the following ten categories of crypto-assets services and activities, which will trigger a licensing requirement for the CASP:
- custody and administration of crypto-assets on behalf of third parties;
- operation of a trading platform for crypto-assets;
- exchange of crypto-assets for funds;
- exchange of crypto-assets for other crypto-assets;
- execution of orders for crypto-assets on behalf of third parties;
- placing of crypto-assets;
- providing transfer services for crypto-assets on behalf of third parties;
- reception and transmission of orders for crypto-assets on behalf of third parties;
- providing advice on crypto-assets;
- providing portfolio management on crypto-assets.
Minimum capital requirements for crypto-asset service providers
Crypto service providers
Type of crypto services
Minimum capital requirements under Article 1(a) of the MiCA
A crypto service provider authorized to provide the following crypto services:
EUR 50 000
A crypto service provider authorized to provide any crypto services falling under Class 1 and the following services:
EUR 125 000
A crypto service provider authorized to provide any crypto services falling under Class 2 and the following services:
EUR 150 000
Competent authorities will withdraw the authorisation in any of the following situations if the crypto-asset service provider:
- has not used its authorisation within 12 months of the date of granting of the authorisation;
- has expressly renounced to its authorisation;
- has not provided crypto-asset services for nine successive months;
- has obtained its authorisation by irregular means, including making false statements in its application for authorisation;
- no longer meets the conditions under which the authorisation was granted and has not taken the remedial actions requested by the competent authority within a set-time frame;
- fails to have in place effective systems, procedures and arrangements to detect and prevent money laundering and terrorist financing in accordance with Directive (EU) 2015/849;
- has seriously infringed MiCA.
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