Changes in Crypto-Asset Regulation Under the European Union's MiCA Regulation.
The Markets in Crypto-Assets (MiCA) Regulation, adopted in 2023, will become fully applicable on December 30, 2024. This regulation aims to establish uniform rules for crypto-asset activities across the European Union. MiCA includes a transitional period until July 1, 2026, allowing crypto-asset service providers time to comply with the new requirements. However, Lithuania plans to implement these rules from December 30, 2024, without utilizing the transitional period.
Immediate Licensing Requirements in Lithuania
The waiver of the transitional period means that crypto-asset service providers in Lithuania (such as virtual currency exchange operators) must obtain a crypto-asset service provider license by December 30, 2024, to continue their operations. To avoid disruptions, providers should begin preparing for these requirements immediately.
Key Changes with MiCA Regulation
Licensing of Crypto-Asset Services:
The most significant change under MiCA is that offering crypto-asset services will require a license. Service providers must apply to the appropriate authority to obtain this license.
Public Offering Requirements:
MiCA introduces specific requirements for the public offering of crypto-assets and their inclusion on trading platforms, varying by the type of crypto-asset.
Crypto-assets are defined as digital representations of value or rights that can be transferred and held electronically using distributed ledger technology. MiCA categorizes crypto-assets into three types:
1. Asset-referenced tokens
2. E-money tokens
3. Other crypto-assets
Legal entities offering crypto-assets (excluding asset-referenced and e-money tokens) must prepare a white paper but do not need separate authorization. In contrast, public offerings of stablecoins (asset-referenced and e-money tokens) require both a white paper and a permit. Stablecoins aim to stabilize value by linking to a currency or asset (e.g., USDT, PAXG).
Issuance of Asset-Referenced and E-Money Tokens:
Asset-referenced tokens can only be offered by credit institutions or EU-established legal entities authorized under MiCA. E-money tokens have stricter requirements, only issuable by licensed credit institutions or electronic money institutions.
Expanded Scope of Crypto-Asset Services
Previously, Lithuania regulated crypto-asset activities primarily through anti-money laundering and terrorist financing laws, requiring virtual currency exchange and wallet operators to meet specific capital and organizational requirements. Under MiCA, the concept of crypto-asset services expands significantly, covering a broader range of activities beyond just custodial and exchange services.
Comprehensive List of Crypto-Asset Services
MiCA defines crypto-asset service providers as entities offering one or more of the following services:
1. Storing and administering crypto-assets for clients
2. Operating a crypto-asset trading platform
3. Exchanging crypto-assets for funds
4. Exchanging one crypto-asset for another
5. Executing crypto-asset orders for clients
6. Distributing crypto-assets
7. Receiving and transmitting crypto-asset orders for clients
8. Making crypto-asset recommendations
9. Providing crypto-asset portfolio management services
10. Offering crypto-asset transfer services for clients
Currently, over 500 companies are listed as virtual currency and depository wallet operators in Lithuania. These entities, along with other unregulated market participants, should evaluate whether their activities fall under MiCA's scope and start preparing accordingly.
Requirements for MiCA Licensing
Crypto-asset service providers will need to submit detailed information to obtain a license, including:
1. A business plan outlining the types of services offered and their market deployment
2. Proof of compliance with MiCA's prudential requirements
3. A description of organizational structure and internal controls
4. Evidence of the governing body's good repute and competence
5. Information on shareholders with qualifying holdings and their reputations
6. Risk management procedures, including anti-money laundering measures
7. A business continuity plan
8. Technical documentation and IT security measures
9. Procedures for segregating client crypto-assets and funds
10. Complaint handling procedures
11. Details on the types of crypto-assets involved in the services
Additional Information:
Depending on the services provided, further details may be required, such as:
• Custody policies
• Trading platform rules
• Advisory or portfolio management qualifications
Exclusions from MiCA
Despite its comprehensive scope, MiCA will not cover certain crypto-assets and activities, including:
• Crypto-assets traded outside regulated markets
• Crypto-assets considered financial instruments already regulated under other EU financial regulations
• Non-blockchain-based crypto-assets
• Crypto-assets used within limited networks, such as utility tokens
• Assets and financial instruments already covered by existing EU legislation, like MiFID II, PSD2, or the Securitization Regulation
Additionally, MiCA excludes decentralized finance (DeFi) activities and non-fungible tokens (NFTs). Central bank digital currencies (CBDCs) are also not covered, as they fall under separate regulatory frameworks.
Preparing for MiCA Compliance
Service providers in Lithuania should begin preparing for the MiCA licensing process now. Early preparation and high-quality submissions to the competent authority will facilitate timely authorization and help maintain business continuity under the new regulatory framework.
Further info:
Valters Gencs, info@gencs.eu, Whatsapp/Telegram/Viber 371-292543441