MiCA Regulation
On May 16, 2023, the European Union took a historic step by adopting the MiCA Regulation. This landmark decision brings crypto-assets, their issuers, and service providers under a comprehensive regulatory framework for the first time at the EU level. The MiCA regulation aims to ensure a harmonized approach across the EU, enhancing consumer protection, market integrity, and financial stability while fostering innovation in the rapidly evolving crypto-asset sector.
Key Provisions of MiCA
MiCA applies to a broad range of entities involved in the crypto-asset ecosystem, including issuers of crypto-assets, crypto-asset service providers (CASPs), and any other entities engaged in activities related to crypto-assets.
The regulation categorizes crypto-assets into three main types:
● Utility Tokens: Tokens that provide access to a specific application or service.
● Asset-Referenced Tokens: Tokens that aim to maintain a stable value by referencing multiple currencies, commodities, or a combination thereof.
● E-Money Tokens: Digital representations of fiat currency.
Authorization and Supervision
Under MiCA, CASPs and issuers of certain types of crypto-assets must obtain authorization from relevant national authorities. The European Securities and Markets Authority (ESMA) and national competent authorities (NCAs) will oversee and enforce compliance with the regulation. This ensures that only compliant entities can operate within the EU, enhancing market integrity and consumer protection.
Estonia: Businesses must work with the Estonian Financial Supervision Authority (FSA).
Lithuania: The Bank of Lithuania oversees regulatory compliance.
Poland: The Polish Financial Supervision Authority (KNF) is responsible for authorization and supervision.
Czech Republic: The Czech National Bank (CNB) supervises crypto-asset activities.
Issuers of crypto-assets must publish a comprehensive white paper detailing essential information about the project. This includes the issuer's identity, the rights attached to the tokens, and the risks associated with the investment. The white paper must be submitted to the relevant NCA for approval before the offering can proceed. This requirement ensures that investors have access to accurate and transparent information.
Requirements for CASPs
MiCA sets out stringent operational and prudential requirements for CASPs to ensure the safe custody of clients' assets, maintain adequate capital reserves, and implement robust governance frameworks. These measures aim to mitigate the risks associated with providing crypto-asset services and enhance overall market stability.
MiCA incorporates rigorous AML/CFT measures to prevent the misuse of crypto-assets for illicit activities. CASPs are required to implement robust AML/CFT controls, including customer due diligence, transaction monitoring, and reporting of suspicious activities to relevant authorities. This helps to ensure that the crypto-asset market is not exploited for illegal purposes.
Key obligations:
1. Local presence: CASPs must have at least one member of senior management located in the country of establishment. Additionally, they should conduct their activities through a business location within the EU. This approach ensures proper supervision and regulatory oversight.
2. Capital requirements: CASP shall have prudential safeguards equal to an amount of at least the higher of the following two items: an amount of permanent minimum capital requirements – that ranges from EUR 50,000 to EUR 150,000 depending on the type of the crypto-asset services provided – and 25% of the fixed overheads.
3. Requirements for stakeholders: CASPs must employ management and staff with adequate skills, knowledge, and expertise. They must take all reasonable steps to perform their functions appropriately and demonstrate their capability to commit sufficient time to effectively execute their duties.
4. Supplement: Crypto-asset service providers are required to deliver transparent, accurate, and comprehensive information to their clients. This includes providing honest and clear details about the services and products offered, and ensuring clients are fully aware of the associated risks involved with crypto-assets.
5. Policies: MiCA mandates that CASPs implement internal processes akin to those of other regulated financial institutions. This involves establishing comprehensive policies for anti-money laundering (AML) and combating the financing of terrorism (CFT), data protection, risk management, consumer protection, asset safeguarding, business continuity planning, and managing conflicts of interest. Moreover, specific CASPs must comply with regulations previously applicable to investment firms, designed to prevent market abuse and ensure orderly trading conditions, thereby protecting user rights.
6. Transitional period: Existing CASPs in the EU have an 18-month period to align with the new MiCA regulations, including securing the required licenses. However, individual countries may enforce shorter timelines if local regulations are deemed insufficient.
The MiCA regulation represents a significant step forward in establishing a unified regulatory framework for crypto-assets within the EU. By ensuring compliance with MiCA, businesses can enhance their operational integrity, protect consumers, and foster innovation in the crypto-asset market.
For detailed guidance and support in achieving MiCA compliance, contact us to learn more about our tailored legal services.
Further info:
Valters Gencs, info@gencs.eu, Whatsapp/Telegram/Viber 371-292543441