Implementation briefing to go – Markets in Crypto Assets (MiCA)

This briefing is intended to give an overview over new regulation from the EU and help you to grasp what changes it will bring and how the legislative proposal has evolved over time. This briefing is about the Markets in Crypto Assets (MiCA).

Introduction

On 30 June 2022, the European Parliament and the Council reached a political agreement on the Markets in Crypto-assets Regulation (MiCA), which is designed to provide a comprehensive regulatory framework for digital assets in the EU.

Global stablecoins (GSCs) have attracted significant global political, regulatory and supervisory attention following Facebook’s proposal for the creation of Libra – a combination of a private cryptocurrency fixed in value to major fiat currencies mated with its own and other global electronic payment and identification systems. Beyond the high-profile example of Libra and other potential GSCs, the question of regulatory treatment of crypto-assets has been a major focus of regulators and market participants across the world since the launch of Bitcoin in 2009 and in particular in the course of the crypto bubble of 2018.

In this regulatory void and internationally divergent regulatory approaches to crypto-assets the EU is about to install a legally certain and harmonized framework for crypto-assets, which meets five broad objectives:

Firstly, to cover crypto-assets formerly unregulated under pre-existing EU financial services legislation, second of all, to establish uniform rules for crypto-asset service providers (CASPs) and issuers at EU level, thirdly to replace existing national frameworks applicable to crypto-assets and fourthly to establish specific rules for so-called ‘stablecoins’, including when these are e-money (i.e. payment tokens). Lastly, supervision of crypto-asset service providers) will rest with national authorities, supervision of significant asset-referenced and e-money tokens will rest mainly with the European Banking Authority.

News in MiCA

The EU Digital Finance Strategy marks a very important step for the EU in developing both innovation and the Single Market. MiCA forms an integral part of this strategy and while already the legislative proposal was an ambitious legislative project, the inter-institutional negotiations have sponsored certain improvements compared to the original legislative proposal by the European Commission:

• Article 2a of the directive prescribes that European crypto-mining operations must become environmentally sustainable and linked to the EU taxonomy upon the European Parliament’s proposal:

“By 1 January 2025, the Commission shall include crypto-asset mining in the economic activities that contribute substantially to climate change mitigation in the EU Sustainable Finance Taxonomy.”

• In Article 67 para. 8 the EU co-legislators have concretised and specified the liability regime of crypto-asset service providers vis-à-vis their clients by introducing liability exemptions: Providers of crypto-asset services can be held liable for damages in the event of negligence or a breach of contract, but the damage claims are limited to the market value of the crypto-asset at the time when the client invokes liability. This way a guarantee-like liability regime is maintained while disproportionate liability could be avoided.
• The provisions in Title V of the regulation applicable for crypto-asset service providers and issuers of crypto-assets who offer these assets to third parties have also tightened in terms of authorisation and operating conditions. CASPs will be required to adopt internal procedures and controls to ensure compliance with fiscal and financial rules. This is very relevant to stop criminal actors as well as financially sanctioned economic operators and individuals use crypto currencies to circumvent rules. Further CASPs will be required to perform enhanced due diligence procedures before forging business alliances with CASPs registered in third countries.
• The EU’s co-legislators have also agreed on asking the European Commission to prepare a comprehensive assessment 18 months after application of MiCA and, if necessary, create a regime for Non-fungible tokens (NFTs) i.e., digital assets representing real (digital) objects like art, music and videos and address the emerging risks of such new market.

Next steps and application modalities

The provisional agreement between the European Parliament and the Council will be first approved by the leading ECON committee and adopted by the European Parliament in plenary during autumn 2022.

No transposition in national legislation is required, MiCA will start to apply 18 months after its final adoption, thus spring 2024.

To avoid market disruption, MiCA allows for a transitional period of 18 months for crypto-asset service providers, who already provided their services before MiCA entered into force.