1. What is MiCA?
MiCA, or the “Markets in Crypto-Assets”, is a proposed regulatory framework for the crypto-asset market in the European Union. The regulation aims to provide a harmonized framework for the regulation of crypto assets across the EU, while also addressing the specific risks associated with these types of assets.
It applies to both primary and secondary market activities, such as issuance, trading, and custody of crypto assets. The regulation also covers certain service providers, such as crypto-asset trading platforms and custodial wallet providers.
2. What are MiCA keys?
One of the key objectives of MiCA is to ensure the protection of investors and consumers who use crypto assets. To that end, the regulation includes several investor protection measures, such as disclosure and transparency requirements, as well as measures to prevent money laundering and terrorist financing.
3. Who does MiCA apply to?
The European crypto-asset legal framework MiCA establishes regulatory requirements for primarily the following activities:
a. Issuing crypto assets by listing them on a trading platform or otherwise making a public offer.
b. Providing crypto-asset services, e.g., crypto wallets, trading venues, order execution, order transmission, investment advice, and portfolio management.
c. Trading crypto assets, concerning the prohibition on insider dealing.
4. What kind of crypto assets does MiCA apply to?
The MiCA Regulation has a broad area of application, as the rules define crypto assets as “a digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology”. MiCA does however not apply to crypto assets that would qualify as transferable securities or financial instruments for MiFID II.
5. What kind of obligations does MiCA introduce?
The European crypto-asset legal framework MiCA establishes a range of regulatory requirements for persons engaging in the activities in the scope of the rules.
a. Crypto-asset white paper: Issuers of crypto assets must provide a “light prospectus”, called a white paper, with information on characteristics, functions, and risks. It must be notified to and in some cases approved, by the regulator before being published and modified.
b. Marketing: All marketing communications must be fair, clear, and not misleading, be consistent with the white paper, include a specific disclaimer, and in some cases be notified to the regulator.
c. License and location requirements: Issuers of asset-referenced tokens and e-money tokens, and crypto-asset service providers, must seek and uphold a license for their operations and must have an establishment within the EU.
d. Market Abuse: Insider dealing and market manipulation are prohibited, and issuers must comply with inside information disclosure rules.
e. Right of withdrawal: Retail holders should in some scenarios be guaranteed a right to withdraw their agreement to purchase crypto assets without incurring fees or costs.
f. Transparency: MiCA establishes a range of requirements for the purpose of informing the market and crypto-asset holders of the peculiars of the assets in circulation, the services provided etc.
6. What are some relevant terms and definitions within the European crypto-asset regulatory framework?
We provide a selection of important terms and definitions specific to the European crypto-asset regulatory context. Please note that the meanings of these terms may differ when used in other areas.
Asset-referenced token (ART): A type of crypto asset that is not an electronic money token and that purports to maintain a stable value by reference to any other value or right or a combination thereof, including one or more official currencies.
Utility token: A type of crypto asset that is only intended to provide access to a good or a service supplied by the issuer of that token.
Crypto assets: A digital representation of a value or a right that may be transferred and stored electronically, using distributed ledger technology or similar technology.
Distributed ledger technology (DLT): This means distributed ledger technology as defined in the DLT Pilot Regime Regulation.
E-money token: A type of crypto asset that purports to maintain a stable value by reference to the value of one official currency.
European Economic Area (EEA): A free trade area that includes the European Union (EU) and three of the European Free Trade Association (EFTA) countries: Iceland, Liechtenstein, and Norway.
European Securities and Markets Authority (ESMA): An EU-wide regulatory body that works to ensure the stability and integrity of securities markets and protect investors and consumers of financial services.
The issuer of crypto-assets: The natural or legal person or other undertakings who issues the crypto-assets.
Offer to the public: Communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the crypto-assets to be offered, to enable potential holders to decide whether to purchase those crypto-assets.
Official currency: An official currency of a country issued by a central bank or other monetary authority, also known as fiat currency.
7. What is the MiCA Rulebook and how is it structured within the EU regulatory framework?
The MiCA Rulebook refers to the collection of legally relevant texts that shape the European regulatory landscape for crypto-assets, including prominent current and upcoming legislation. The EU regulatory structure for financial services, including the MiCA framework, is generally organized into four institutional levels.
Level 1
At the top level, the European Parliament and Council adopt framework legislation, which sets out the overall objectives and principles of the regulation. Examples of framework legislation would include the GDPR and MiCAR.
Level 2
At the second level, EU can adopt, adapt and update implementing measures, which provide detailed rules and specifications for how the framework legislation will be implemented. These are usually adopted by the European Commission and are binding in their entirety.
Delegated Acts
The European Union (EU) legislator may grant powers to the Commission through specific rules inscribed into a legislative act to adopt delegated acts. Delegated acts are non-legislative acts adopted by the European Commission that serve to amend or supplement the non-essential elements of the legislation.
The delegated acts are either categorised as regulatory technical standards (RTS) or implementing technical standards (ITS). A RTS is technical and further develops, specifies and determines the conditions for consistent harmonisation of the rules included in the basic legislative act, while an ITS is a technical implementing act providing for the uniform application of certain provisions in the basic legislative act.
In practice, RTS/ITS is where most practical implications of the regulatory framework are detailed.
It follows from the draft MiCA Regulation that RTS and ITS will be developed within the areas summarized below, although the form (one or many technical standards), timing, etc., is not clear at this stage.
· ITS on standard forms, formats and templates for crypto-asset white papers
· RTS on procedures for approving white papers for certain stablecoins
· RTS on sustainability indicators
· ITS on complaints handling for issuers of asset-referenced tokens
· RTS and ITS on the contents of applications for issuing asset-referenced tokens
· RTS and ITS on the contents and calculations necessary for the purpose of certain quarterly reporting for asset-referenced tokens
· RTS on requirements for policies and procedures for managing conflicts of interest for issuers of asset-referenced tokens
· RTS on calculation of own funds for issuers of asset-referenced tokens
· RTS on standards for managing the reserve of assets that must be maintained by issuers of asset-referenced tokens
· RTS on ownership change assessments for issuers of asset-referenced tokens and crypto-asset service providers
· RTS on governance arrangements, etc., for issuers of significant asset-referenced tokens and crypto-asset service providers
· RTS and ITS on application and notification requirements for entities that wish to provide crypto-asset services
· RTS on trading platform transparency issues
· ITS on means for publicly disclosing inside information
· RTS on template documents for cooperation arrangements with non-EU countries
· RTS on the registers ESMA shall establish
· ITS on forms, templates and procedures for the cooperation and exchange of information between regulators, and between regulators and EBA/ESMA
Level 3
At the third level, regulatory bodies such as the European Securities and Markets Authority (ESMA) can provide guidance to market participants on how to comply with the rules set out in level 2.
Level 4
At the fourth level, the Commission, national legislators, national supervisory authorities, etc., can work for ensuring the correct enforcement of EU rules by national governments, by providing supervisory practices, etc.
