On 20 April 2023, the European Parliament adopted the Markets in Crypto-Assets Regulation (the "MiCA"). The regulation was formally adopted by the European Council on the 16 May 2023 after the final vote. MiCA is directly applicable among the European Union (the "EU") Member States without a need for any additional transposition into national law.
Effects of the EU's MiCA ruling
As a large and rapidly expanding market, the lack of regulation surrounding crypto-assets was unable to continue. Their very nature of anonymity posed a danger, particularly in regard to money laundering or as ransom payment to hackers penetrating the servers of companies.
In an effort to bring all EU states up to speed and on the same page, the rules in the MiCA agreement give EU states until the end of 2024 to prepare a set of laws that will regulate and track all crypto-assets. This includes crypto currencies, NFT's, issuers of utility tokens, asset referenced tokens and so-called 'stablecoins'. It is designed to deliver transparency, uniformity, and security in the realm of digital assets.
MiCA defines a crypto-asset as a digital representation of value or rights that can be electronically transferred and stored using distributed ledger technology or similar technology. The Regulation distinguishes between 'cryptocurrencies' and 'tokens'. MiCA also imposes requirements on crypto-asset issuers and crypto-asset service providers (the "CASPs").
Crypto-asset issuers must provide clear and comprehensive information about the crypto-assets they issue and follow disclosure and transparency rules. Crypto-asset service providers must register and comply with security measures and anti-money laundering rules.
The legal framework
The MiCA legal framework is harmonized and based on the principles of the Markets in Financial Instruments Directive (the "MiFID") II. This framework aims to protect retail holders, ensure the integrity of crypto-asset markets, and foster innovation and fair competition at the same time.
Moreover, it will allow CASP-licensed entities to expand their business across borders and access banking services, enhancing the smooth operation of crypto-business.
In summary, the main provisions of MiCA are:
- The transparent and disclosed issuance and trading of crypto assets;
- The licensing and regulation of crypto-asset service providers; and
- The first measures to prevent market abuse, money laundering, terrorist financing and other criminal and money laundering activities.
Cyprus as an emerging tech-hub in Europe
Cyprus offers many advantages in the crypto-asset space such as its geographic location, its legal system based on common law, its favorable tax regime, and its supportive infrastructure for businesses. Moreover, Cyprus has attracted major global players in the fintech and crypto-assets sectors. This includes Crypto.com, eToro, Revolut, Bitpanda and CMC Markets, who have established presence on the island. This has made Cyprus a highly competitive jurisdiction for fintech and crypto businesses.
With the finalization of MiCA, which offers great opportunities for crypto companies to operate in an EU country and to expand their operations across the EU, Cyprus is expected to become a widely sought after location as an EU tech-hub.
At the same time, Cyprus is enhancing its legal framework to ensure compliance with MiCA and to regulate other blockchain technologies that are not covered by MiCA. This way, Cyprus aims to remain a reputable destination that offers stability, predictability, and legal certainty for crypto and blockchain entrepreneurs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
