On May 31, 2023, with the final approval of the finance ministers, the European Union officially adopted the regulatory framework known as the Markets in Crypto-Assets (MiCA), concluding a process that began in 2020.
MiCA is the new European legislation on cryptocurrencies, applicable to any entity operating in the field of crypto assets (issuance, public offering, trading, provision of related services). It introduces common definitions and protections throughout Europe.
The crypto world undergoes changes and evolutions that warrant ongoing reflection on their implications for society at large.
Many of the provisions concerning crypto companies will come into effect in 2024.
What is MiCA and what does it serve?
MiCA regulates the offering of cryptocurrencies to the public and admission to trading on a token platform linked to assets and/or electronic money tokens.
It also governs the provision of services related to crypto assets.
It will be applied to the 27 member states of the European Union and will enable the tracking of cryptographic transfers, just like any other financial transaction. This will make it possible to identify suspicious transactions and block them.
The MiCA Regulation is based on the principles of MiFID II.
It introduces common regulatory obligations for EU member states regarding the issuance/offering of crypto-assets and the conduct of Crypto-Asset Service Providers (CASP) based in the EU.
The driving force behind European legislators was the need to protect users and operators and safeguard the integrity of cryptocurrency markets.
Licensed CASPs will be able to expand their activities on a cross-border basis and gain access to banking services, thereby improving the functioning of cryptocurrencies.
Any national laws currently in force at the individual state level will be repealed and replaced by MiCA.
Recent events have confirmed the urgent need to impose rules that better protect Europeans who have invested in these assets and prevent the improper use of the cryptocurrency industry for money laundering and terrorist financing.
What are crypto assets?
According to the MiCA Regulation, crypto assets are defined as "digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology or a similar technology."
Scope of MiCA's application
MiCA's scope of application relates to three types of crypto assets:
- Tokens linked to assets.
- Electronic money tokens.
- Tokens other than those linked to assets or electronic money.
What are the services for crypto assets?
MiCA precisely defines the services for crypto assets, which include:
- Custody and administration on behalf of customers.
- Operation of a trading platform.
- Exchange of crypto assets with funds.
- Exchange of crypto-assets with other crypto-assets.
- Execution of orders on behalf of clients.
- Placement of crypto assets.
- Receipt and transmission of orders for crypto assets on behalf of clients.
- Advice.
- Portfolio management.
- Transfer services for crypto assets on behalf of customers.
Excluded crypto assets
MiCA does not apply to:
- Crypto assets that qualify as financial instruments.
- Crypto assets issued by a central bank (central bank digital currencies or CBDCs).
- Electronic money (as it is already regulated at the European level and in banking legislation) unless it is electronic money tokens.
- Non-Fungible Tokens (NFTs), which are digital certificates of ownership of one or more predominantly intangible assets (art objects, video games, collectibles, assets for use in the Metaverse) with a unique value.
When does MiCA come into effect?
After the approval on May 31, 2023, a transitional period began, allowing each member state to adapt.
The new rules will be progressively applied starting from July 2024.
The choice of a gradual introduction of the new rules is also necessary to allow each individual state to adopt secondary legislation for the implementation of the provisions contained in MiCA.
Next steps for MiCA:
The process of implementing the regulatory framework for cryptocurrencies includes:
- Publication in the Official Journal of the European Union.
- Entry into force 20 days after the publication of some of the regulations.
- Entry into force 12 months later for stablecoins (and stablecoin issuers).
- Entry into force 18 months later for other crypto-assets and Crypto Asset Service Providers (CASP).
The gradual implementation will be completed by 2025, when MiCA is expected to become fully effective, 18 months after its entry into force.
Curiosity about MiCA II
The time between the conception and implementation of legislation on crypto assets has led lawmakers to plan for a MiCA II, which will also consider possible market collapses and unexpected failures of seemingly solid companies.
Lawyers within Boccadutri Law Firm view the implementation of the new European Regulation on crypto assets favorably, hoping that it can support the recovery of funds invested in cryptocurrencies and unlawfully taken. If you are interested in this topic, feel free to contact our Cryptocurrency Department.
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.
