Markets in Crypto-assets (MiCA)

Highlights

• Offer to the public and seeking admission to trading of crypto-assets will require authorisation from the competent supervisory authority or notification (depending on the type of crypto-asset in question and the entity offering or seeking admission to trading).
• MiCA is introducing a new license – a crypto-asset service provider (CASP, crypto-service asset provider) authorisation. CASP, once licensed, will be entitled to provide crypto-services to customers as provided for in MiCA regulation.
• MiCA introduces the following services or activities relating to any crypto-asset: providing custody and administration of crypto-assets on behalf of clients, operation of a trading platform for crypto-assets, exchange of crypto-assets for funds, exchange of crypto-assets for other crypto-assets, execution of orders for crypto-assets on behalf of clients, placing of crypto-assets, reception and transmission of orders for crypto-assets on behalf of clients, providing advice on crypto-assets, providing portfolio management on crypto-assets, providing transfer services for crypto-assets on behalf of clients.
• MiCA provides facilitation for certain categories of entities – among others, banks, investment firms, electronic money institutions can provide the services envisaged for CASPs without obtaining a license – they only need to make a notification to the competent supervisory authority.
• MiCA does not apply, among other things, to services that are provided in a fully decentralized manner, to crypto-assets that qualify as financial instruments, crypto-assets that are, in essence, classic financial services regulated by other legislation, NFTs (as long as they are unique not fungible with other crypto-assets), and, to some extent, to crypto-assets that have no identifiable issuer.
• Entities that provided crypto-asset services prior to MiCA’s application will generally be entitled to provide these services for 18 months after the MiCA’s application or until a CASP license is obtained. Member States may shorten this period.

Timeline

September 24, 2020 – announcement of draft regulation
October 5, 2022 – publication of the final compromise text of MiCA
April 20, 2023 – adoption of MiCA by Parliament
May 16, 2023 – adoption of MiCA by the Council
June 9, 2023 – publication of MiCA in the Official Journal of the European Union
June 29, 2023 – entry into force of MiCA provisions and commencement of application of a group of provisions concerning, among other things, the issuance by ESMA of guidelines on the conditions and criteria for qualifying crypto-assets as financial instruments or ESMA’s cooperation with EBA on the development of draft implementing technical standards
June 30, 2024 – commencement of application of regulations on asset-referenced tokens and electronic money tokens
December 30, 2024 – commencement of application of the remaining MiCA provisions and expiration of the deadline for transposition of the provisions amending the wording of Directives 2013/36/EU and (EU) 2019/1937

Crypto-assets covered by MiCA

MiCA comprehensively regulates the situations of crypto-assets, which until now have generally remained outside the scope of EU legislation. The regulation essentially subdivides them into three types of crypto-assets:

ART

ARTs are referred to as asset-referenced tokens. The essence of ARTs is that they are not electronic money tokens and they purport to maintain a stable value by referencing another value or right or a combination thereof. Importantly, according to MiCA, it does not matter what mechanism is used to maintain the stable value of ARTs. In view of this, the possibility of ARTs based on algorithms that use supply and demand mechanisms to maintain a stable value of the token is not excluded. ART token holders have the right to demand that the issuer of ART tokens redeem the tokens at a price corresponding to their market value or delivering the assets referenced by these tokens.

EMT

EMT is a electronic money token (e-money token). An EMT is a classic stablecoin that maintains its value by referencing the value of one official currency. The preamble to MiCA indicates that these tokens are, like classic e-money, are electronic surrogates for coins and banknotes and can serve as a means of exchange. Holders of EMT tokens have a claim against the issuer to redeem such tokens by paying the value of the token in cash other than electronic money. Under MiCA, the granting of interest on EMTs is prohibited.

Crypto-assets other than ARTs and EMTs

The third category of crypto-assets that fall within the scope of MiCA includes all other crypto-assets that do not qualify as ARTs and EMTs, but to which MiCA applies. At the same time, MiCA indicates that this group specifically includes utility tokens.

Crypto-assets not covered by the MiCA

MiCA also contains an extensive catalog of crypto-assets that are not subject to its application:

• Crypto-assets that represent services regulated by other acts – as an example, a crypto-asset that essentially is a classic deposit, funds or electronic money (unless it is classified at the same time as an EMT).
• Crypto-assets qualifying as financial instruments – this point is particularly relevant in the context of the extension of the definition of financial instrument in MIFID2, introduced under the DLT Pilot Regime, to include also financial instruments issued using distributed ledger technology (see overview of DLT Pilot). Recognizing the practical difficulties of qualifying a given crypto-asset as a financial instrument, the EU legislator required ESMA to issue guidelines on the conditions and criteria for qualifying crypto-assets as financial instruments.
• NFT (non-fungible token) – with the caveat that the issuance of NFTs – as is usually the case – in a series make these tokens stripped of its uniqueness feature. MiCA explicitly points out that assigning a unique identifier to a token is not sufficient to consider it an NFT.

The territorial scope of MiCA

MiCA applies to entities engaged in the issuance, offer to the public and admission to trading of crypto-assets or that provide services related to crypto-assets in the Union.

Reverse Solication

Following in the footsteps of regulations such as MIFID, MiCA explicitly allows third-country firms to perform activities covered by its scope in a reverse solicitation model, i.e. at the sole initiative of the client. This means that a person residing in the territory of one of the European Union countries will encounter no problem in using the crypto-asset services provided by a non-CASP-licensed third-country company in his or her country of residence, or acquiring crypto-asset issued by such an entity.

Special rules

Facilitation for certain financial entities

MiCA makes it easier for certain entities such as – among others – credit institutions, investment firms, central securities depositories or e-money institutions to provide MiCA-regulated services. Moreover, in some cases, MiCA explicitly indicates that certain services can only be provided by certain entities – only a credit institution or an e-money institution that is also the issuer of such a token can make an offer to the public of seek admission to trading of an EMT.

The most important facilitation is that there is no need for credit institutions, central securities depositories, investment firms, market operators, electronic money institutions, UCITS management companies or alternative investment fund managers to obtain a separate authorisation to provide crypto-asset services. In order to provide such services, these entities only need to send a notification to the competent supervisory authority, including, among other things, a programme of operations, internal procedures, technical documentation of ICT systems.

Other facilitation under MiCA that is worth noting at this point is the lack of the need to obtain an authorisation for making an offer to the public or seeking admission to trading of ARTs if the issuer of ARTs is a credit institution. As in the case of CASP licensing – in this regard, the credit institution is required to prepare an white paper, appropriate documentation (including a legal opinion stating that ARTs are not excluded from the scope of application of MiCA and are not EMTs) and make a notification to the supervisory authority.

Transitional measures

MiCA also specifically regulates the situation of crypto-assets issued and crypto-asset service providers that provided crypto-asset services prior to the commencement of application of MiCA:

• Crypto-asset service providers who provided services prior to the MiCA’s application may provide these services for 18 months after the regulation’s provisions begin to apply, or until they obtain a CASP authorisation. Member States may decide not to apply the transitional period if they consider national legislation less stringent than regulations as provided in MiCA.
• ART issuers that issued tokens 12 months prior to the application of the part of MiCA regulations addressed to ARTs may continue to issue them until the authorization/approval of white-paper is granted, as long as they timely apply for authorization or notify the relevant supervisory authority.
• The provisions on offers to the public of crypto-assets other than ARTs and EMTs do not apply to those offers that ended before MiCA became applicable.
• Member States may apply the simplified CASP authorisation procedure when the application is submitted by an entity authorized to provide crypto-asset services under national law.

Offer to the public and seeking admission to trading of crypto-assets

Crypto-assets other than ARTs and EMTs

Making an offer to the public or seeking the admission to trading of crypto-assets other than ARTs and EMTS in the Union may only be made by a legal entity that:

• It has drawn up a whitepaper, notified it with the competent supervisory authority and published it – such a document includes, in particular, information about the offeror and the issuer (if they are different entities), Information about the crypto-asset project, the risks, the offer to the public of the crypto-assets, on the rights and obligations attached to the crypto-assets, as well as information on the adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the crypto-asset.
  In addition, the whitepaper must include a statement indicating that it has not been approved by any competent authority and that the responsibility for its content rests entirely with the offeror, as well as information on the risks associated with the crypto-asset (such as the risk of loss in value) or the project as a whole (such as the risk of the utility token not being exchangeable for goods or services if the project fails).
• Made and published marketing materials for the crypto-asset – the marketing materials must be clearly identifiable as such, must not be misleading, and should contain appropriate statements indicating that the marketing material has not been approved by the regulators. The regulator has the right to investigate whether marketing materials for the offer to the public meet the requirements of MiCA.
• It meets certain requirements – including acting honestly, fairly and professionally, communicating with holders and prospective holders of the crypto-assets in a fair, clear and not misleading manner, identifying, preventing, managing and disclosing any conflicts of interest that might arise and maintaining all of their systems and security access protocols in conformity with the appropriate Union standard.

After publication of the crypto-asset whitepaper document, crypto-assets other than ARTs and EMTs may be offered and admitted to trading throughout the European Union.

The requirements cited above do not apply to the offer to the public of crypto-assets other than ARTs and EMTs that:

• are offered for free,
• are automatically created as a reward for the maintenance of the distributed ledger or the validation of transactions,
• are utility tokens that provide access to a good or service that exists or is in operation,
• grant the holder of the crypto-asset the right to use it only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror

A retail holder (any natural person who is acting for purposes which are outside that person’s trade, business, craft or profession) who purchases crypto-assets directly from the offeror or CASP placing crypto-assets on behalf of that offeror has the right to withdraw from the contract for the purchase of a crypto-asset other than ART and EMT within 14 calendar days without incurring any fees, costs and without stating a reason. Reimbursement shall be made without undue delay using the same means of payment used in the original transaction. The retail holder may also agree to an alternative solution that will not impose any fees or costs on the him. The right of withdrawal does not apply in the case where the crypto-assets have been admitted to trading prior to their purchase by the retail holder.

ART

An offer to the to the public or seeking the admission to trading of an ART can generally only be made by the entity that is the issuer of the ART that has been authorised by the competent authority or that is credit institution that complies with requirements set out in MiCA.

In order to obtain authorisation for making an public offering of ART or seeking the admission to trading of ART to trading, it is necessary to submit extensive documentation of, among other things, a programme of operations, an assessment of the warranty of members of the issuer’s management body and shareholders with a qualifying holding in the issuer, an crypto-asset white paper, as well as a number of other documents and internal procedures. Also of particular interest is the requirement to provide a legal opinion confirming that ART does not qualify as a crypto-asset excluded from the scope of MiCA and that it is not classified as an EMT. In addition, MiCA imposes numerous obligations on ART issuers to have adequate procedures, own funds and asset reserves (the value of reserves is to be at least equal to the aggregate value of the claims against the issuer from the holders of the ART in circulation) or to inform ART holders of the number of tokens in circulation and the value of reserves.

After 60 days of receipt of a complete application, the competent authority shall transmit their draft decision and the application for authorization to the EBA, ESMA and the ECB, and in some cases to the relevant central bank, which shall issue an opinion containing their assessment. The competent authority assessing the authorisation application should duly consider the opinions of these entities, although they are not binding (see ART and CASP licensing (MiCA)).

EMT

MiCA equates the position of EMTs with electronic money. An offer to the public of EMTs or seeking the admission to trading of EMTs can only be made by an entity that is the issuer of the token and is authorised to operate as a credit institution or a electronic money institution. In addition, the entity is required to notify the EMT white paper to the competent authority and publish it in accordance with the provisions of MiCA.

The content of the white paper is generally consistent with the information that is provided for the offer to the public of other crypto-assets. These include information about the issuer, about the crypto-asset, the offer to the public of the EMTs, on the rights and obligations attached to EMTs, the underlying technology, the risks and adverse effects on the climate, and a summary worded in a clear and understandable manner. In addition, an issuer of EMTs is subject to a number of other requirements regarding, in particular, the content of marketing communication, the investment of funds received in exchange for EMTs, or the recovery and redemption plan.

Crypto-asset services

Crypto-asset services

Crypto-assets services include:

• providing custody and administration of crypto-assets on behalf of clients – safekeeping or controlling, on behalf of clients, of crypto-assets or of the means of access to such crypto-assets, where applicable in the form of private cryptographic keys
• operation of a trading platform for crypto-assets
• exchange of crypto-assets for funds
• exchange of crypto-assets for other crypto-assets
• execution of orders for crypto-assets on behalf of clients
• placing of crypto-assets
• reception and transmission of orders for crypto-assets on behalf of clients
• providing advice on crypto-assets
• providing portfolio management on crypto-assets
• providing transfer services for crypto-assets on behalf of clients

In particular, outside the scope of the MiCA are:

• services that are provided in a fully decentralized manner
• providers of hardware or software of non-custodial wallets

CASP authorisation

Crypto-asset services can only be provided by:

• Legal persons or other undertakings that has been authorised as crypto-asset service provider (CASP)
• Entities licensed to provide services in the field of broadly defined finance, e.g., credit institutions, investment firms, central securities depositories or electronic money institutions. These entities are required to notify their intention to undertake crypto-asset services and submit the documents specified in MiCA (depending on the type of entity, as well as the scope of services provided) to the competent supervisory authority.

The catalog of information and documents that must be submitted with the application for authorisation to provide services as a CASP is extensive – the applicant is required to submit, among other things, the programme of operations, internal control procedures, technical documentation of ICT systems), documents attesting to the warranty of management and shareholders holding a qualifying holding (both direct and indirect) or evidence of compliance with prudential safeguards.

The competent supervisory authority shall, within 40 days of receipt of a complete application, issue a decision to grant or deny the authorization. The authority will refuse to grant an authorization in particular if the applicant’s management poses a threat to the adequate consideration of the interest of its clients or the integrity of the market, exposes the applicant to a serious risk of money laundering or terrorist financing, or when members of the management body or shareholders (direct or indirect) have failed to pass a warranty assessment.

CASPs are subject to a number of different obligations under MiCA regulations. Among other things, they should convey information clearly in their marketing communications, have prudential safeguards in an appropriate amount, keep records of all activities, orders and transactions carried out in the provision of crypto-asset services, safeguard client funds. The ultimate scope of obligations regarding the provision of crypto-asset services will depend on the type of services a CASP offers.

The CASP license can be passported – the provision of crypto-asset services in more than one Member State requires notification to the competent supervisory authority of the home Member State and providing it with information on the services the CASP intends to provide, a list of the Member States in which the CASP intends to provide crypto-asset services, the starting date of the intended provision of the crypto-asset services, and a list of all other activities provided by the CASP not covered by (see ART and CASP licensing (MiCA)).

MiCA - AML and privacy

MiCA also pays special attention to issues related to money laundering and terrorist financing regardless of the fact that CASPs are an obliged institution under the AML regulation. Various motifs related to AML and privacy (anonymity) appear in MiCA in many different contexts, for example:

• Prohibiting of admission to trading platform of crypto-assets that have an inbuilt anonymisation function (unless the holders of those crypto-assets and their transaction history can be identified by the CASP operating a trading platform)
• A conviction for a money laundering or terrorist financing offense is relevant from the perspective of assessing the reputation of members of the issuers of ART and management body of CASP, as well as shareholders holding a qualifying holding
• An element of the application for authorisation for an offer to the public of ARTs and seeking admission to trading of ARTs is description of internal procedures to ensure compliance with AML obligations (in case the applicant cooperates with CASP)
• The competent supervisory authority, during the procedure for an offer to the public of ARTs and seeking admission to trading of ARTs or the authorisation to provide services as a CASP, may cooperate or consult with the competent AML authorities
• A description of internal AML procedures is part of the notification submission when certain financial entities intend to provide crypto-asset services that are not required to obtain authorisation
• The premise of a CASP management body exposing CASP to a serious risk of money laundering is a mandatory premise for denial of CASP authorization
• Failure to have effective internal AML procedures is a premise for withdrawal of authorisation of a CASP
• A CASP operating a crypto-asset trading platform must have procedures to prevent the use of infrastructure for money laundering or terrorist financing purposes

Table of contents

1. Subject matter, scope and definitions
2. Crypto-assets other than asset-referenced tokens or e-money tokens
   • Offers to the public of crypto-assets other than asset-referenced tokens or e-money tokens
   • Content and form of the crypto-asset white paper
   • Requirements for marketing communication
   • Rights and obligations of offerors and purchasers
3. Asset-referenced tokens
   • Authorisation to offer asset-referenced tokens to the public and to seek their admission to trading
   • Elements of the application for authorisation
   • Content and form of the crypto-asset white paper for ARTs
   • Procedure for granting authorisation
   • Obligations of issuers of asset-referenced tokens
   • Own funds and reserve of assets
   • Significant ARTs
   • Recovery and redemption plan
4. E-money tokens
   • Requirements for the offer to the public or admission to trading of e-money tokens
   • Issuance and redeemability of EMTs
   • Content and form of the crypto-asset white paper for EMTs
   • Obligations of EMTs issuers
   • Investment of funds received in exchange for EMTs
   • Recovery and redemption plan
   • Significant EMTs
5. Authorisation of crypto-asset service providers
   • CASP authorisation
   • Reverse solicitation
   • Elements of the authorisation application
   • Procedure for granting the authorisation
   • Cross-border provision of services
   • CASP obligations
   • Obligations for all CASP
   • Obligations related to the provision of certain crypto-asset services
6. Prevention and prohibition of market abuse involving crypto-assets
   • Inside information
   • Market manipulation
7. Competent authorities, EBA and ESMA
   • Powers and cooperation
   • ESMA registers
   • Penalties
   • EBA’s supervisory powers over significant ARTs and EMTs
8. Delegated acts
9. Transitional and final provisions
   • Commission report
   • Transitional measures
   • Amendments to other legislation
   • Entry into force and application
10. Annexes

MiCA - FAQ

1. What problem does MiCA solve?

The MiCA is a kind of constitution for crypto-assets. The regulation comprehensively regulates the legal situation of crypto-assets, which until now have mostly (except of AML regulation in regard of virtual currencies) remained outside the scope of European law regulation. The MiCA also introduces a new license – a authorisation as a crypto-asset service provider (CASP).

2. How does MiCA divide crypto-assets?

• ART – asset-referenced tokens
• EMT – e-money tokens
• Crypto-assets other than ARTs and EMTs, but within the scope of the regulation

3. Are NFTs/investment tokens covered by the regulation?

• NFTs are generally not covered by MiCA. However, if they are issued in a series, this practice may deprive them of their uniqueness feature, which would consequently make MiCA applicable to them.
• MiCA does not apply to crypto-assets that qualify as financial instruments under the MIFID2. Having expanded the definition of financial instrument in the MIFID2 Directive, there is no doubt that financial instruments that are issued using distributed ledger technology are also covered.

4. What services can CASP provide?

The catalog of services that CASP can provide includes:

• providing custody and administration of crypto-assets on behalf of clients – safekeeping or controlling, on behalf of clients, of crypto-assets or of the means of access to such crypto-assets, where applicable in the form of private cryptographic keys
• operation of a trading platform for crypto-assets
• exchange of crypto-assets for funds
• exchange of crypto-assets for other crypto-assets
• execution of orders for crypto-assets on behalf of clients
• placing of crypto-assets
• reception and transmission of orders for crypto-assets on behalf of clients
• providing advice on crypto-assets
• providing portfolio management on crypto-assets
• providing transfer services for crypto-assets on behalf of clients

5. I have a investment firm/electronic money institution license. Do I need to obtain a separate CASP license to provide crypto-asset services?

You are not required to obtain a CASP license. In order to start operations, you must, at least 40 working days before you start providing crypto-asset services, notify the competent supervisory authority and submit the documents and information required by MiCA.

6. I hold a VASP license in country X. Can I continue to provide crypto-asset services after the MiCA comes into effect?

For a limited time, yes. MiCA stipulates that crypto-asset service providers who have provided their services in accordance with the current law may continue to do so for 18 months, or until they obtain a CASP license. Member States may also apply a simplified licensing procedure to such entities.

However, it should be pointed out that Member States may also decide not to apply the 18-month transition period if their national regulations would be less stringent than the requirements of MiCA.

7. Is the authorisation to provide services as a CASP passportable?

Yes, the CASP license is passportable. However, an entity that intends to provide crypto services in more than one Member State must notify the supervisory authority of the home Member State and provide it with the relevant information and documents.

8. As a company from a third country, I have so far provided crypto-asset services for clients residing in the EU. Can I continue to do so after MiCA becomes applicable?

The MiCA allows for the provision of services by entities based in a third country in a reverse solication model, i.e. on the sole initiative of the client.

9. I would like to launch a decentralized crypto-assets exchange. What requirements do I need to meet?

Services that are provided in a fully decentralized manner, without intermediaries, are not covered by the MiCA Regulation.

10. Will a CASP register be established?

In MiCA, it is envisaged that ESMA will be responsible for creating several different registries:

• The register of crypto-asset white papers for crypto-assets other than asset-referenced tokens and e-money tokens
• The register of ART and EMT issuers
• Register of CASPs
• Register of entities providing crypto-asset services in violation of MiCA authorisation obligation

11. What is the relationship between MiCA and DLT Pilot?

MiCA is often juxtaposed in studies with the DLT Pilot Regime. It should be noted, however, that although the subject matter of the regulations appears to be fundamentally aligned, i.e. crypto-assets, they are actually about different things.

DLT Pilot Regime allows for the capital market functions to be performed in DLT-based infrastructures. The regulation deals with classic financial instruments, only that in a tokenized form (DLT financial instrument). A broader discussion of the DLT Pilot Regime is available here.

MiCA does not apply to financial instruments in the crypto-assets form – the subject of MiCA are those crypto-assets that do not qualify as services or assets as defined by other legislation.

12. What is the relationship between the MiCA and the DAC-8?

The DAC-8 Directive concerns tax reporting in the area of crypto-assets. Under the provisions of DAC-8, entities authorised as CASPs will be required to report information on transactions carried out by clients within the EU.

MiCA - how do we help?

DLK offers comprehensive services to crypto-assets market actors, including:

• Preparation of a legal opinion on the qualification of a given token
• Preparation of model documentation required as part of an application for the relevant authorisation or submission of a notification
• Legal support in ongoing operations

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