The regulation of the crypto-asset market (MiCA) reached an EU political agreement in June, but the story did not end there. Here we have set the expected time frame. MiCA is currently in technical trialogues – technical discussions between the European Parliament, the Council and the EU Commission – to finalize the draft legal text. Stay tuned to the Connect website for further analysis of MiCA in the coming days.
If the technical trialogues are completed by the end of July, we can expect this to enter the Official Gazette (OJ) – i.e. become law – around December 2022 or January 2023. Clearly, if there is no agreement or there are other delays, this may extend the OJ entry period.
Companies will have to comply with obligations from:
- Q2 2024 for most obligations, including those related to crypto-asset service providers (CASP) – so 18 months after entry into force.
- End of 2023 for asset-backed token liabilities and e-money token issuers – so 12 months after entry into force.
In the future, there are other EU legislative developments that will affect cryptocurrencies. The EU Commission is also looking at how the technology can be used, for example, to provide more effective surveillance using on-chain data and whether it can deal with the risks of decentralized finance (DeFi).
Volume
The table at the end of this article shows the structure of the MiCA regulation and reflects the size and nature of the overall framework. Specifically, we aim to cover CASPS obligations as well as stablecoins in the coming days. Given that the final text is not yet public and is still awaiting finalization, we will outline the general themes below:
- MiCA applies to the issuance, public offering or admission to trading of a crypto-asset within the EU. It excludes cryptocurrencies that are also financial instruments, as they will be regulated by the Markets in Financial Instruments Directive (MiFID).
- Cryptoactive services include:
(a) custody and management of cryptoassets on behalf of third parties;
(b) operation of the cryptoasset trading platform;
(c) exchanging cryptoassets for fiat currency that is legal tender;
(d) exchanging a crypto-asset for another crypto-asset;
(e) execution of crypto-asset orders on behalf of third parties;
(f) placement of cryptoassets;
(g) receiving and transmitting crypto-asset orders on behalf of third parties; and
(h) providing advice on cryptoassets.
- CASPs operating in the EU must be registered in the block, but have a “passport”. A passport provides authorization in one member state (home state) to be able to do business in other member states (host states), either through a service or the establishment of a branch, without further authorization.
- CASPs must be established in the EU and there may be a management localization obligation.
- There are minimum capital obligations, as well as obligations for market abuse – especially for market manipulation and insider trading.
- There are requirements to protect consumer wallets and imposed liability obligations in case of loss of investors’ crypto assets.
- There will be a public registry of non-compliant cryptoasset service providers.
What should companies do now?
Although the text is not finalised, companies can start to consider whether or not they are considered to be carrying out activities in the EU. If so, they should consider having a locally established entity and some level of governance oversight within the block. Finally, companies should start digesting the obligations in MiCA, but also start talking to their local EU supervisors – if they are willing to give some views on interpretation.
Below is the complete list of frameworks within MiCA, which we will slowly unpack.
Title I Subject matter, scope and definitions Title II Crypto-assets, other than asset-related tokens or e-money tokens Title III Asset-Related Tokens
Title IV: Electronic Money Tokens
Title V: Authorization and Terms of Service for Crypto-Asset Service Providers
Title VI: Preventing Market Abuse Involving Crypto Assets Title VII: Competent authorities, EBA and ESMA |
Compliance with EMEA regulations