Monday, February 10, 2025
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The Council of the EU has sent an official letter and draft law to the European Parliament (EP), stating that if it can accept the text of the law on markets in crypto-assets (MiCA), there is a deal.

The EU-level law proposes regulations for crypto-asset service providers (CASP) and applies to the issuance, public offering or admission of digital assets to intra-block trading. It aims to create a consistent regulatory framework for cryptoassets across EU member states.

MiCA reached an EU political agreement in June 2022, although the technical trilogues – technical discussions between the European Parliament, the Council and the EU Commission – ended this week. You can see the result of that process here.

The next step is that on October 10, the EP Committee will vote on MiCA and, if passed, it will go to the EP plenary for a vote – probably in November. If no amendments are introduced at that stage, it will be agreed and then it could go to the plenary session of the EP in December 2022 and be entered in the Official Gazette (OJ).

Entry into the OJ is an important part of the process, as it triggers the beginning of the legislative clock for the entry into force of certain articles.

So that’s the process – what’s the content?

We will digest MiCA more fully and provide further analysis, but some key points to consider are:

  • Timing

    • Most of the MiCA obligations relevant to CASP will enter into force at the end of the second quarter of 2024 – so 18 months after entry into force.
    • Obligations for asset and e-money token issuers will come into force at the end of 2023 – so 12 months after entry into force.
  • Client’s money

    • Crypto asset companies are expected to hold client funds in a bank, and the account will need to be identified as separate from the exchange’s own funds. Exceptions will apply where the exchange is also an EU payment service company or e-money firm or holds client funds through such a firm.
  • Trading

    • Admission to trading requires crypto platforms to have a white paper for digital assets, although there are some changes and transitions for existing cryptoassets.
    • Exchanges will be prevented from providing trading services for privacy coins unless transaction history can be identified.
    • Trading venues will have to have non-discretionary rules and procedures to ensure fair and orderly trading and objective criteria for efficient order execution.
    • The European Securities and Markets Authority (ESMA) has a mandate to develop standards on pre- and post-trade data to be made available to the public. Furthermore, the order book record format must be completed by the end of 2023.
  • Market abuse

    • CASPs will need to have effective systems, procedures and arrangements to monitor and detect market abuse and to inform supervisors when violations occur.
    • CASPs will need to have procedures in place to prevent insider trading and handle insider information.
    • By the end of the second quarter of 2024, ESMA will have to develop standards for CASPs on market manipulation and breach reporting.
  • Capital obligations

    • Depending on the CASP’s activities, it will need to have a minimum capital of between €50,000 – €150,000 ($49,000 – $147,000) or one quarter of the previous year’s fixed overhead costs – whichever is greater. This will be reviewed annually.
  • Claims processing

    • By the end of 2023, ESMA will set out complaint handling requirements, standard formats, procedures and deadlines for complaints that CASPs must adhere to.
  • Conflicts of interest

    • Any conflict of interest between the CASP and the client must be visibly disclosed. ESMA will outline the expected operational details and methodology by the end of 2023.
  • Detention

    • Once every three months and upon request, the custodian will submit an electronic declaration of client ownership.
    • The custodian will need to separate the client’s cryptoasset holdings from its own funds, in order to protect the client from its own insolvency.
    • Trustees will be liable for loss of property – limited to the market value at the time of loss – and subject to exclusions where it is the result of acts beyond their control.
    • Custodians will be required to be authorized by the EU, which includes being registered in the EU, conducting part of their activities from there and having at least one director in the EU. This is a general obligation that also applies to the authorization of CASP.
  • An orderly descent

    • CASPs that offer trading or custody services will need a plan to deal with an orderly exit.
  • Advice

    • Advising clients on crypto sets is also an authorized MiCA activity, and will impose an obligation to check eligibility and disclose the nature and cost of the advice.
  • Asset-related stablecoins/e-money tokens

    • MiCA imposes a significant number of criteria and obligations for authorization on the issuer, as well as on reserve funds when used to support an asset-related stablecoin.

Discussion continues on how asset-backed stablecoins and e-money tokens are denominated in a currency that is no the official currency of an EU member state should be limited in use within the bloc.

When such e-money tokens are transacted more than 1 million times a day and the total value exceeds 200 million euros ($196 million), respectively, within one currency area, MiCA requires the issuer to stop issuing and introduce a plan to reduce the use of the crypto-asset . The discussion seems to revolve around the question of whether the transaction is in respect of a medium of exchange or a medium of settlement.

MiCA is a large piece of EU law that will take time for firms to adopt and understand. We at Elliptic’s GPRG team are always happy to communicate with clients about our understanding of these and other crypto-related regulations. Email mark.aruliah@elliptic.co.

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