The long-awaited Markets in Crypto– Assets (MiCA) Regulation was finally officially published on 9 June 2023, stating that the regulation would enter into force in 20 days from the date of publication.
This landmark legislation sets a precedent in crypto regulation as it paves a clear path to regulate the digital asset space within the union. This will help to develop a European approach that fosters technological development while ensuring financial stability and consumer protection.
What does MiCA include and what does it mean for crypto service providers?
Authorization of crypto-asset service providers
The key requirement of MiCA is that a legal entity cannot provide crypto asset services in the EU unless it’s either:
- Authorized as a crypto asset service provider (a CASP);
or
- Allowed to provide crypto asset services because it’s already licensed.
- Any person providing, by way of business, any of the services defined in MiCA as crypto-asset services will be categorized as a CASP and will need to be authorized to operate.
Requirements for CASPs to be authorized in the EU
- A registered office in a Member State – where they carry out at least part of their crypto-asset services. They need to have at least one director who is resident in the EU.
- “Passporting rights” – that will allow CASPs authorized in one Member State to provide crypto-asset services throughout the EU, either by establishing a branch or some other form of physical presence or on the basis of the provision of services.
- Submitting an application for authorization as a crypto-asset service provider – all applicants must provide information about their legal entity and operations. This information should include details about their policies and procedures, as well as their proposed business continuity plan.
Prudential requirements
Crypto-asset service providers must always have in place prudential safeguards equal to an amount of at least the higher of the following:
(a) The amount of permanent minimum capital requirements to operate and absorb losses.
(b) One quarter of the fixed overheads of the preceding year reviewed annually.
Effective risk management framework for crypto assets
Crypto-asset service providers must take the necessary steps to ensure their operations are secure and have effective risk assessment and internal control systems in place.
CASPs must have systems in place to track all transactions and orders related to the services. They provide systems that can detect potential abuse of their clients.
Crypto compliance requirement
CASPs should be subject to strong organizational requirements.
The members of the management body of crypto asset service providers must be fit and proper and should not be involved in illegal activities, such as money laundering and terrorist financing.
Notably, all members of the applicant CASP’s management body must provide proof of the absence of a criminal record with respect to convictions and the absence of any penalties that fall under relevant commercial laws including insolvency, financial services legislation, AML/CTF legislation, or professional liability.
Before granting or refusing an authorization to a CASP, national competent authorities (NCAs) may consult the competent authorities for AML/CFT, and financial intelligence units, to verify that the applicant CASP has not been the subject to an investigation.
Which authority is the supervisory body over CASPs?
Member States need to:
- Designate the NCAs responsible for carrying out the functions and duties provided for in MiCA and notify those competent authorities to European Banking Authority (EBA) and European Securities and Markets Authority (ESMA).
- Determine their tasks and designate one NCA as the single contact point for cross-border administrative cooperation between competent authorities and with EBA and ESMA.
- ESMA shall publish on its website a list of the competent authorities
Cooperation with EBA and ESMA
NCAs must cooperate and exchange information with each other, with authorities in other Member States and third countries and with the EBA and ESMA.
With regards to NCAs, ESMA helps coordinate national market monitoring initiatives, facilities the exchange of best practices, provides advice and suggests proposals for appropriate action at the national level when needed.
ESMA’s role involves developing regulatory technical standards and guidelines in collaboration with the EBA, which supervises significant e-money token and asset-referenced token platforms.
Earlier this month, ESMA outlined its plans for MiCA consultations on 9 June 2023. This is the timeline confirming ESMAs plans for three consultations, with the first starting from July. The specific topics of the consultations have not been disclosed, but the 1st consultation will include authorization, governance, conflicts of interest, and complaint-handling procedures.
The importance of the MiCA for the global crypto market
MiCA establishes a range of regulatory requirements for persons engaging in the activities in scope of the rules.
According to the requirements, crypto businesses should review their operations to identify areas where changes should be made to comply with the new legislation. This can include reviewing marketing materials, record-keeping procedures, and custody arrangements.
There is a need to develop a compliance plan and obtain a license. Under MiCA, companies will be required to submit more extensive disclosures in order to gain approval.
This Regulation shall enter into force 20 days after its publication in the Official Journal of the European Union (9 June 2023). The transition period of 18 months from the entry into force of MiCA allows preparations for both CASPs and competent authorities.
Current operating CASPs may continue to provide their services up to 18 months after the date of application of MiCA.
The goal is to ensure that the legal framework of the European Union does not prevent the use of new financial instruments. It also ensures that new products and technologies are subject to the same level of regulation and risk management as existing financial services. This is to help encourage innovation and the growth of the financial services industry.
To understand how the evolving regulations will impact your business, please get in touch with us at [email protected]
