The initiative of the European Commission aims to support innovation and fair competition by creating a framework for the issuance and provision of services related to crypto-assets. The Commission believes that where crypto-assets are not covered by the financial regulation of the European Union, the absence of applicable rules to services related to such assets leaves consumers and investors exposed to substantial risks. It aims to ensure a high level of consumer and investor protection as well as market integrity in the crypto-asset markets, and to address financial stability and monetary policy risks that could arise from the wide use of crypto-assets in financial markets.
In addition, the fact that some Member States have adopted national regulations for crypto-assets leads to regulatory fragmentation, which distorts competition in the single market, makes it more difficult for crypto-asset service providers to scale up their activities cross-border and gives rise to regulatory arbitrage. Thus, the Commission published the Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets and amending Directive (EU) 2019/1937 (MiCA) on 24 September 2020, and the Council adopted its position on the proposal on 24 November 2021. The MiCA forms part of a broader package of measures coming under the Commission's Digital Finance Strategy1.
The scope of the MiCA
The MiCA will not apply to crypto-assets that qualify as (a) financial instruments, (b) electronic money, (c) deposits, (d) structured deposits, and (e) securitisation. The MiCA considers that crypto-assets that qualify as financial instruments are already subject to the Markets in Financial Instruments Directive (MiFID) and that crypto-assets that constitute e-money under the existing Electronic Money Directive (EMD) definition fall within the EMD and the second Payment Services Directive (PSD2). These crypto-assets would not be subject to the MiCA.
Under the MiCA, "crypto-asset" means a digital representation of value or rights that may be transferred and stored electronically, using distributed ledger or similar technology. The MiCA defines three types of crypto-assets:
- asset-referenced token, which purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets;
- electronic money token, which is meant to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender; and
- utility token, which is intended to provide digital access to a good or service, available on distributed ledger technology (DLT), and is only accepted by the issuer of that token.
Further to the categorisation of the assets, the MiCA brought two new categories of subjects, more specifically the issuers of crypto-assets and crypto-asset service providers (CASP). The issuers are companies that offer any of the above-mentioned crypto-assets to the public or that are attempting to have the crypto-assets admitted to a crypto trading platform and hence would be obliged to issue a so-called whitepaper. CASP in turn include those companies that provide certain services in relation to crypto-assets; namely the custody and administration of crypto-assets on behalf of third parties, the operation of a crypto trading platform, the exchange of crypto-assets for fiat currency or for other crypto-assets, the execution of orders for crypto-assets on behalf of third parties, the placing of crypto-assets, the reception and transmission of orders for crypto-assets on behalf of third parties and providing advice on crypto-assets.
The whitepaper the issuers are expected to issue is part of the MiCA's broader investor protection tools. The MiCA imposes investor disclosure requirements on issuers of all crypto-assets, the whitepaper serving such disclosure (similar in nature to a securities prospectus) and required for admittance to a crypto-asset trading platform in the EU. The whitepaper must be registered with a designated EU regulator in one of the Member States where the crypto-asset will be marketed or admitted to trading on a crypto-asset trading platform, and published on the issuer's website. The MiCA sets out requirements for the content and form of the white paper, which include provisions requiring detailed descriptions of the project, the rights and obligations attached to the crypto-asset, information on the underlying technology, and a description of the risks involved. The MiCA requires that such disclosures be fair, clear and not misleading. Significantly, the MiCA also imposes liability on the issuer for damages in case of a failure to meet this standard.
Issuers of general crypto-assets do not, however, have to be established in the EU; nor do they have to be authorised under any EU directive. In contrast, issuers of e-money tokens and asset-referenced tokens must be established in the EU. An issuer of e-money tokens must become authorised as an e-money issuer under the EMD, whereas an issuer of asset referenced tokens must become authorised under MiCA, resulting in slightly different requirements. Because an e-money token will be classified as e-money under the EMD, the Commission's proposal seeks to ensure that holders of e-money tokens benefit from the same protections afforded to holders of traditional e-money under the existing EMD. This means issuers of e-money tokens must provide token holders with a right to redeem their tokens at par, whereas no such obligation applies to the issuer of an asset-referenced token.
To sum up, the MiCA will provide a much greater degree of legal certainty, remove fragmented national regimes, and provide the ability for a general crypto-asset to be marketed EU-wide from a single point of entry. It was desired that the regulation proposed within the MiCA could fit into the currently existing regulation of capital markets as well as to the payments industry. Nevertheless, we can still see some missing aspects that need to be improved. The anonymous nature of crypto-assets tends to be the main reason why banks avoid working with crypto-asset service providers, as AML rules are difficult to adhere to. With the MiCA, banks could be open to these service providers.