Basics of MiCA regulation | News

If you are a market actor that issues crypto-assets or provides crypto-asset services such as a trading platform or custodial wallet for crypto assets, if you already have a registration as a virtual asset service provider (VASP), or if you are a holder of crypto assets, or just fond of practicing trading on some platform, this article is for you.

As of now June 2023 the crypto markets within the European Union’s (EU) jurisdiction are regulated with the Markets in Crypto Assets Regulation's (MiCA). MiCA shall be applicable in two stages: 30 June 2024 for stablecoins and 30 December 2024 for all other operators (notwithstanding the possible special exceptions, e.g. for VASPs).

This sets a remarkable milestone in the EU’s aim in providing legislation to the rapidly evolving and complex matter of markets in crypto assets. To emphasize MiCA's importance, it should be highlighted that MiCA is a regulation of the European Union (EU). When we talk about an EU regulation like MiCA, it has a specific legal implication: it is directly applicable in all EU member states without the need for each member state to pass any additional national legislation to enforce it. In simpler terms, once MiCA is enacted at the EU level, it automatically becomes part of the legal framework in each EU member state. The member states do not need to take any further steps, such as passing new laws or modifying existing ones, to implement MiCA. It is as if MiCA becomes a law in each member state instantly upon its adoption by the EU. Thus, we can say that MiCA aims to do to crypto-assets what the GDPR did to personal data.

The development opens a new chapter for the economic markets within the EU. In this MiCA article-series we will do a deep dive into the soon-to-be implemented regulatory landscape of markets in crypto assets. This introductory article provides a basic overview of what implications MiCA has on the affected market actors. Firstly, however, we’ll do a quick recap and discuss the basics of what MiCA is, what the new regulation will change, who is affected and the most central terminology that stems from MiCA.

MiCA – Definitions and Applicability

The aim of the MiCA regulation is to establish harmonized legislation and uniform rules for all crypto-asset operators. The rules that stem from the MiCA regulation cover i) transparency and disclosure requirements for the issuing, offering to the public and admitting of crypto-assets to a trading platform; ii) the authorisation and supervision of crypto-asset service providers and issuer of asset referenced tokens (ART) and electronic money tokens (e-money tokens, EMT); iii) the operation, organisation and governance of the issuers and crypto-asset service providers; iv) protection of the holders of crypto-assets and clients of service providers; v) measures to prevent insider dealing, unlawful disclosure of information and market manipulation.

The regulation applies to natural and legal persons and certain other undertakings that are 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 EU jurisdiction. In addition, MiCA also natuarlly applies to all individuals in connection market abuse provisions (e.g. insider dealing and market manipulation).

As for the terminology and definitions MiCA recognises and defines three different classifications of crypto-assets:

‘Crypto-assets’ means a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology;
‘Asset referenced tokens’ (ART) refers to “a type of crypto-asset that 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 tokens’ (EMT, e-money token) refers to “a type of crypto-asset the main purpose of which is 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;”
‘Other tokens’ refers to all other crypto-assets than "an asset-referenced token or e-money token."

It is worth observing that since the MiCA regulation recognizes different types of crypto-asset, a different set of rules apply to the different classifications of crypto-assets as well.

As for other central definitions we mention the following:

‘Issuer of crypto-assets’ refers to “a legal person who offers to the public any type of crypto-assets or seeks the admission of such crypto-assets to a trading platform for crypto-assets;”
‘Offer to the public’ refers to “an offer to third parties to acquire a crypto-asset in exchange for fiat currency or other crypto-assets;”
‘Crypto-asset service provider’ refers to “any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis;”
‘Crypto-asset service’ refers to “any of the services and activities listed below relating to any crypto-asset:

(a) the custody and administration of crypto-assets on behalf of third parties;

(b) the operation of a trading platform for crypto-assets;

(c) the exchange of crypto-assets for fiat currency that is legal tender;

(d) the exchange of crypto-assets for other crypto-assets;

(e)the execution of orders for crypto-assets on behalf of third parties;

(f) placing of crypto-assets;

(g) the reception and transmission of orders for crypto-assets on behalf of third parties

(h) providing advice on crypto-assets;”

The list of definitions is not exhaustive since our aim here is to point out changes that virtual- or crypto-asset service providers are subject to. A crypto-asset service provider (CASP) is in the light of MiCA, any business whose business includes offering one or more of the crypto-asset services listed above. This means that all virtual-asset service providers (VASPs) should pay attention to the upcoming changes, since providers of services related to crypto-assets will be obliged to retain an authorisation as a CASP. May this short introduction serve as a heads up’, since we will return to the topic of CASPs and their authorisation in our next article. Stay put!

VASPs should prepare for the upcoming changes

Virtual asset service providers, VASPs, including all market actors that, until this day have been providing virtual-asset or crypto-asset services related to custodial wallets, trading platforms for such assets, or exchange services from crypto-to-crypto or fiat-to-crypto, will all have to register as CASPs.

Overall, CASPs will have more obligations under MiCA than what VASPs had before the entry into force of the new legislative regime of MiCA. New requirements apply for public offering of crypto-assets, for the offerors as well as for the people seeking admission to trade crypto-assets, and for the issuers of both asset-referenced tokens as e-money tokens. Before the entry into application of MiCA, issuers are required to draw up, notify the competent authority in the home Member State and publish a crypto-asset whitepaper, which is a document containing information on mandatory disclosures of the asset that is issued. The whitepaper must contain the following general information on the asset:

on the issuer, offeror or person seeking admission to trading;
on the project to be carried out with the capital raised;
on the offer to the public of Crypto-assets or on their admission to trading;
on the rights and obligations attached to the Crypto-assets;
on the underlying technology used for such Crypto-assets; and
on the related risks.

MiCA is applicable only within the jurisdiction of the EU, but it requires any person that publicly offers or provides crypto-asset services within its jurisdiction to be an authorized CASP (e.g. by marketing services to the EU market). Even if the service-provider is located outside of the EU, MiCA obliges the crypto-asset service provider to have a registered office in a Member State. This means that the crypto-asset service provider will at least have one place of effective management in the EU and operations that are carried out on the crypto-markets within the EU’s jurisdiction will be subject to authorisation and supervision under MiCA.

And what is left outside of the regulatory regime of MiCA?

While MiCA currently is the most comprehensive regulatory instrument regarding crypto-assets, many areas related to crypto-assets currently remain outside its scope. Excluded from MiCA are, for instance, DeFi (Decentralized Finance), NFTs (Non-Fungible Tokens), which are digital assets on the blockchain, crypto-asset financial services, DAOs (Decentralized Autonomous Organizations), and security tokens. Security tokens have been left out of MiCA because they already have their own EU-legislation as securities. The other areas listed above have specific characteristics that require lawmakers to conduct additional analysis to determine a regulatory framework that appropriately considers the associated risks. MiCA is likely to evolve in the coming years, and at least some of the currently excluded areas may come under some form of legislation.

This being said, MiCA does not constitute changes to existing EU legislation, but rather fulfills it. Other EU legislation also affects the crypto-market sector by addressing topics such as money laundering, tax avoidance, consumer protection, cybersecurity, and securities trading with distributed ledger technology. The MiCA regulation’s aim is now to provide market actors and authorities with a harmonized set of rules for issuance, trading, and custody of crypto assets across the EU. This new regime reaches its scope of application on all persons that aim to issue or offer crypto-assets or provide crypto-asset services to EU residents or persons located or established within the EU, regardless of the geographic of establishment of the issuer, offeror, or provider.

Let’s be in touch!

We at Nordic Law have extensive knowledge and experience of crypto-assets and the markets in crypto-assets. We have been assisting clients that operate in the crypto industry in regard to authorisations, operations and taxation to mention a few. We will continue to assist our clients in a wide range of questions that may arise due to the changing situation and the new regulatory landscape in Finland.

We are happy to discuss how the MiCA regulation may affect your operations and what measures should be taken to ensure compliance with the regulation. If you have any questions regarding MiCA, its implementation, or its implications, don’t hesitate to contact us. Were happy to assist you!

Our Associate Trainee Charlotta Grandell took part in writing this article.