The world of crypto assets is undergoing a significant change with the arrival of European Union regulation known as Markets in Crypto Assets (MiCA). This regulation, which has been the subject of intense debates for more than two years, aims to establish a unified regulatory framework for crypto-assets in the EU.
What is MiCA?
MiCA is a set of rules that seek to regulate the issuance and admission to trading of crypto-assets, introduce licensing for crypto-asset service providers and clarify regulatory obligations for token issuers and crypto-asset service providers. This regulation is an important step towards unifying the regulatory approach across the 27 EU member states.
Who is affected by MiCA?
MiCA targets three categories of participants: issuers of crypto-assets, Crypto-asset Service Providers (CASPs) and any person dealing in crypto-assets supported on a trading platform for crypto-assets managed by an authorised CASP. Issuers of crypto-assets do not necessarily refer to the entity or undertaking that created the crypto-assets. Rather, the issuer of a crypto-asset is the “legal entity that presents to the public any type of crypto-assets” or “seeks the admission of such crypto-assets on a crypto-asset trading platform”. The applicable regulatory framework will also depend on the type of crypto asset offered.
What services does MiCA regulate?
MiCA regulates several types of services, including the custody and administration of crypto-assets on behalf of third parties, the operation of a trading platform for crypto-assets, the exchange of crypto-assets for funds and other crypto-assets, and portfolio management in crypto-assets. According to MiCA, all CASPs must comply with the following general obligations: be authorised by a competent authority in an EU member state, comply with minimum capital requirements, act honestly, fairly and professionally in the interests of clients, safeguard clients’ crypto-assets and funds and prevent their use in their own interest, ensure the good reputation, knowledge, experience and skills of the members of the management body, establish appropriate policies and procedures, including the prevention of money laundering (AML), continuity of services and data security, establish and maintain effective procedures for handling complaints, maintain and operate an effective policy to prevent conflicts of interest.
Next step
The arrival of MiCA is an important milestone in the crypto-asset sector. Although there are still areas that need to be addressed, such as the regulation of NFTs and decentralized finance platforms, MiCA provides a solid regulatory framework that will allow sector players to operate with greater security and confidence. However, MiCA does not include key aspects such as clear regulation for NFTs, decentralized finance platforms, DAOs, or even complete clarity (it can be interpreted in certain use cases) on when a tokenized deposit is e-money token and when it is not.
In this regard, there is no doubt that the actors of the sector, native or not, have work ahead to adapt to the norm. Native actors, such as exchanges and custodians of digital assets, will have to carry out analyses of policies and procedures at all levels, and define action plans that allow them to adapt their reality to the requirement of the regulation to be eligible for licensing.
On the other hand, traditional actors, such as banks and depositories, although exempt from licensing requirements, in order to offer this new type of services, will have to make adaptations in their policies and controls to handle a new typology of assets and respond to new risk variants within the risk verticals they already manage.
In addition, supervisors and regulators will have to help digest the standard through guidelines that land obligations, as well as, especially supervisors, work on mechanisms and solutions that allow them to monitor new types of operations.
In short, at this point the different actors in the sector will have to face multiple challenges and, in this sense, they will need help to make an adequate interpretation of the regulation, not only from the legal and regulatory field, but also from its operational and risk implications. In turn, organizations will need to adapt their operating and risk models, including the development of concrete policies and procedures. In addition to needing support for the launch of new lines of business within the framework of the regulation and application to licenses.