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On 24 September 2020, the European Commission published its proposed Regulation on markets in crypto assets (MiCA), which is a part of a wider set of publications on Europe’s Digital Finance Strategy.
At the current moment many cryptoassets are not subject to regulatory protections due to the lack of corresponding regulation in European financial services regulation.
MiCA is an attempt of Europe to come up with proposals that will regulate cryptoassets, encourage the application of new technology and ensure a common approach across the Single Market eliminating risks related to cryptoassets.
Anyone who provides cryptoasset services or issues cryptoassets in or into Europe will fall under MiCA. All crypto assets which are not subject to EU regulation yet (unlike security tokens) will be subject to this regime: utility tokens, payment tokens, stablecoins, and e-money token. But it will not apply to central bank digital currencies.
As there are different obligations for different types of stablecoins, EU proposes to define the following terms: asset-referenced tokens, electronic money tokens (e-money tokens) and algorithmic stablecoins.
Asset-referenced tokens are defined as cryptoassets that purport to maintain a stable value by referring to the value of fiat, commodity or crypto-backed stablecoins.
Electronic money tokens are supposed to be used as a means of exchange,they purport to maintain a stable value by referring to the value of a single fiat currency, in contrast to asset-referenced tokens.
Algorithmic stablecoins maintain a stable value via protocols that regulate the supply of such cryptoassets in accordance with the changes in demand.
Asset-referenced tokens and e-money tokens may be subject to additional obligations if they are considered to be “significant”’ which might be based on the size of the issuer’s customer base, the value of tokens issued or of individual transactions, the size of the issuer’s reserve of assets, or the instrument’s interconnectedness with the financial system.
If a token or the issuer meets three or more criteria the issuer must apply the European Banking Authority (EBA), which will oficially assess the significance of the instrument.
What concerns crypto asset services that will be regulated under MiCA, they largely copy out existing regulated activities under European law including custody and administration of cryptoassets, the exchange of cryptoassets for fiat and other cryptoassets; the placement of cryptoassets and other services.
If you provide crypto asset services, you will have an opportunity to get a pan-European passport, which will let you offer your services in Europe. Cryptoasset service providers who are willing to get the pasport will be subject to a “mini-MiFID” (European Markets in Financial Instruments Directive (MiFID) regime.
Сrypto assets issuers
According to MiCA`s definition any “person who offers cryptoassets to third parties” is considered to be a cryptoasset issuer. The requirements they have to meet depend on the type of coin issued, as there are more stringent requirements to issuing of asset-referenced tokens and e-money tokens.
The general requirements include:
1) Issuers will be obliged to present a special whitepaper (similar to a mini-prospectus) which will cover the details of the asset, the issuer, the offering procedure thus fully informing the potential buyers about the coin itself and the risks related to the offering. The whitepaper must be submitted to the competent authority with an explanation of why the issuance falls outside the scope of MiFID II.
2) Issuers will have to act fairly and professionally, when communicating with the holders of cryptoassets and marketing cryptoassets; prevent and manage conflicts of interest that may arise; maintain effective administrative arrangements; maintain all of their systems and security access protocols to an appropriate standard.
Issuers of e-money tokens (payment tokens) are required to be authorised under the E-Money Directive.
The issuers of asset-referenced tokens will have to meet the following additional obligations:
1) to comply with prudential requirements (being the higher of €350,000 or 2% of the average amount of reserve assets, or such other amount as required by regulators) and hold its reserve assets in custody, segregated from its own funds and unemcumbered;
2) to have robust governance arrangements, a clear organisational structure, well defined, consistent and transparent lines of responsibility, effective process to manage, monitor, and report risks, and adequate internal control mechanisms. There will also be requirements on controllers of cryptoasset issuers;
3) To publish information on their practices related to the assets in circulation, events that might influence the value of their tokens and their conflict of interest policies, as well as complaints handling obligations.
If you are based outside the EU and you are willing to offer asset referenced tokens or e-money tokens in Europe, you will need to be established in the EU and obtain authorisation.
When are the proposals expected to come into force?
It`s early to say about the proposals coming into force as for that they have to go through the EU legislative process which could last 18–24 months and change the essence of the proposals over this time.
After the proposals have come into force, there will be a transitional period for firms to ensure they meet the new requirements and the ability for a light-touch regime for existing regulated entities.
