The EU is bringing crypto-assets, their issuers and crypto-asset service providers together under one legal framework for the first time.
The Council Presidency and the European Parliament reached a preliminary agreement on the Markets in Crypto Assets Regulation (MiCA) proposal last week. The planned regulations will affect issuers of unsecured crypto-assets and so-called "stablecoins," as well as the trading venues and wallets where crypto-assets are held. The regulatory framework is designed to protect investors and maintain financial stability while enabling innovation and promoting the attractiveness of the crypto-asset sector. In addition, the EU regulation will provide greater clarity, as some Member States already have national legislation on cryptoassets, but there has been no specific legal framework at the EU level.
Mitigating the risks of crypto assets
With the new rules, crypto-asset providers will have to comply with strict requirements to protect investor wallets and be liable if client crypto-assets are lost. MiCA sanctions any market abuse related to transactions or services of any kind, especially in the case of market manipulation and insider trading.
Furthermore, players in the crypto-asset market will be required to disclose information about their environmental and climate footprint. The European Securities and Markets Authority (ESMA) will develop draft regulatory technical standards on the content, methodology and presentation of information on key negative environmental and climate impacts.
To avoid regulatory duplication, MiCA does not overlap with anti-money laundering (AML) provisions affecting cryptocurrencies. MiCA does, however, provide for the European Banking Authority (EBA) to be tasked with maintaining a public register of crypto-asset providers. Crypto-asset service providers whose parent company is located in countries on the EU's list of third countries with a high risk of money laundering, as well as on the EU's list of non-cooperative countries for tax purposes, will be required to implement enhanced controls in line with the EU's anti-money laundering framework. More stringent requirements may also apply to shareholders and management of CASPs, particularly with respect to their localization.
Strict framework for "stablecoins" and ARTs
MiCA requires issuers of so-called "stablecoins" to maintain a sufficiently liquid reserve at a ratio of 1:1 and, in some cases, in the form of deposits. In addition, all stablecoins are supervised by the European Banking Authority (EBA), and a presence of the issuer in the EU is a prerequisite for any issuance.
For currency stability reasons, the development of asset-based tokens (ARTs) based on a non-European currency is restricted. Issuers of ARTs must have a registered office in the EU to ensure proper oversight and monitoring of the public offering of asset-based tokens.
EU-wide rules for service providers and assets
Crypto-asset service providers (CASPs) require authorization to operate in the EU. National authorities must grant authorizations within three months. As for the largest CASPs, national authorities will submit relevant information to the European Securities and Markets Authority (ESMA) on a regular basis.
Non-fungible tokens (NFTs), i.e. digital assets representing real-world objects such as art, music and videos, will be excluded from the scope; unless they fall under existing crypto-asset categories. The European Commission is mandated to conduct a comprehensive assessment within 18 months and, if appropriate, prepare a specific, proportionate and horizontal legislative proposal.
The preliminary agreement still needs to be endorsed by the Council and the European Parliament, after which the formal approval process can begin.
cleversoft continues to monitor the situation for you and will keep you informed of the latest developments in a timely manner. If you have any questions about MiCA, AML or our services, we will be happy to assist you personally.