On 20 April 2023, the European Union (EU) Lawmakers approved the Markets in Crypto – Asset Regulation (MiCA) and the regulation on information accompanying transfers of funds and certain crypto – assets, i.e. the “Travel Rule”.

The MiCA is part of the EU’s broader digital financial package, which includes the Digital Operational Resilience Act and the Pilot Regime on Distributed Ledger Technology. These regulations aim to foster innovation and adoption of new financial technologies while ensuring consumer protection and promoting financial stability.

The MiCA regulation pertains to individuals, organizations, and other entities engaged in the issuance, public offering, and admission to trading of crypto – assets or those providing related services within the EU.

Definitions

Remarkably, the MiCA defines a crypto – asset as a “digital representation of value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology”.

It then categorizes crypto – assets into 3 sub-categories:

• E-money tokens: a type of crypto – asset “which is meant to be a means of exchange and maintains a stable value by referring to the value of a fiat currency that is legal tender”
• Asset – references tokens: “a type of crypto – asset which is meant to maintain a stable value by referring to the value of several currencies that are a legal tender (fiat currencies), one or several commodities, or one or several crypto – assets, or a combination of such assets”
• Other Crypto – Assets: a type of crypto asset which “provides digital access to a good or service available on Distributed Ledger Technology and is only accepted by the issuer of that token”

Additionally, one of the notable requirements of the regulation is that crypto asset issuers must produce a whitepaper outlining their operations, the characteristics of the crypto – assets they issue, project timelines, risks, and other relevant details. This requirement is in line with the EU Prospectus Regulation, which aims to provide a unified disclosure system for crypto – asset issuers.

The MiCA legislation is expected to come into force around July 2023, with a provision relating to stablecoins applying from July 2024. Other sections regarding other types of crypto – assets and provisions relating to service providers and travel rules will be effective from January 2025.

Impact on the Crypto Industry

MiCA establishes a wide – range framework for providers and services related to crypto assets and emphasizes safeguarding investors and maintaining the integrity of the market. Coupled with Anti – Money Laundering regulations, MiCA is poised to bring significant changes to the landscape of cryptocurrency sector within the European Union.

Finally, despite the obstacles it presents, MiCA is regarded as a favorable step towards the advancement of the crypto industry.

Next Steps

The European Banking Authority and the European Securities Market Authority plan to develop technical standards and guidelines to complement the MiCA. In the meantime, technical standards and recommendations will be created by the European Banking Authority and the European Securities Markets Authority to sustain the regulation.

For all enquiries related to MiCA and to Crypto licensing in general, please contact our team of experts at agp@agplaw.com 

The information provided by AGP Law | A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.