MiCA: Markets in Crypto-Assets Regulation in Europe. Impact and key insights.

The MiCA (Markets in Crypto-Assets) Regulation represents a milestone in the global regulation of cryptoasset markets. This legal framework, designed by the European Union, aims to establish a harmonized standard for all member states, which will pass MiCA in their country and regions at a later date. Through its provisions, MiCA seeks to promote transparency, protect consumers, ensure financial stability and mitigate risks related to technological innovation in the blockchain arena.

Since its approval in 2023, the MiCA regulation has generated significant impact, redefining the rules of the game for businesses, investors and consumers. Its full implementation and effective entry into force is scheduled for December 30, 2024, positioning the European Union as a leader in the design of comprehensive regulations for the digital economy alongside other standards such as eIDAS 2, PSD3 or DORA.

What is MiCA Regulation

The MiCA Regulation is a set of guidelines that establishes a single regulatory framework for regulating cryptoassets and associated services. It defines cryptoassets as a digital representation of securities or rights that are stored and transferred using distributed registry technologies, such as blockchain.

MiCA addresses both the issuance and the exchange and custody of cryptoassets, giving European regulators the power to oversee activities in this emerging sector.

Regulation MiCA thus covers a wide range of activities and players in the cryptoasset markets. Its scope includes asset referenced tokens (ARTs), electronic money tokens (EMTs), and other cryptoasset categories that we will look at below.

Key Aspects of the European Regulation on Crypto-assets Markets

1. Classification of cryptoassets:
• Asset-backed tokens (ARTs): Cryptoassets backed by physical or financial assets, such as fiat currencies or commodities.
• Electronic Money Tokens (EMTs): Designed to maintain a stable value relative to a fiat currency.
• Other cryptoassets: include traditional cryptocurrencies such as Bitcoin and Ethereum, which have no specific backing.
2. Issuance and transparency requirements:
• Issuers must publish a white paper detailing the objectives, risks and characteristics of the cryptoassets issued.
• Issuing companies are subject to strict solvency, governance and consumer protection measures.
3. Supervision and compliance:
• National authorities, such as the CNMV in Spain, will supervise the implementation of MiCA and a national MiCA Law will be passed.
• Regulatory Technical Standards (RTS) and Implementation Technical Standards (ITS) specify how the standards are to be met.
4. Exclusions from the regulatory framework:
• Non-fungible tokens (NFTs) and security tokens are outside the scope of MiCA and are regulated under other regulations, such as MiFID II.

In terms of benefits and substantial changes in the digital economy and cryptoassets, the MiCA regulation brings the following:

• Consumer protection: Solvency requirements, redemption schemes and transparency for token issuers and service providers are established. Guidelines are also established for digitally identifying owners, making cryptoasset holdings more secure and official.
• Specific standards: Technical guides such as RTS (Regulatory Technical Standards) and ITS (Implementing Technical Standards) detail the application of these provisions to improve the management of all types of cryptoassets.
• Prudential requirements: Issuers must be legal entities with adequate governance 13

Companies and businesses affected by MiCA Standards

The impact of MiCA spans multiple sectors, from blockchain startups to traditional financial institutions and the banking sector. The regulation also establishes specific requirements for Cryptoasset Service Providers (CASPs), such as crypto exchanges, custodians and advisors.

Obligations for CASPs

1. Solvency and equity: CASPs must maintain a minimum level of own funds to ensure financial stability and consumer protection.
2. Security and governance: A clear organizational structure is required, with cybersecurity measures and contingency plans for possible attacks.
3. Operational transparency: Users should receive complete information on conditions of use, fees and associated risks.

In addition to CASPs, MiCA regulation impacts other related industries, such as:

• Banking and fintechs: Integration of cryptoassets in payment solutions and traditional financial systems.
• RegTech providers: Creation of tools to automate compliance processes in the industry.
• Legal consulting and audits: Expansion of services to advise on regulatory adaptation.

Further EU regulations in relation to MiCA

The MiCA Regulation interacts with several related European laws, such as:

• DORA (Digital Operational Resilience Act): Regulates the cyber resilience of financial services.
• AML (Anti-Money Laundering) and KYC (Know Your Customer): Strengthen the prevention of money laundering and terrorist financing.
• eIDAS 2 : Relating to digital identity and electronic signature.
• MiFID II: Applicable to financial products derived from cryptoassets.

About MiCA: Dates, national laws and application

The MiCA Regulation (Markets in Crypto-Assets Directive) was approved in 2023 and its implementation is scheduled in two main phases:

1. June 30, 2024: Initial application for issuers of asset-linked tokens and e-money tokens.
2. December 30, 2024: Entry into force for all other regulated activities, including exchange platforms and custody services.

In Spain, the authorization process will be managed by the CNMV and the Bank of Spain, which will ensure compliance with the requirements established in Regulation (EU) 2023/1114 on cryptoasset markets (MiCA).

Companies wishing to offer services related to cryptoassets must apply for authorization before the corresponding regulatory authority, such as the CNMV in Spain. This process includes the submission of a detailed business plan, internal control measures, anti-fraud controls in client onboarding and risk management strategies.

Cryptoasset market and classifications

The global cryptoasset market has experienced unprecedented growth, reaching a market capitalization in excess of $2 trillion at its peak in 2021. This dynamism has led the European Union to establish specific categories. Thus, the cryptoasset ecosystem is broad and diverse, and MiCA establishes a detailed classification that includes:

1. Stablecoins: Tokens that maintain parity with a fiat currency or underlying asset.
2. Cryptocurrencies: Assets such as Bitcoin, which operate without a specific physical or financial backing.
3. Utility tokens: Used to access services or products within a platform.
4. Tokens not regulated by MiCA: NFTs and security tokens, regulated under specific frameworks.
5. Tokens with no inherent value: Used in decentralized exchange platforms or specific protocols.

What services and products does MiCA regulate?

MiCA covers a wide range of cryptoasset-related activities, including:

• Exchange: Operations on centralized and decentralized platforms.
• Custody: Secure storage services for digital assets.
• Issuance and commercialization: Creation and offering of new cryptoassets to the public.
• Traceability: The implementation of the "travel rule" obliges platforms to record and report transactions above €1,000 (with techniques such as time stamping and smart contracts).

How to adapt to MiCA

Adapting to the MiCA Regulation requires companies to review and update their operating practices to comply with the new regulatory requirements. This includes:

1. Compliance audits:
• Conduct an internal assessment (or request a free call from a RegTech partner) to identify gaps in existing processes.
• Implement systems to ensure traceability and compliance with technical standards.
2. Automation and RegTech:
• RegTech solutions can facilitate customization by enabling automation of processes such as KYC, KYB, AML and transaction monitoring.
3. Training and education:
• Companies should train their employees on MiCA requirements and establish dedicated compliance departments or teams (or outsource it to a RegTech partner that automates these tasks at low cost).

With this MiCA regulation, the European Union marks a before and after in the control and supervision of cryptoasset markets, setting a global standard for other emerging markets.

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