Regulation
Crypto needs consistent regulation – A look at European MiCA
In the ever-evolving world of blockchain and cryptocurrencies, a cohesive regulatory and business development ecosystem is essential to foster collaboration and innovation. A fragmented world, in which companies must comply with different rules in each country in which they operate, makes building a decentralized economy more difficult.
Recently, Crypto Oasis, Crypto Valley, the DLT Science Foundation and Inacta Ventures joined forces to unveil the Inaugural report on the global protocoldesigned to help the industry navigate an increasingly complex world of regulatory and protocol development.
Here’s an excerpt written by Timea Nagy, senior legal counsel at AlpinumLaw, a Zug-based law firm, on Markets in Crypto Assets (MiCA), the broad European crypto standards that come into force this year , allowing businesses to harmonize. their offers in the 27 member countries.
You read Crypto Long and Shortour weekly newsletter featuring information, news and analysis for the professional investor. register here to receive it in your inbox every Wednesday.
Looking at the cryptocurrency landscape, it’s difficult to understand how regulations can vary so much depending on where you are in the world, involving different regions, legal jurisdictions and governing bodies. In an effort to create a more coherent framework, the European Union (EU) has taken an important step by introducing the Regulation of Markets in Crypto-Assets (MiCA). This initiative could potentially serve as a model for other jurisdictions around the world. Currently, MiCA represents a model possibility for harmonizing crypto regulations internationally.
MiCA is not just a stand-alone regulation; it is a crucial part of the overall digital finance strategy designed by the European Commission. This broader strategy encompasses various aspects, including the upcoming Digital Operational Resilience Regulation (DORA), which contains provisions extending to crypto-asset service providers. Another noteworthy inclusion is the new regulation centered on a distributed ledger technology (DLT) pilot regime, focused on improving the functioning of financial market infrastructures based on DLT principles.
The regulation itself casts a wide net, covering a wide range of topics. From those who issue cryptoassets without support to stablecoins, and from the platforms on which cryptoassets are traded to the wallets where they are stored, it seeks to provide a consistent regulatory framework. This regulation defines crypto-assets as digital representations of value or rights, transferable and storable electronically. It classifies them into utility tokens, asset-referenced tokens, and e-money tokens, thereby encompassing cryptoassets that are not currently regulated by existing financial services laws.
The new regulation emphasizes transparency, disclosure, authorization and monitoring, all of which have considerable influence. Notably, crypto-asset service providers (CASPs) must obtain authorization from a competent national authority, allowing them to offer their services across the EU. This authorization essentially acts as a passport for their operations within the union. But what does this mean for Switzerland or other third countries?
Switzerland, as well as any other non-EU countries, are covered by MiCA as long as they carry out crypto-related activities in EU countries. This means that Swiss companies will have to analyze whether they fall under the provisions of the MiCA; if so, whether or not they have the necessary license.
Scope. Generally speaking, the MiCA applies to three categories of persons, (i) issuers of crypto-assets, (ii) PSAPs and (iii) any person, for acts which concern the trading of crypto-assets admitted to trading. trading on a crypto-asset platform market operated by an approved crypto-asset service provider, or for which a request for admission to trading on such a trading platform has been made. Furthermore, MiCA distinguishes three types of crypto-assets:
Asset Reference Token, means a type of crypto-asset which is not an electronic money token and which purports to maintain a stable value by reference to another value or right or a combination thereof, including one or more official currencies.
Electronic money token is a type of crypto-asset believed to maintain a stable value by referencing the value of an official currency.
The utility token refers to crypto-assets intended solely to provide access to a good or service provided by its issuer. NOTE! Excluding the scope of MiCA: DeFI protocols, pure NFTs, CBDCs, security tokens or other crypto-assets qualifying as financial instruments under MiFID II. Licence. MiCA introduces licensing requirements for crypto-asset service providers, asset-referenced token issuers and e-money token issuers. In general, PSAPs will trigger the authorization requirements unless they are already a credit institution authorized under MiFID. As mentioned previously, even with an existing license, the company will still need to notify the relevant authorities of its intention to offer cryptoasset services. Monitoring. At Member State level, competent authorities will be responsible for supervising PSAPs and ensuring compliance with the stipulations outlined in the MiCA. PSAPs with an active user base greater than 10 million will fall into the “Large PSAP” category. While these important PSAPs will continue to be supervised by the relevant competent authorities, the European Securities and Markets Authority (ESMA) will be given “power of intervention”. This authority empowers ESMA to adopt measures that prohibit or restrict the provision of crypto-asset services by PSAPs, in particular where there are perceived threats to market integrity, investor protection or financial stability .
For stablecoins, the supervisory landscape involves intervention by the European Banking Authority (EBA). Specifically, stablecoins with user numbers exceeding 10 million or having an asset reserve exceeding 5 billion euros will fall under the supervision of the EBA. Additionally, the European Central Bank will have the power to exercise a veto over any stablecoin it deems relevant, thereby influencing its operations.
Restrictions on market abuse. Crypto-assets which are not considered financial instruments within the meaning of MiFID II will not fall within the scope of the European Market Abuse Regulation. However, MiCA sets its own market abuse rules for crypto-asset markets in an attempt to ensure market integrity. These rules will apply to crypto-assets admitted to trading on a crypto-asset trading platform operated by an approved crypto-asset service provider.
Conclusion. There is no doubt that the influence of MiCA on PSAPs is bound to be considerable. This means we could be looking at prolonged and potentially demanding phases to implement the necessary changes. Despite the potential obstacles that lie ahead, we remain optimistic because we are ready to face the challenges not only from a practical point of view but also from a legal point of view.
To learn more about the inaugural Global Protocol Report, including analysis of top 50 crypto projects, Click here.