On 5th October 2022, the committee of permanent representatives (Coreper) endorsed the provisional agreement on the markets in crypto assets (MiCA) regulation, and the final proposal of the Regulation was published. This was the last step before the formal adoption process to start. With expectations of entering into force in 2023 and starting its application in 2024, discussions around the MiCA are a hot topic today as experts are trying to make sense of the new legal act’s true benefits and possible drawbacks.
The MiCA (Markets in Crypto Assets) framework is one of the components of a larger digital finance package adopted by the Commission on 24 September 2020 for a more digitally savvy European Union, together with a digital finance strategy and a retail payments strategy.
MiCA intends to simplify how crypto businesses will expand across member states, protect investors and improve the overall experience of European consumers with crypto assets. By improving consumer and investor protection as well as financial stability, the regulation encourages innovation and the use of crypto-assets.
MiCA is a legal framework that aims to create a unified set of crypto rules for the entire EU, providing legal certainty to crypto assets currently not covered under EU law. Thus, the MiCA proposal differentiates and regulates three types of crypto-assets: asset-referenced tokens (ART), electronic money tokens (EMT), and other crypto-assets that are not covered under the upper two nominations.
The legislation would govern the issuance and trading of crypto-assets and, where applicable, the management of the underlying assets, with additional regulatory requirements for significant ART and EMT.
The Regulation proposal imposes hence different legal requirements depending on the types of crypto assets and crypto activity. While we do not aim to undertake an exhaustive analysis in this article of the main type of crypto assets and commercial crypto activities, we shall point out generic benefits that MiCA will bring to the crypto-business environment and customers.
Besides being the first legal framework of such an understanding on cryptocurrency, MiCA has significant value for all parties involved and is poised to create a new environment for everything crypto.
MiCA will shield consumers from some of the risks associated with investing in crypto-assets, as well as help them avoid fraudulent schemes.
Consumers currently have minimal rights to protection and redress, especially when transactions occur outside of the EU. The new regulations will require crypto-asset service providers to meet stringent requirements in order to protect consumers’ wallets and become liable if they misplace investors’ crypto-assets.
MiCA will also cover the legal regime of market abuse involving any type of transaction or service, with a particular emphasis on market manipulation and insider trading.
Moreover, even where MiCA does not apply, the proposal sends expressly to the laws on consumer protection, which should apply accordingly when involving business-to-consumer relations.
MiCA will protect consumers by requiring stablecoin issuers to keep sufficient assets to ensure the stability of the coins. Moreover, no issuer of, and crypto-asset service providers of services related to, ART and EMT can grant interest in relation to the issued tokens.
Furthermore, the European Banking Authority (EBA) will oversee all so-called “stablecoins”, with most issuers and crypto service providers being required, prior to any activity, to have a registered office in the EU.
Crypto-asset service providers will need authorisation to operate in the EU, according to the preliminary agreement reached by European legislators.
Competent authorities shall promptly acknowledge receipt of the applications and, in any event, within five working days following receipt. Within 40 working days from the receipt of a complete application, the authorities shall be required to assess whether the crypto-asset service provider complies with the requirements and adopt a fully reasoned decision granting or refusing an authorisation. National authorities will send relevant information to the European Securities and Markets Authority about the granted licenses, creating thus a central European database.
Regardless of how comprehensive MiCA aims to be, the legal framework it establishes is still considered by experts to be incomplete. Non-fungible tokens (NFTs), which are digital assets representing real-world objects such as art, music, and videos, will be excluded unless they fit into one of the existing crypto-asset categories.
However, the recitals of the Regulation proposal leave the door open to debates regarding NFTs, mentioning that the issuance of crypto-assets as non-fungible tokens in a large series or collection should be considered an indicator of their fungibility. Also, the sole attribution of a unique identifier to a crypto-asset is not sufficient to classify it as unique or not fungible. So it is to be seen what shall be the exact practical applicability after the Regulation comes into force.
The European Parliament is expected to vote on the regulation in February 2023. After formal approval by the Council of the EU, MiCA will be published in the EU’s Official Journal and enter into force 20 days later.
However, the Regulation will start applying within 18 months after its entry into force, except for Titles III and IV, which will apply within 12 months. Besides this, transitional measures shall apply for the services already in the market for an easy and progressive application of the requirements.
Within 18 months after the date of entry into force of the MiCA Regulation, the European Commission shall need to present a report to the European Parliament and Council on the latest developments on crypto-assets, in particular on areas which were not addressed in the Regulation and, where appropriate, accompanied by a legislative proposal. This also means a possible development of a specific, proportionate, and horizontal legislative proposal to establish a regime for NFTs and address the emerging risks of such a new market.
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