European Union (EU) policymakers have struck a deal on legislation to regulate crypto assets and service providers throughout its 27 member nations. The policymakers of the world’s third largest economy have been involved in heated negotiations for approximately two years over the Markets in Crypto Assets (MiCA) framework. The haggling finally came to an end on June 30th as all sides reached the same conclusion that regulating the crypto sector was a necessity. This resolution was undoubtedly sparked by the increased volatility in crypto markets, which has been evident in recent months.
Originally proposed by the European Commission in September of 2020, MiCA was designed to address the rise of crypto fundraising projects, referred to as initial coin offerings (ICO), that frequently turned out to be scams. The legislative package needed approval from EU governments and lawmakers to pass, which it now has.
MiCA regulation focuses on certain categories of crypto assets which are currently out of scope of existing regulations (E-money tokens; Asset-referenced tokens; Utility tokens) and establishes a legal framework for crypto-asset service providers as well as consumer protection. The legislation will apply directly across the EU without any need for national implementation laws. This approach was chosen as a means to keep in line with the consumer protection aspect of the policy as it ensures effective and harmonized access to innovative crypto markets across the EU market.
MiCA’s Four Essential Objectives (stated by European Commission)
- Ensuring legal certainty by establishing a sound legal framework for crypto-assets in its scope that are not covered by existing financial services legislation;
- Supporting innovation and fair competition in order to promote the development of crypto-assets by instituting a safe and proportionate framework;
- Protecting consumers, investors and market integrity in consideration of the risks associated with crypto-assets; and
- Ensuring financial stability, with the inclusion of safeguards to address potential risks to financial stability.
Requirements for issuers of Crypto-Assets under MiCA
Issuers of crypto-assets falling into the scope of MiCA, specifically those offering crypto-assets to third parties, may be subject to several obligations including:
- The publication of a whitepaper having some similarities with prospectuses published under the prospectus regulation
- The necessity to be authorized to issue crypto-assets
- Compliance with certain prudential rules when marketing crypto-assets
- The obligation to act honestly, fairly and professionally vis-à-vis crypto-asset holders, in particular in relation to conflict management and prevention or maintenance of security access protocols
The applicable regime depends on several elements, but considers notably the type of crypto-asset offered and the amount of the offer.
Crypto-Asset Service Providers under scope of MiCA
Certain standard services, when performed with respect to any type of crypto-asset falling into the scope of MiCA, will be acknowledged and regulated under MiCA. The administration of crypto-assets on behalf of third parties as well as the provision of advice on crypto-assets are part of the services qualifying as crypto-asset services. Entities providing crypto-asset services shall qualify as crypto-asset service providers as well under MiCA.
Industry Implications and Community Response
The MiCA initiative will affect the ability of market players to diversify their business by developing a crypto-asset strategy. The regulation is likely to provide a balanced legal framework with sturdy safeguards for historically non-regulated crypto-assets as well as for the service providers engaged in that business and, ultimately, the consumer.
Regarding the new legislation’s reception, MiCA has been generally welcomed by the industry as it can increase credibility, promote adoption by conventional banks as well as offer crypto companies a single license to operate across the EU.
The Markets in Crypto-Assets regulation should not be viewed as a standalone initiative. “No legislation is ever set in stone, and no legislation in the area of crypto could be,” stated Mairead Guinness, a member of the European Commission, during an interview with crypto media platform, “CoinDesk.” Additional regulations will be required, sooner rather than later, in order to keep up with this rapidly evolving industry.
While It is important to understand that these new regulations should be inherently malleable and continuously refined in order to stay ahead of the crypto curve, understanding that nations must work together during the infancy of this developmental process is paramount. The European Commission has publicly stated that there must be international cooperation in the effort to develop and implement crypto-centered regulations. This will result in an effective, uniformed approach that will limit egregious disparities between conflicting legislations of different countries.
A number of different countries throughout the world, notably Singapore and China, have already implemented promising regulatory legislation that can be used, along with MiCA, as a blueprint for governments that are behind in the crypto lawmaking process. The United States government has recently shown signs that the Biden administration is currently workshopping regulatory laws of their own, particularly for the stablecoin market.
The process will undeniably be grueling, with years of trial and error on the horizon for governments across the globe, but if countries can work together in their approach, effective implementation can be carried out more swiftly, which will lead to a safer market for consumers and crypto service providers alike.
Blog by Tristan Wanatick, BIG Volunteer