MiCA regulation: how it impacts business in the crypto industry?

With the future regulation rules coming to the crypto asset providers (CASPs), a new set of requirements will be formed. In this article, we will cover the main points about upcoming regulations and what aspects of the business in the crypto industry sector it touches.

Overview

Markets in crypto assets regulation (MiCA) will impact CASPs who want to continue operations in the European Union zone or will be registering business there.

“Recent developments on this quickly evolving sector have confirmed the urgent need for an EU-wide regulation. MiCA will better protect Europeans who have invested in these assets, and prevent the misuse of crypto-assets, while being innovation-friendly to maintain the EU’s attractiveness. This landmark regulation will put an end to the crypto wild west and confirms the EU’s role as a standard-setter for digital topics.”

Bruno Le Maire, French Minister for the Economy, Finance, and Industrial and Digital Sovereignty

General Goals

The parliament stated several goals for this regulation, such as:

• Create a legal framework for crypto-assets in its scope that are not covered by existing financial services legislation;
• Supporting innovation and fair competition 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 general data protection regulation;
• Ensure financial stability, including safeguards to address potential risks to financial stability.

This regulatory framework requires the European Banking Authority (EBA) to form a public register of non-compliant CASPs. In addition, businesses whose parent companies are in countries listed on the EU list of third countries considered at high risk for anti-money laundering activities will be required to implement enhanced checks in line with the EU AML framework.

Categories of crypto-assets impacted

Another critical point that this regulation covers not all types of crypto-assets but specific ones:

• Utility tokens. These are tokens issued to help other businesses to operate using blockchain technology (e-commerce websites, crypto-based startups) 
• Asset-referenced token.Crypto-assets that claim their stable value (i.e., gold) based on one or several currencies official for the country. Issuers of this token need to have the office registered in the EU. 
• E-money tokens. Crypto-assets are backed by fiat money. For instance, stablecoin for dollars USDT. There will be an obligation to provide crypto asset services only when a stablecoin issuer prepares sufficiently liquid reserve, with a 1/1 ratio, and partly in the form of deposits to protect customers from abrupt changes.  

CASP requirements

MiCA will provide a unified licensing regime for the EU. As a result, businesses won’t require a specific permission from each European country to start an operation. 

Companies will be obliged to declare information on their environmental and climate footprint. In addition, the European Securities and Markets Authority (ESMA) will develop draft regulatory technical standards related to principal adverse environmental and climate-related impact. 

MiCA requires that the European Banking Authority (EBA) will be tasked with maintaining a public register of non-compliant crypto asset service providers. It also means that each new business will be reviewed according to the updated AML rules. 

The companies outside of the EU who want to reach the European market will be thoroughly checked. This supervision will help to ensure that they will be compliant and have a transparent workflow of usage of the crypto-assets. 

Regulation rules will also significantly impact the registration procedure of a new CASP and the requirements for the business structure. 

Here is the list of specific aspects which MiCA will regulate:

1. The whitepaper publication describes technical details for potential customers. 
2. The necessity to be authorized to issue crypto-assets
3. Compliance with the marketing crypto-assets
4. Adhere to good conduct, organization, and technical requirements.
5. Safekeeping of assets and funds;
6. Complaint handling procedures;
7. Place of effective management in the EU;
8. At least one Director to be a resident in the EU;

Summary 

The new proposed framework will help protect crypto industry investors and open opportunities for further industry development on a governmental level. In addition, officials will have a set of rules at the EU level. It’s expected to come into force in early 2024.