To the EU crypto community — there’s a new dawn coming.
In October this year, the European Council approved the Markets in Crypto-Assets (MiCA) Regulation, which is one of the first attempts at more extensive monitoring of cryptocurrency markets.
At the moment, MiCA is waiting for the decision of the European Parliament. If it gets adopted by the end of 2022, as most expect it to, crypto entities will have some 18 months to prepare as it will come to force in 2024. It is expected to have a massive impact on the crypto market.
For those who speak legalese and have patience, you can find the detailed particulars here. As for the rest of us, let’s check out the 5 most-know things to jump on the bandwagon.
Which assets does MiCA cover?
The existing EU framework already regulates crypto assets, but only broadly, as it covers only those that qualify as financial instruments. Naturally, a regulation that would include the out-of-scope crypto assets and their service providers has been a long time coming. You might be asking yourself: which assets exactly?
MiCA categorizes cryptocurrencies into three categories:
- Electronic money tokens (e-money)
E-money is a crypto asset that seeks to maintain a stable value by referencing only one currency.
- Asset-referenced tokens
These tokens are crypto assets designed to maintain a stable value by referring to more than one currency, commodity, or other crypto-assets or a combo of these assets.
- Utility tokens
This type of crypto asset allows the user to perform a specific function on the network, e.g., have access to goods or services provided by the issuer of the token.
What’s in the spotlight?
Now that we know the types of crypto assets the regulation includes, a smart cookie such as yourself should pay attention to those in focus.
With that in mind, stablecoins seem to be most impacted by MiCA. For the sake of clarity, let’s just briefly re-visit the definition of a stablecoin — they are digital assets whose value is tied to another currency, commodity, or financial instrument.
If you compare the definitions, you’ll quickly conclude that most stablecoins will fall under the category of asset-references tokens.
The reason stablecoins are put on the center stage is that they didn’t exactly live up to their name (stable+coin). Due to this year’s crash of terraUSD, a popular stablecoin, billions of dollars were lost. Many people lost their savings even though the coin was never supposed to deviate from the dollar.
This event motivated Ernest Urtasun, a member of the European Parliament, to tweet that stablecoins will need to be supported by reserves that are “fully protected in case of insolvency” in a 1:1 ratio. The idea is for these types of incidents not to happen again; hopefully, MiCA will help with that.
What services fall under its jurisdiction?
By now, crypto assets issuers and crypto assets service providers (CASPs) are probably wondering which services will be impacted — here is a list, so you don’t have to google it or search through MiCA.
- Custody and administration of crypto assets
- Operating a trading platform for crypto assets
- Exchanging crypto assets for fiat currency
- Exchanging crypto assets for other crypto assets
- Executing orders for crypto assets on behalf of third parties
- Placement of crypto assets
- Reception and transmission of orders for crypto assets as well as providing advice on crypto assets
As you can see, this list is quite thorough and definitely worth your attention.
What doesn’t MiCA cover?
We covered the assets that MiCA includes but are there any that don’t fall under its jurisdiction? Sure there are.
MiCA doesn’t apply to non-fungible tokens (NFTs) and decentralized finance (DeFi)…yet. The officials plan to take on the world’s favorite digital art and collectibles at some point in the future.
So, for the time being, nothing has changed regarding NFTs.
What if you are a service provider outside of Europe?
To offer crypto assets in Europe, you’ll need to abide by this regulation, period.
Regardless of location, you will need to obtain a passport to provide crypto-related services in Europe. Of course, there are requirements you need to fulfill to obtain this passport.
Since we are a helpful bunch, here’s the list of requirements you’ll need to tick — you need to:
- Be established in the EU (obtain a license, of course)
- Meet minimum and ongoing capital requirements
- Abide by various organizational requirements (make sure your management team is knowledgeable and experienced, your record keeping is meticulous, etc.)
- Respect specific client assets and money rules based on their business model
- Ensure that the clients get accurate information and in a transparent manner
- Handle complaints on time and have a procedure set up
- Establish and actively maintain a policy to prevent conflicts of interest
- Safeguard against operational risk when outsourcing — make sure that the service provider is held responsible for its services
There might be additional requirements depending on the type of service, so it’s super important you research everything in depth by 2024.
All that remains is for those who issue crypto assets and provide related services in Europe to prepare for this imminent event. Luckily, there’s plenty of time to study everything in detail.
As for the rest of us, MiCA will hopefully bring about some eagerly awaited stability and order. In return, it will attract trust and result in the growth of our beloved crypto community. MiCA, we welcome you!