Regulation
MiCA and its impact: What you need to know about the latest EU crypto regulation
The European Union is set to become the first significant jurisdiction in the world with a comprehensive and tailor-made cryptocurrency law through its Cryptocurrency Markets Regulation (MiCA), which will come into force in 2024. This legislation promises to provide legal certainty and introduce compliance checks to improve its consumer protection efforts.
Transparency and disclosure: Cryptocurrency issuers must publish detailed white papers outlining the specifics of cryptocurrencies, including potential risks and environmental impacts. These white papers must be transparent, fair, and not misleading.
Consumer protection: Vendors must act in the best interests of their customers by providing transparent information about pricing, fees and risks associated with crypto-assets. Crypto assets must be kept separate from vendor assets and customer complaints must be handled promptly and effectively.
Market integrity: Not
includes measures to prevent market abuse, such as insider trading and manipulation. It requires the public disclosure of inside information and imposes strict rules against the unlawful dissemination of inside information.
Prudential requirements: Suppliers must maintain adequate financial resources, including meeting minimum capital requirements and having recovery plans in place to address potential financial difficulties.
Transition period: A transitional regime allows existing cryptocurrency service providers to continue operating while they apply for new MiCA licenses. This period extends until 2026, providing time to adapt to the latest regulations.
Stablecoin Regulation
A significant part of MiCA focuses on stablecoins,
cryptocurrencies linked to the value of other assets, such as traditional currencies. In MiCA, stablecoins are classified as “electronic money tokens” (EMT) if they are linked to the value of a fiat currency or “asset-referenced tokens” (ART) if they are linked to other assets. These tokens must maintain appropriate reserves and be well managed.
Regulations become stricter as the use of these tokens increases. To prevent them from weakening the euro, stablecoins not pegged to an EU currency are prohibited from exceeding 1 million daily transactions. The rules also apply to algorithmic stablecoins, such as TerraUSD, which use automated coding to maintain their value.
The application of MiCA to non-fungible (NFT) remains to be seen and regulators may need to examine each token individually to determine whether it is unique or interchangeable.
Incentives for the European cryptocurrency industry
The European Union cryptocurrency industry has broadly supported MiCA, recognizing the high stakes of non-compliance, which could result in fines reaching millions of euros or up to 12.5% of annual turnover. In exchange, licensed cryptocurrency providers receive a “passport” to operate in a market of 450 million people and gain clarity on regulatory expectations.
Future directions for cryptocurrency regulation in Europe
MiCA will come into force on December 30, 2024, with provisions for stablecoins starting six months earlier, in June, to give the industry and regulators time to prepare. However, MiCA is not the final chapter in cryptocurrency regulation.
Other EU laws that impact the cryptocurrency sector include money laundering, tax avoidance, bank capital, cybersecurity, and securities trading based on distributed ledger technology. Future regulations could build on the categories established by MiCA. By mid-2025, the European Commission will report on the need for further legislation to address the problem. NFT and decentralized finance.
In light of the recent market turmoil, some are advocating for stricter regulations, suggesting a shift from MiCA’s custom approach to one more closely aligned with conventional securities regulations. Only time will tell!
The European Union is set to become the first significant jurisdiction in the world with a comprehensive and tailor-made cryptocurrency law through the Cryptocurrency Markets Regulation (MiCA), which will come into force in 2024. This legislation promises to provide legal certainty and introduce compliance checks to enhance its consumer protection efforts.
Transparency and disclosure: Cryptocurrency issuers must publish detailed white papers describing the specifics of crypto-assets, including potential risks and environmental impacts. These white papers must be transparent, fair and not misleading.
Consumer protection: Providers must act in the best interests of their customers by providing transparent information about pricing, fees and risks associated with crypto-assets. Crypto-assets must be kept separate from the providers’ businesses and customer complaints must be handled promptly and effectively.
Market integrity: Not
includes measures to prevent market abuse, such as insider trading and manipulation. It requires public disclosure of inside information and imposes strict rules against the illegal dissemination of inside information.
Prudential requirements: Suppliers must maintain adequate financial resources, including meeting minimum capital requirements and adopting recovery plans to address potential financial difficulties.
Transition period: A transitional regime allows existing crypto-asset service providers to continue operating while they apply for new MiCA licenses. This period extends until 2026, providing time to adapt to the latest regulations.
Regulation of Stablecoins
A significant part of MiCA focuses on stablecoins,
cryptocurrencies linked to the value of other assets, such as traditional currencies. In MiCA, stablecoins are classified as “electronic money tokens” (EMT) if they are linked to the value of a fiat currency or “asset-referenced tokens” (ART) if they are linked to other assets. These tokens must maintain appropriate reserves and be well managed.
Regulations become stricter as the use of these tokens increases. To prevent them from weakening the euro, stablecoins not pegged to an EU currency are prohibited from exceeding 1 million daily transactions. The rules also apply to algorithmic stablecoins, such as TerraUSD, which use automated coding to maintain their value.
The application of MiCA to non-fungible (NFT) remains to be seen and regulators may need to examine each token individually to determine whether it is unique or interchangeable.
Incentives for the European cryptocurrency industry
The European Union cryptocurrency sector has largely supported MiCA, acknowledging the high stakes of non-compliance, which could result in fines of up to millions of euros or up to 12.5% of annual turnover. In return, licensed cryptocurrency providers receive a “passport” to operate in a market of 450 million people and gain clarity on regulatory expectations.
Future directions for cryptocurrency regulation in Europe
MiCA will come into force on December 30, 2024, with provisions for stablecoins starting six months earlier, in June, to give the industry and regulators time to prepare. However, MiCA is not the final chapter in cryptocurrency regulation.
Other EU laws impacting the cryptocurrency sector address money laundering, tax avoidance, bank capital, cybersecurity and securities trading based on distributed ledger technology. Future regulations may be based on the categories established by MiCA. By mid-2025, the European Commission will report on the need for additional laws to address NFTs and decentralized finance.
In light of the recent market turmoil, some are advocating for stricter regulations, suggesting a shift from MiCA’s bespoke approach to one more closely aligned with conventional securities regulations. Time will tell!