Regulation
MiCA Explained: What It Means for Your Cryptocurrency Business
Many of you reading this article will already be aware of MiCA, the regulation on European cryptocurrency markets, but not everyone knows all the implications of this new regulation for entities engaged in the cryptocurrency business in the European Union (EU).
For example, what are the regulatory requirements around providing crypto-asset services, and which of these apply to entities seeking to issue various types of tokens to the public in the EU, such as stablecoins? And what are the cross-border implications of the UK’s upcoming crypto-asset regime?
Understanding MiCA
MiCA introduces a harmonised framework for cryptocurrency regulation in the EU. It replaces the fragmented and disparate national regimes that existed across the 27 EU Member States. MiCA seeks to address all key aspects of cryptocurrency trading, such as the offering of these products to the public and admission to trading, the provision of services and measures against market manipulation.
On 30 June 2024, the MiCA provisions on stablecoins have already become applicable; the remaining provisions, including a framework regulating the provision of cryptocurrency services, will enter into force on 30 December 2024. For this latter option, Member States must allow a transitional period of up to 18 months.
Definition of the regulatory perimeter for cryptocurrency services
Crypto-asset trading will soon become a regulated activity across the EU, introducing a licensing requirement for 10 types of services or activities involving crypto-assets. In an effort to clearly delineate the application of MiCA, it will only apply to those crypto-assets that are not already captured by other pieces of EU financial services legislation, such as the MiFID regime for financial instruments.
That said, largely mirroring the MiFID regulatory framework, a MiCA license will be required to provide custody and administration of crypto-assets, operate a trading platform, exchange crypto-assets for funds or other crypto-assets, place, receive and transmit orders, provide advice, manage portfolios and transfer crypto-assets.
Anyone wishing to provide such services to customers in the EU will need to obtain the relevant licence from a competent national authority. This is particularly important for service providers located outside the EU, as the legislation does not provide for a third country regime and the boundaries of the reverse solicitation exemption have been intentionally narrowly set.
Stablecoin Regulation
MiCA distinguishes three broad types of crypto-assets (“standard” tokens, asset-referenced tokens (ART) and electronic money tokens (EMT)), adapting the requirements for issuance, public offering and admission to trading accordingly. The latter two types, ART and EMT, are jointly referred to as stablecoins, as their construction involves maintaining a stable value in reference to one or more official currencies, or other value or right (ART) or to a single official currency (EMT).
Depending on the type of token, different requirements apply: while the issuance of ART requires a MiCA license or amendments to a credit institution license, the issuance of EMT is reserved to licensed European credit institutions and electronic money institutions. Licensed stablecoin providers are subject to advanced organizational, governance, transparency and conduct requirements, including rules on redemption rights and management of the reserve of assets as collateral, as well as accountability for the information provided in the required white papers. While the supervision of stablecoin issuers in principle lies with national regulators, MiCA provides for a mechanism to shift supervision to the EU level if an ART or EMT is to be considered “significant” by the European Banking Authority.
Cross-border implications of the future UK regime
For those looking to expand their crypto-asset business to the UK, a MiCA license will not help. A separate license for such activity may be required from the Financial Conduct Authority, as the UK is on the way to regulating a similar, but slightly broader, scope of regulated crypto-related activities.
The proposals suggest that much of the regime will apply to both UK-based businesses and those outside the UK, where they provide services to people in the UK, and that there will be no exclusion of people overseas. It remains to be seen whether any form of reverse solicitation or equivalence will help, but this seems optimistic.
The timing should become clearer soon, but there will be two phases, with stablecoin issuance and custody taking priority over the wider range of crypto-assets and services. In the meantime, the UK’s anti-money laundering and financial promotion registration rules will continue to apply.
Challenge or opportunity?
Achieving MiCA compliance will not be an easy task, there should be no doubt about it. The application process is very documented and regulators will need to be satisfied that the solutions proposed by the applicant are fit for purpose. That said, MiCA should be seen as a positive development as it provides clarity on regulatory expectations and a single framework that will be active across Europe.
Floortje Nagelkerke is a Norton Rose Fulbright financial services lawyer based in Amsterdam who advises clients on a wide range of regulatory matters.
Hannah Meakin is a London-based financial services regulatory lawyer and principal of Norton Rose Fulbright, with a focus on market infrastructure, commodity derivatives, fintech and cryptocurrency regulation.
Anna Carrier is a Norton Rose Fulbright Government and Regulatory Affairs Consultant based in Brussels, where she is part of our Government Relations and Public Policy (GRPP) and Financial Services division.