The crypto-asset market remained largely unregulated at Community level for many years. This caused the financial market supervisory authorities of individual Member States to look for analogies in the existing legislation on their own. Unfortunately, this meant that many mechanisms escaped the legislature’s cognisance. Regulation 2023/1114 of the European Parliament and of the Council on cryptocurrency markets has changed a lot in this regard. What does the entry into force of the MiCA (Markets in Crypto-assets) Regulation entail?
Why is the MiCA regulation needed?
The MiCA Regulation introduces a uniform standard of protection for investors who choose to place funds in cryptocurrencies. Looking at the place of the MiCA in the legal system of the European Union, it should be stated that this is not a new measure. The EU legislator has already applied similar harmonised solutions, e.g. in the form of the MAR Regulation or the MIFID Directive. Nevertheless, this is the first attempt to systematise the market for digital-only assets.
Harmonised division of crypto-actives
The MiCA Regulation provides for the classification of crypto-assets into three categories:
- Crypto-assets – are digital representations of value or rights that are transferable in consideration of distributed ledger technology (DLT) or other similar technology;
- Asset-referenced tokens – are a type of crypto-asset that is not an e-money token. It is designed to maintain a stable value because it is linked to another value or right, including at least one official currency;
- Electronic-money tokens, or e-money tokens, are a type of cryptocurrency that maintains a stable value by being linked to an official currency.
The EU legislator also distinguishes a category of significant crypto-assets that meet certain criteria regarding a large customer base, market capitalisation or transaction volume. They are subject to stricter regulation, including in the form of increased liquidity requirements for the issuer, the need to prepare a liquidity management policy and inclusion in the supervision provided by the European Banking Authority.
The MiCA Regulation refers to the official currency in a number of places. How should this concept be understood? It refers to so-called fiat currency, i.e. money issued by a central bank or other policy-making body of a country.
What do crypto-related services consist of?
The wording of Article 3 § 1 point 16 of the MiCA indicates enumeratively the types of crypto-related services. This is quite an extensive catalogue of activities including, but not limited to:
- storing and administering cryptoassets on behalf of clients;
- operating a crypto trading platform;
- exchanging crypto-assets for cash or other crypto-assets;
- executing orders related to cryptoassets;
- placement of cryptoassets;
- advising on cryptoassets;
- managing an investment portfolio of cryptoassets.
Who can provide crypto services? Need for authorisation
The new legislation uses the term Crypto-Asset Service Provider (CASP). This is an entity that has been authorised in the relevant scope. CASP status may be held by:
- A legal entity or other trader that has been authorised under Article 63 of the MiCA Regulation, such as cryptocurrency exchanges or exchange offices;
- The following financial market institutions:
- credit institutions;
- central securities depositories;
- investment firms;
- market participants;
- electronic money institutions;
- UCITS or alternative investment fund management companies.
What should CASP entities keep in mind? Rules for the delivery of crypto services
The MiCA Regulation introduces a number of requirements restricting the provision of crypto services. The launch of a public offering and admission to trading requires certain criteria to be met. The information document (white paper) must contain detailed information on the specific asset, including on:
- the issuer and the entity offering or seeking admission to trading;
- the cryptoasset itself and the underlying technology on which it is based;
- the rights and obligations associated with the crypto-asset;
- risks;
- adverse environmental effects associated with the issuance of the cryptocurrency.
Marketing materials for covered assets must be appropriately labelled and the content must be fair, clear and not misleading.
Right of cancellation
Article 13 of the Regulation grants retail investors the right to withdraw from a contract for the acquisition of crypto-asset-linked or e-money within 14 calendar days without incurring any fees or costs and without giving any reason. The time limit is counted from the date of consent to the acquisition of the assets and the reimbursement of all fees and costs must be made immediately, no later than 14 days from the date of the declaration.
The communication of the right of withdrawal should already be made in the body of the white paper prepared.
Complaint handling procedure
Issuers of asset-linked tokens are required, under Article 31 of the MiCA Regulation, to set up a complaints procedure. The procedure is free of charge and is done by completing and submitting a form prepared specifically for this purpose. The regulation does not specify a time limit for handling complaints, indicating only that this should be done within a reasonable time.
Fraud prevention mechanism for the cryptoasset market
The MiCA Regulation introduces a fraud prevention mechanism that resembles the solution already known from the MAR Regulation. This concerns the need to make confidential information available to market participants without delay. Delaying its transmission is only allowed in strictly defined situations and occurs under the sole responsibility of the issuer, offeror or applicant for admission.
The EU legislator also prohibits manipulation of the cryptocurrency market. This includes, among other things, entering into transactions that could generate false signals regarding the supply or demand of an asset or its price.
The entry into force of the MiCA Regulation entails the need to adapt current operations to a completely new legal environment. It also creates high standards for crypto-asset licence applicants. If you are operating in the cryptocurrency market or want to enter it, we can help you!
Linke Kulicki Law Firm provides comprehensive support for entities operating in the financial markets, including new DLT or related technologies. We will ensure your security and the compliance of your business model with MiCA requirements.