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And what do they entail for businesses and consumers?
Crypto regulation coming next year in the EU with MiCA
From 30 December 2024, the Markets in Crypto-Assets Regulation (Regulation (EU) 2023/1114), aka MiCA comes into force. The new regulation stipulates that all member states adopt measures, standards and rules that will affect:
- Those issuing new cryptocurrencies;
- Crypto-asset service providers (trading platforms, wallet providers, etc.);
- as well as cryptocurrency holders and customers using crypto-asset services.
The MiCA was adopted earlier this year after years of delays and discussions. Its aim is to introduce uniform regulation of the crypto-asset market in the EU, bringing the rules as close as possible to that of traditional financial instruments, with similar measures to ensure transparent information, professionalism in the provision of services and the prevention of market abuse.
The measures include a host of requirements applicable to the issuance and initial offering of crypto-assets, a licensing requirement for crypto-asset services, minimum capital requirements, business continuity and other measures to protect crypto-asset investors.
Detailing the regulation
The MiCA provisions in turn provide for the adoption of a number of subsequent legislative measures to specify the application of the rules originally set out in the Regulation before its full entry into force in December 2024.
The process of adopting the subsequent legislative measures requires the European Securities and Markets Authority (ESMA), in cooperation with the European Banking Authority (EBA) and the European Central Bank (ECB), to consult the public on the technical standards to be laid down in the EC delegated acts1. The results of these consultations are published by ESMA in three consultation papers, the second of which was published earlier in October.
It proposes technical standards and requirements that specify a number of the Regulation’s requirements applicable to Crypto-asset Service Providers (CASPs):
- Continuity and regularity of crypto-asset services;
- Transparency on the rules for transactions and data on transactions to be made publicly available;
- Retention of records of all services, activities, orders and transactions in crypto-assets performed by the provider.
Alongside this, the package also includes standards applicable to the obligations of crypto-asset issuers, specifying the formatting requirements for white papers, detailed documents containing technical and economic information about the relevant cryptocurrency, and the obligation to disclose inside information to prevent market abuse.
The public consultations carried out by ESMA and the recommendations published as a result of them aim to give technical dimensions to the many requirements of the MiCA regulation. Their implementation, which is expected to be fully completed by the end of 2024, will lead to a broad and detailed regulation in the field of crypto-assets that has not existed anywhere so far.
Setting a new transparency standard
In particular, the second consultation package specifies technically one of the most significant requirements of the Regulation – the traceability of cryptocurrency transactions and the obligation to keep information on each transaction processed by a trading platform or other service provider for crypto-assets.
This regulatory initiative is expected to carry the crypto-asset market out of the shadows, making it more widely accessible and, most importantly, more accepted by traditional participants in the financial and investment markets. It can be expected with moderate optimism that the banking sector’s attitude towards crypto will also “warm up” as a consequence of the implementation of MiCA. Currently, banks restrict or even prohibit activities related to crypto-assets of their users in order to re-insure themselves from possible risks associated with them.
Significant effect is also expected on the prevention of money laundering, terrorist financing and the fight against organised crime. The existing regime in many countries were limited to providing for stricter anti-money laundering obligations for platform providers and custodians, but national regulation in member states was different and poorly coordinated, allowing for circumvention. The new regulatory framework will harmonise the rules for crypto-asset service providers, and inherently introduce a higher standard of security in this market.
Future developments
The next step in the MiCA implementation process is the publication by ESMA of the third and final consultation package. It should specify rules on the qualification of crypto-assets as financial instruments, the identification of market abuse, investor protection as well as technical security standards. The third package is expected in the first quarter of 2024.
Following the publication of the consultation papers, the stage-by-stage entry into force of MiCA is expected to begin. It is stipulated that Titles III and IV of the Regulation (relating to crypto tokens backed by other assets (so-called “stablecoins”) and e-money tokens) will apply from 30 June 2024 and that the rules of the Regulation as a whole will apply from 30 December 2024.
But until then, if you want to bring your business in line with the Regulation’s rules in a timely manner and take advantage of the market benefits the new regulation provides without waiting until the last minute, contact us at vladov@ynglegal.com.
1. Delegated acts of the European Commission are non-legislative acts that specify the application of a legislative act (regulation or directive) and can only be adopted if there is an explicit delegation contained in that legislative act.
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