The European Union’s Markets in Crypto Assets law (MiCA) was published in the Official Journal of the European Union (OJEU) on Friday the 9th of June, starting the clock ticking for landmark crypto licensing rules to take effect.
The full law, published alongside related legislation requires crypto wallet providers to identify their customers when they transfer funds, offers crypto companies, such as exchanges and wallet providers, a license to operate across the bloc, and introduces new governance and financial requirements for stablecoin issuers.
Publication of the 200-odd pages of law signals formal passage of a bill onto the EU’s statute book. In legal terms the two laws enter into force in 20 days’ time, and its provisions apply on December 30, 2024, with certain provisions taking effect slightly earlier on June 30, 2024.
A quick thread 🧵 on the EU's 🇪🇺 Markets in Crypto-Assets (MiCA) Act;
1. MiCA, passed and ratified in 2023, brings clarity and uniformity to digital asset regulation in the EU 🇪🇺. It covers various tokens and impacts EU's 🇪🇺 Crypto businesses. It's due to enter into force 20 days post its publication, with full implementation by Dec 2024.
2. MiCA seeks to replace varied regulations in EU 🇪🇺 nations with a comprehensive framework. It aims to provide clear rules for crypto-asset service providers (CASPs) and token issuers, thus offering more certainty in areas not covered by existing financial regulations.
3. CASPs as defined by MiCA include custodial wallets, exchanges for crypto transactions, crypto-trading platforms, and crypto-asset advising firms. These service providers will now operate under clearer and more consistent rules.
4. MiCA applies to asset-referenced tokens (like commodity-backed stablecoins), e-money tokens (single fiat currency-backed stablecoins), and other tokens, including utility ones. It creates a broad regulatory umbrella ☂️.
5. Interestingly, MiCA will apply to non-fungible tokens (NFTs) only if they have similar characteristics to the assets that MiCA applies to. However, it doesn’t apply to (Decentralised Apps) dApps and DeFi (Decentralised Finance) applications as they operate without intermediaries.
6. A key change is a unified authorization system allowing CASPs registered in any EU 🇪🇺 country to provide services to all EU nations. This reduces the need for multiple licenses to operate across the EU.
7. CASP obligations include having an EU office and resident director, implementing anti-money laundering (AML), service continuity, and Data Security policies, and adopting practices for preventing market abuse and handling complaints.
8. Token issuers are now required to publish a whitepaper and operate as stated in it. CASPs bear responsibility for tokens without an issuer. However, smaller token offerings may be exempt from this requirement.
9. Algorithmic stablecoins (Algos)are banned under MiCA, and fiat-backed stablecoins must have a 1:1 liquid reserve. Stablecoin issuers are required to implement safeguarding procedures for backing and reserve assets and have complaint handling procedures
10. MiCA is expected to officially enter force this month. By June 2024, draft Delegated Acts should be ready. All rules are expected to be in full effect by December 2024, marking a new era of crypto regulation in the EU.
11. MiCA sets a precedent that other nations, including the UK, may consider as they shape their own crypto regulations. However, the path towards global 🌎 regulatory clarity is still long and winding.
12. In conclusion, the emergence of MiCA signals a bold step towards the future of crypto regulations, yet there's still a long journey ahead until we reach a harmonized, global regulatory landscape for cryptocurrencies and Web3 projects.
It is hard to overstate how different the treatment of crypto-assets is in the EU 🇪🇺 compared to the US.
One of MiCA's key drivers was the recognition that most crypto-assets are not covered by existing EU securities regulation. Therefore, a specific regulation at the EU level was needed. Enter MiCA.
Already back in 2019, the main EU 🇪🇺 supervisory authorities EBA (European Banking Authority) and ESMA (European Securities Market Authority) constituted that "typically, crypto-asset activities do not constitute regulated services within the scope of EU 🇪🇺 banking, payments and electronic money law, and risks exist for consumers that are not addressed at the EU level."
This assessment has even been integrated into EU laws already in application such as the DLT (Distributed Ledger Technology) pilot regime that notes that "the majority of crypto-assets fall outside of the scope of EU legislation and raise, among others, challenges in terms of investor protection, market integrity and financial stability. They therefore require a dedicated regime at Union level."
As part of MiCA's implementation process, ESMA is mandated to "issue guidelines on the criteria and conditions for the qualification of crypto-assets as financial instruments" (securities).
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