Markets in Crypto-assets MiCA New EU law on crypto-assets Bird & Bird

(1) For instance, the Anti-Money Laundering Proof of personhood (AML) legislation has been updated to cover crypto-assets. MiCA does not duplicate the AML provisions previously established by the European Banking Authority to avoid any overlaps. Also, smaller players may bear a relatively lighter burden in terms of cost and time for this additional work, compared to bigger ones who could potentially impact the market if any issues arise.

MiCA: One regulation to rule, find, bring, and bind them all

She elaborated, “Recent events with FTX have made everyone aware that crypto exchanges were already having a difficult time operating in line with AML regulation. However, the law that was passed in April is a first step that could legitimize the crypto sector and bring the benefits of DeFi onto a mass scale. Already, regulatory bodies are embarking on iterations two and three to What Is Markets in Crypto-Assets help bring clarity to implementation challenges, as well as the areas that still need to be addressed. As Wester points out, regulators often don’t fully understand what technology can or can’t do until it has developed further.

Projects operating in the EU will need fewer licenses

These bodies are responsible for overseeing compliance with the MiCA regulation, conducting investigations, and enforcing penalties for non-compliance. This ensures that the regulatory framework is effectively implemented and maintained across the EEA. In 2019, a report by the European Banking Authority examining the https://www.xcritical.com/ applicability of existing EU regulations on the evolving crypto industry found that most blockchain-based products fell outside the scope of existing legislation.

MiCA Regulations and Their Impact on the Crypto Industry

Additionally, the volatility and speculative nature of many crypto-assets posed risks to investors. There were concerns about market manipulation, fraud, and the potential for financial instability. MiCA aims to address these issues by providing a comprehensive regulatory framework that enhances transparency, protects consumers, and promotes market integrity. MiCA will bolster the crypto industry’s defenses against money laundering and terrorism financing by aligning crypto service providers with the EU’s existing anti-money laundering and counter-terrorism financing frameworks.

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The longer the regulatory vacuum for crypto persists in the U.S. and UK as two key jurisdictions, the greater the global impact of MiCA standards is likely to be. Now more than ever, not only with a backdrop of conflict in Europe, but also with a demand to future-proof trans-Atlantic economic ties, regulatory harmonization and technological competitiveness are twin pillars of U.S.-EU policy. The same should hold true across the English Channel, notwithstanding lingering Brexit tensions.

Additionally, the new legal framework will support market integrity by regulating public crypto asset offerings and including measures to prevent money laundering and terrorism financing. The targeted approach allows MiCA to focus on the specific crypto asset categories that require a harmonised regulatory framework while leaving the governance of other digital assets to existing or future specialised regulations. Major providers of crypto assets services are already taking steps to comply with the upcoming regulations. One such example is Binance, the world’s leading cryptocurrency exchange, which recently announced plans to restrict access to unregulated stablecoins for users within the European Economic Area (EEA). Any planned issuer of Crypto-assets and any crypto-asset service provider in scope of MiCA should immediately start with the implementation of MiCA and start to prepare an application file where applicable. They should also carefully identify and analyse the operational and legal consequences, management options and approaches and potential operational change requirements.

MiCA should help protect investors, protect against market manipulation and abuse, and prevent and reduce crypto asset misuse. The framework enables crypto firms to comply with Counter-Terrorist Financing and Anti-Money Laundering regulations. MiCA offers an optional grandfathering period extending from 30 December 2024 to 1 July 2026, during which EU Member States can allow existing crypto asset service providers in their jurisdiction to continue operations. However, there’s concern from ESMA (European Securities and Markets Authority) regarding the potential extensive use of this option, especially in cases where current national rules are not as thorough as MiCA. ESMA proposes shortening this period to a maximum of 12 months and has requested Member States to confirm this change to the European Commission and ESMA by the end of 2023.

Many businesses are focusing on obtaining the necessary licenses, implementing robust security measures, and ensuring transparency in their operations. These compliance efforts will need to align with MiCA’s specific standards for financial stability, anti-money laundering (AML) protocols, and consumer protection . Before MiCA, the lack of clear regulations created an uncertain environment for both investors and businesses. With its introduction, MiCA provides a harmonized legal framework across all EU member states, which is particularly beneficial for companies operating in multiple countries. This unified approach removes legal discrepancies and allows crypto companies to scale across the EU more easily.

The members of the management body of crypto-asset service providers should be fit and proper and the shareholders or members that have qualifying holdings in such issuers should be of sufficiently good repute. They should have sound internal control and risk assessment mechanisms as well as adequate systems and procedures to ensure the integrity and confidentiality of the information received. Further requirements may also apply depending on the crypto-asset services to be provided and due to the specific risks raised by each type of services.

We welcome the introduction of MiCA as a step in the right direction toward building a more sustainable and trustworthy crypto ecosystem. Until now, only the AML directive has covered the legislative framework of cryptocurrencies in the European Union. While this directive has been implemented by each member country, there is no unified approach to crypto regulation.

If a token doesn’t have an issuer, such as BTC, the whitepaper prepared by the exchange must warn users of the potential risks of the token and the exchange will bear all the responsibility for this token. To help issuers and exchanges, MiCA outlines what the whitepapers should look like (find the full guidance in Title II, Article 6 of MiCA). MiCA also provides retail holders a 14-day withdrawal window for assets not yet traded on platforms at the time of purchase. Web3 founders planning to issue tokens (crypto assets that do not fall within the scope of EMTs or ARTs) will be required to publish a whitepaper and have a legal entity that issues tokens and operates them in accordance with the whitepaper. The project won’t need authorization to issue their assets, as their published whitepaper will serve as prospectuses that offer prospective buyers more details on the asset’s characteristics.

• MiCA EU regulations apply to service providers involved in the trading, management, issuance, and advice of crypto assets.
• This will be the case when they meet, or are likely to meet, certain criteria, including a large customer base, a high market capitalisation, or a large number of transactions.
• MiCA will provide a long-awaited regulatory framework for crypto companies operating in the EU.
• Furthermore, MiCA crypto regulations require crypto trading platforms to feature only crypto assets with a whitepaper and to conduct customer identity verification.
• Entities that manage to overcome these regulatory hurdles are likely to gain market share, leading to a consolidated and robust market landscape.
• Learn more about progressive decentralization, how to apply ‘decentralization test’ to your project and how does the governance minimization works to achieve full or sufficient decentralization.

This move seems designed to align with the incoming EU standards and ensure that existing and future crypto businesses are ready for the transition. Market in Crypto-Assets (MiCA) is the first European Union regulatory framework governing crypto assets in Europe. MiCA is based on the best practices from the EU’s existing regulations on traditional trading securities and applies them to crypto assets and stablecoins. By fostering innovation and competition, MiCA aims to make the EU a leader in the global crypto market, attracting investment and talent. Finally, regulatory clarity reduces the burden on businesses, allowing them to operate more efficiently and effectively across the EU.

In preparation for the general application date of 30 December 2024 of MiCA and the TFR, applicants will only have limited time to implement the various requirements of MiCA. It is expected that such legal certainty will also bring more confidence in the sector and help the development of strategic crypto-related projects. This European passport will solve the current market fragmentation issue due to the lack of harmonisation at European level.

Businesses should not mistake the phased implementation for leniency from regulators—non-compliance could lead to penalties and service disruptions until proper authorizations are obtained. MiCA also does not cover DAOs, DeFIs or dApps (any other decentralized applications) that are fully or truly decentralized. Learn more about progressive decentralization, how to apply ‘decentralization test’ to your project and how does the governance minimization works to achieve full or sufficient decentralization.

Currently, crypto companies have to navigate a patchwork of different national regulations, which creates inconsistencies and inefficiencies. With MiCA, the rules will be the same across the EU, allowing for seamless cross-border crypto operations. MiCA was proposed by the European Commission in September 2020 as part of the EU’s Digital Finance Package. Its primary goal is to regulate the growing market for crypto-assets while contributing to financial stability and consumer protection, and fostering innovation in a secure environment. To ensure MiCA compliance, start by assessing the scope and potential impact on your business.