The European Union (EU) has agreed upon the full legal text of its landmark legislation known as the Markets in Crypto Assets Regulation (MiCA), alongside a further law to reveal the identity of those making crypto payments.
Official legal texts to license crypto firms and vet transactions were agreed to by EU 27 diplomats after the political agreement reached in June.
MiCA introduces the first-ever licensing regime for crypto wallets and exchanges to operate across the EU bloc and imposes reserve requirements on Stablecoins that are intended to avoid Terra-style collapses.
What's included
Under MiCA, any credit institution, cryptoasset service provider (CASP), or investment firm that provides custodial services must be based in the EU. In particular, this will impact crypto exchanges and stablecoin issuers, with the vast majority of these players headquartered outside of the EU.
Additionally, the above-mentioned institutions will have to respect strong requirements to protect consumer wallets and will be liable if they lose an investor's crypto assets – unless they can prove that the loss was out of their control.
MiCA will also include legislation to minimise insider trading, unlawful disclosure of inside information and other market manipulation concerts related to cryptocurrencies to preserve the integrity of the market.
The European Securities and Markets Authority will be tasked with maintaining a register of all non-compliant cryptoasset firms.
Under MiCA, cryptocurrencies have been categorised into three different types:
- "Utility tokens", are issued with non-financial purposes to digitally provide access to an application, services or resources available on blockchain networks
- "Asset-referenced tokens"(ART) that maintain stable value by referencing several currencies that are legal tender, one or several commodities, one or several cryptoasset, or a basket of such assets.
- "E-money tokens" (EMT), are crypto assets with a stable value based on only one fiat currency that aims to function similar to electronic money.
According to MiCA, stablecoins that are not denominated in Euro and are issued by an entity that is based outside the EU and used by a non-EU bank for custody of its cryptocurrencies is considered an ART. Conversely, EMTs are Euro-denominated and EU-bank-backed firms.
The European Banking Authority will take control over the determination and classification of ARTs, with national competent authorities, able to withdraw authorisation of any ART issuers when the European Central Bank determined that they pose a threat to EU monetary sovereignty.
Timeline
In order for the proposal to proceed toward formal adoption, the European Parliament's economic affairs committee will also need to vote on the legislation on October 10.
Once that step is complete, the text will be translated into the EU’s more than 20 official languages, and the file will then be adopted into the EU’s Official Journal to formalize its enforcement.
There is a 12-18 month adaptation period included in the MiCA that will allow countries to prepare for the new law to be enacted. The law is not expected to be fully implemented until the start of 2024.
EU Text
You can access the full published text here:
Next steps
Crypto firms and token issuers must consider the implications of MiCA on their business and operations.
At LawBEAM, we are experts at navigating EU regulation. If you would like to receive our full Client Briefing on MiCA – please click on the link below.
