A summary of MiCA, the first-ever comprehensive regulation of cryptocurrencies in the EU. Learn what it is, why it matters when it will apply, and what it means for the crypto industry.
The European Union has approved the world’s first comprehensive regulation of cryptocurrencies. The new rules will provide legal clarity and reduce risks for crypto-asset service providers and consumers.
What is MiCA?
MiCA stands for Markets in Crypto-Assets Regulation. MiCA is an EU law that regulates crypto assets, such as Bitcoin, Ethereum, stablecoins, and NFTs. Crypto assets are digital values or rights that can be transferred and stored online.
MiCA covers three types of crypto assets:
- Asset-referenced tokens (ARTs): These are tokens that aim to maintain a stable value by referencing one or more assets, such as fiat currencies or commodities. Examples include Tether and USDC.
- An authorized entity issues electronic money tokens (EMTs) and represent a claim on the issuer. They are redeemable at par value for fiat currency. Examples include Libra and Diem.
- Other crypto-assets: These tokens do not fall under the existing EU financial regulations or the above two categories. They can have various functions and features, such as utility, governance, or investment. Examples include Bitcoin and Ethereum.
Why is MiCA important?
Markets in Crypto-Assets Regulation is essential because it provides a harmonized and transparent legal framework for crypto-assets and CASPs in the EU. Currently, there is no specific EU regulation for crypto-assets, which creates legal uncertainty and fragmentation across member states.
Some countries have adopted their own national rules, while others have no regulations at all.
MiCA aims to address this gap by establishing common rules and standards for crypto-assets and CASPs at the EU level. This will ensure a level playing field and foster innovation and competition in the crypto sector.
It will also enhance consumer protection and financial stability by imposing transparency and disclosure requirements, authorization and supervision mechanisms, and anti-money laundering measures.
When will MiCA come into effect?
The European Commission proposed MiCA in September 2020 as part of a broader digital finance package.
The European Parliament approved it in April 2023 with 517 votes in favor and 38 against. It still needs to be formally adopted by the Council of the EU before it becomes law.
It is expected to come into effect in 2024, giving the relevant authorities and stakeholders time to prepare for its implementation. Once it applies, it will directly affect all crypto-asset issuers and CASPs operating in the EU or offering their services to EU customers.
What are the implications of MiCA?
MiCA will have significant implications for the future of the crypto industry and its role in the global financial system. It will create a more predictable and secure environment for crypto-asset issuers and CASPs, as well as for consumers and investors.
It will also set a precedent for other jurisdictions to follow, as the EU is one of the largest and most influential markets for crypto-assets.
However, MiCA will also pose some challenges and costs for the crypto sector. It will introduce new obligations and restrictions for crypto-asset issuers and CASPs, such as registration, capital requirements, governance rules, risk management procedures, reporting duties, and liability clauses.
It will also require compliance with environmental standards and social responsibility principles. Some of these requirements may be difficult or expensive for some actors, significantly smaller or newer.
Therefore, MiCA will likely have a mixed impact on the crypto industry. It will create more opportunities and trust for some players while creating more barriers and burdens for others. It will also shape the development and innovation of crypto-assets in the EU and beyond.
How will MiCA affect stablecoins?
Stablecoins are a type of crypto-asset that aim to maintain a stable value by referencing one or more assets, such as fiat currencies or commodities. They are often used as a medium of exchange or a store of value in the crypto sector.
MiCA distinguishes between two types of stablecoins: asset-referenced tokens (ARTs) and electronic money tokens (EMTs).
ARTs reference one or more assets other than fiat currency (such as gold or oil), while EMTs reference only one fiat currency (such as euro or dollar).
Both types of stablecoins will be subject to specific rules under MiCA:
- Issuers of ARTs and EMTs will need to obtain authorization from the competent authorities of their home member state and comply with prudential, organizational, and governance requirements. They will also need to ensure adequate reserves to back their tokens and redeem them at any time at par value.
- Issuers of ARTs and EMTs will also need to disclose relevant information to the public and the authorities, such as the characteristics of their tokens, the rights and obligations of the holders, the risks involved, and the environmental impact of their activities.
- Issuers of ARTs and EMTs deemed significant by the European Securities and Markets Authority (ESMA) will be subject to additional rules and supervision at the EU level. The criteria for significance include the issuers’ size, market share, interconnectedness, and cross-border activities. Significant issuers must comply with more stringent capital, liquidity, and governance requirements and oversight by the European Central Bank (ECB).
- Stablecoins that become too large or threaten financial stability or monetary policy may also be limited or banned by the ESMA or the ECB.
Conclusion
MiCA is a landmark regulation that will create a common legal framework for crypto-assets and CASPs in the EU.
It will regulate crypto-assets and services, protect consumers and investors, and foster innovation and stability in the crypto sector.
MiCA will also shape the crypto industry globally, with benefits and costs for various players. It will also influence other regulators, as the EU leads in crypto regulation.
