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MiCА: Impact on Crypto-Service Providers

MiCА: Impact on Crypto-Service Providers

In the digital financial sector, innovation has outpaced European legislation and regulation concerning crypto assets. Currently, the European Union lacks consistent guidelines for issuers and service providers operating in the crypto space. However, the EU is poised to address this gap through the Markets in Crypto Assets Regulation (MiCA). MiCA aims to establish an environment within the European Union that fosters the growth of crypto assets, related products, and services, all while maintaining safeguards to mitigate market and consumer risks through a regulatory framework.

The recent European consensus on the MiCA regulation encourages all stakeholders to prepare for the forthcoming requirements. The European Council subsequently granted approval on May 16, 2023. This regulation was officially published in the Official Journal of the European Union on June 9, 2023, and it officially became effective on June 29, 2023.

Crypto asset service providers currently in operation benefit from an extended transition period of up to 18 months from the full adoption of MiCA. Furthermore, they can take advantage of a simplified authorization process. The exact duration of the transition period is determined by each Member State and must conclude by the end of June 2024.

 This regulation provide a legal framework conducive to innovative business models for both traditional financial service providers and FinTech companies. It holds the potential to facilitate the entry of crypto security issuers and crypto service providers into the established financial landscape.

MiCA is applicable uniformly across the European Union, encompassing all Member States. This establishes a legal foundation for cryptocurrency regulation at the EU level, allowing service providers to offer licensed services throughout the EU without the need for additional permits.

Who falls under the purview of MiCA regulation?

Under MiCA, a crypto asset service provider is defined as any individual or entity whose primary occupation or business revolves around offering one or more crypto asset services to third parties on a professional basis. These services and activities include:

(a) Storing and managing crypto assets on behalf of third parties. (b) Operating a trading platform for crypto assets. (c) Exchanging crypto assets for legal tender (fiat currency). (d) Exchanging crypto assets for other crypto assets. (e) Executing orders for crypto assets on behalf of third parties. (f) Placing crypto assets. (g) Accepting and transmitting orders for crypto assets on behalf of third parties. (h) Providing advisory services regarding crypto assets.

It’s important to note that crypto assets already categorized as financial instruments or electronic money under MiFID and the Electronic Money Directive (EMD) do not fall within the scope of MiCA. Additionally, MiCA will replace existing national regulations for crypto assets not covered by current EU financial services legislation.

MiCA categorizes crypto assets into three distinct groups:

  1. Utility Tokens: These tokens grant digital access to a product or service available on a Distributed Ledger Technology (DLT) platform. They are accepted exclusively by the issuer of the token.
  2. Asset-Referenced Tokens (ART): ARTs are crypto assets designed to maintain a stable value by referencing the value of one or more legal tender fiat currencies, goods, or other crypto assets.
  3. E-money Tokens (Payment Tokens): These crypto assets have a stable value based on a single fiat currency and are intended for use similar to electronic money, potentially replacing fiat currency in payments.

CASP Authorization:

To provide crypto asset services subject to MiCA regulation, authorization from a Crypto Asset Service Provider (CASP) is required. Applications for such permits must be submitted to the competent authority of the EU Member State where the company is registered.

MiCA imposes specific requirements on CASPs, including organizational ones. Members of the CASP governing body must possess relevant experience and a good reputation. CASPs must establish internal controls, risk assessment mechanisms, and procedures to ensure the confidentiality of received information. Additional requirements may be applicable based on the services provided and associated risks.

Once authorized, CASPs are permitted to offer services throughout the EU.

MiCA Regulatory Oversight:

Under MiCA, relevant regulators at the Member State level are responsible for overseeing CASPs and ensuring compliance with MiCA requirements.

Significant CASPs, defined as those with more than 15 million active users, will be subject to supervision by relevant regulators. However, the European Securities and Markets Authority (ESMA) holds the authority to intervene, potentially prohibiting or restricting the provision of crypto asset services.

The European Banking Authority (EBA) will oversee stablecoins with more than 10 million users or an asset reserve exceeding €5 billion. Additionally, the European Central Bank will possess veto power over any stablecoin that raises concerns.

In conclusion, the new EU-level regulation encourages all market participants to prepare for forthcoming changes. It is imperative to start preparations for bringing businesses into compliance with MiCA now, as the regulation is set to become fully effective in 2024.

Mayon Solutions can assist your business in preparing for the upcoming changes.

 

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