European crypto-assets regulation (MiCA) overview

We take a look on a recent EU market in crypto-assets regulation (shortly, MiCA) adopted in 31 May 2023 and taking effect from 30 December 2024. The Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets establishes uniform rules for issuers of crypto-assets that have so far not been regulated by other European Union (EU) financial services acts and for providers of services in relation to such crypto-assets (crypto-asset service providers). The legislation is designed to provide legal clarity and certainty for crypto-asset issuers and providers and aims to boost innovation while preserving financial stability and protecting investors from risks.

It is part of the digital finance package adopted by the Commission in September 2020. This strengthens the EU’s anti-money-laundering and countering terrorism-financing rules, including rules on information accompanying money transfers.

The MiCA regulation covers:

  • transparency and disclosure requirements for the issuing, offering to the public and admitting of crypto-assets to a trading platform;
  • the authorisation and supervision of crypto-asset service providers and issuers of asset-referenced and electronic money tokens;
  • protection for holders of crypto-assets and clients of service providers and other related issues.

Types of crypto-assets:

  1. e-money tokens (crypto-assets that stabilize their value in relation to a single official currency);
  2. asset-referenced tokens (crypto-assets that stabilize their value in relation to other assets or a basket of assets);
  3. crypto-assets other than asset-referenced tokens or e-money tokens.

Requirements for 3 types of crypto-assets offerors:

1. Offerors or persons seeking admission to trading of crypto-assets other than asset-referenced tokens and e-money tokens (type 3) have the minimal obligations set, they must:

  • be a legal person;
  • publish a crypto-asset white paper and any marketing communication on their website;
  • act honestly, fairly and professionally;
  • ommunicate with actual and potential asset holders in a fair, clear and non-misleading manner;
  • provide holders of crypto-assets with a right of withdrawal.

2. Issuers of asset-referenced tokens (type 2) have more requirements to comply with, they should:

  • be a legal person or a certain undertaking based in the EU;
  • have authorization from their home EU Member State; or
  • be a credit institution which produces a crypto-asset white paper that is approved by the competent national authority;
  • redeem their asset-referenced tokens at any time upon request of the holders at market value of the referenced assets or by delivering the referenced assets;
  • act honestly, fairly and professionally and communicate with actual and potential holders of the tokens in a fair, clear and non-misleading manner;
  • act in the best interests of the holders of the tokens and treat them equally;
  • establish and maintain effective and transparent procedures for handling complaints promptly, fairly and consistently;
  • maintain at all times a reserve of assets covering the liabilities towards the holders of the tokens, and have own funds at least equal to the highest of the following: €350,000, or 2% of the average amount of the reserve assets, or a quarter of the fixed overheads of the preceding year;
  • establish recovery and redemption plans for use if they are unable to meet their obligations.

3. Issuers of electronic money tokens (type 1) that offer them to the public or seek their admission to trading on a trading platform for crypto-assets have the highest level of requirements and must:

  • be authorised as a credit or electronic money institution;
  • publish a crypto-asset white paper and any marketing communication on their website and be liable for damages for incorrect information in the white paper;
  • comply with issuance, redeemability and marketing rules;
  • issue the tokens at par value on receipt of funds;
  • redeem upon a holder's request the tokens at any moment and at par value;
  • invest the funds they receive in secure, low-risk assets in the same currency and deposit them in a separate account in a credit institution;
  • establish recovery and redemption plans for use if they are unable to meet their obligations.

In case the European Banking Authority (EBA) classifies asset-referenced and electronic money tokens as ‘significant’ (if certain criteria are met, such as their holders, value or transactions going above certain levels) then additional requirements should be met and the EBA takes over the supervisory role.

Obligations for all crypto-asset providers require them to:

  • act honestly, fairly and professionally;
  • provide clients with fair, clear and non-misleading information;
  • not mislead clients and warn them of the risks involved;
  • have in place prudential safeguards at least equal to the higher of the following:

(a) the permanent minimum capital requirements in Annex IV, or

(b) one quarter of the preceding year’s fixed overheads;

  • ensure members of the management body are of good repute and have the knowledge, experience, skills and time to perform their duties effectively;
  • prevent any money laundering, terrorist financing or other offences;
  • keep clients’ crypto-assets and funds separate from other assets and not use them on their own account;
  • handle clients’ complaints;

The new regulation applies from 30 December 2024, however, rules on asset-referenced tokens and e-money tokens apply from 30 June 2024. So that the industry has little time left to integrate itself with the new rules that establish quite harsh requirements comparable with those made for banks and broker firms.