The EU’s new regulation for crypto assets: what you should know about MiCA
Daniel Moppel
Hedman Law Firm, Tallin
daniel.moppel@hedman.legal
Vladislav Linko
Hedman Law Firm, Tallin
vladislav.linko@hedman.legal
Introduction
The European Union is set to introduce the ‘Markets in Crypto-Assets (MiCA) Regulation’ to govern cryptocurrencies and related services. The EU Council has finalised the draft regulation, which will likely be approved soon.
This regulatory framework for crypto-assets and related services is similar to existing rules for traditional financial instruments under Markets in Financial Instruments Directive 2014 (MiFID II) and is set to reshape the European crypto landscape. Here, we highlight the key aspects of MiCA and how Estonia fares.
Overview of the MiCA
The MiCA:
- provides a uniform framework for crypto-assets across the EU;
- covers issuance, offering, trading and supervision of crypto-assets and service providers;
- excludes non-fungible tokens (NFTs) and financial instruments under MiFID II; and
- aims to protect holders of crypto-assets and clients of service providers.
Crypto asset definitions
MiCA defines three main types of crypto-assets: electronic money (e-money) tokens; asset-referenced tokens; and utility tokens.
- E-money tokens: crypto-assets that maintain a stable value by referencing one official currency.
- Asset-referenced tokens: crypto-assets that maintain a stable value by referencing other values, rights or a combination thereof.
- Utility tokens: crypto assets that only provide access to a good or service supplied by the issuer.
General offering rules
A public offering of crypto assets (excluding asset-referenced and e-money tokens) is allowed if the issuer:
- is a legal person;
- has drafted a white paper;
- has notified the regulator of the white paper;
- has published the white paper; and
- has prepared and published marketing communications (where applicable).
Exemptions apply for free offerings, blockchain rewards, utility tokens for existing goods or services, and limited networks of merchants.
Requirement for stablecoins
The requirements for stablecoins are:
- only credit institutions or authorised entities can issue asset-referenced tokens;
- issuers must have robust governance mechanisms and maintain sufficient funds and reserve assets; and
- e-money tokens are regulated similarly to existing e-money, with the added requirement of a whitepaper.
Regulated crypto services
MiCA defines regulated crypto-asset services, which include:
- custody, administration, and transfer of crypto-assets;
- operation of trading platforms;
- exchange and order execution for crypto-assets;
- placing and advising on crypto-assets; and
- portfolio management of crypto-assets.
Service providers need authorisation and must meet requirements such as capital and conflicts of interest policies, inter alia. Meanwhile, the exceptions for small crypto-assets and staking apply.
Estonia’s position
Estonia has strict regulations for crypto-related businesses, which largely align with MiCA’s requirements. Therefore, although existing licensed companies in Estonia will need to comply with new obligations, they have already implemented most of these requirements and will be able to leverage the opportunities presented by MiCA for compliant firms across the EU.
Conclusion
MiCA will provide legal clarity and consumer protection for crypto-assets and services across the EU while fostering innovation. Furthermore, by defining rules around crypto-assets and related activities like custody, trading or payments, MiCA aids the mainstream adoption of cryptocurrencies.