Draft European regulation on Markets in Crypto-assets (MiCA)


Alexia Pollacco

A draft proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets (MiCA) drawn up by the European Commission has been leaked. The proposal forms part of the Digital Finance package, which also includes a proposal for a pilot regime on distributed ledger technology (‘DLT’) market infrastructures, a proposal for digital operational resilience, and a proposal regarding EU financial services rules. The Digital Finance package is intended to further the Commission’s vision to facilitate the adoption of digital finance in the European Union.

The draft Regulation is applicable to entities which issue crypto-assets and to services related to crypto-assets in the EU. However, crypto-assets which qualify as any of the following fall outside the remit of the Regulation:

  • Financial instruments as defined in MiFID II;
  • Electronic money as defined in the E-Money Directive;
  • Deposits as defined in the Deposit Guarantee Schemes Directive;
  • Structured deposits as defined in MiFID II;
  • Securitisation as defined in the Securitisation Regulation.

Furthermore, the Regulation shall not apply to, inter alia, the following entities:

  • The European Central Bank and national central banks acting as monetary authorities/other public authorities;
  • Insurance and reinsurance undertakings;
  • Liquidators or administrators acting in the course of insolvency procedures;
  • Persons providing crypto-asset services exclusively to their parent companies, their subsidiaries or other subsidiaries of their parent companies;
  • The European Investment Bank;
  • The European Financial Stability Facility and the European Stability Mechanism;
  • Public international organisations.

The draft Regulation also defines certain key terms as follows:

  • Crypto-asset – “a digital representation of value or rights, which may be transferred and stored electronically, using distributed ledger or similar technology”;
  • Asset-referenced tokens – “a type of crypto-asset whose main purpose is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of several fiat currencies, one or several commodities or one or several crypto-assets, or a combination of such assets”;
  • Electronic money token or e-money token – “a type of crypto-assets whose main purpose is to be used as a means of exchange and that purports to maintain a stable value by being denominated in (units of) a fiat currency”;
  • Utility token – “a type of crypto-assets which are intended to provide access digitally to an application, services or resources available on a distributed ledger and that are accepted only by the issuer of that token to grant access to such application, services or resources available”;
  • Crypto asset service provider – “any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis”

Crypto-Asset Services

The draft Regulation provides a list of crypto-asset services, which consists of the following:

  1. the custody and administration of crypto-assets on behalf of third parties;
  2. the operation of a trading platform for crypto-assets;
  3. the exchange of crypto-assets for fiat currency;
  4. the exchange of crypto-assets for other crypto-assets;
  5. the execution of orders for crypto-assets on behalf of third parties;
  6. the placement of crypto-assets;
  7. the reception and transmission of orders for crypto-assets on behalf of third parties;
  8. the advice on crypto-assets;
  9. the execution of payment transactions in asset-referenced tokens.

Offering and Marketing of Crypto-Assets

The draft Regulation imposes a number of requirements for issuers offering crypto-assets to the public or requesting their admission to trading on a trading platform for crypto-assets. These requirements include that the issuer is incorporated as a legal entity, that a whitepaper is drawn up containing key information including a description of the rights and obligations attached to the crypto-assets, and that such whitepaper is notified to a competent authority. Certain public offerings are exempt from such requirements, for example where the offering is addressed to less than 150 persons per Member State or where the offering is addressed solely to qualified investors.

Issuance of asset-referenced tokens

The issuance of asset-referenced tokens, which are commonly known as stablecoins, is heavily regulated by the proposed Regulation. Apart from the requirements imposed upon the issuance of crypto-assets as outlined above i.e. incorporation as a legal entity and publishing of a whitepaper, the Regulation sets out a number of additional requirements for the issuance of stablecoins. The whitepaper must include additional content, such as a description of the mechanisms for stabilising the value of the stablecoins and a description of the investment policy for reserve assets if the reserve assets are invested. Issuers must also have a minimum capital of €350,000 or 2% of the average amount of reserve assets in place at all times. Issuers must also implement robust governance arrangements and members of the management body must be fit and proper persons. Furthermore, issuers must maintain a reserve of assets at all times in order to stabilise the value of asset-referenced tokens. Where two or more categories of asset-referenced tokens are issued, the issuer must maintain separate reserves of each category and each reserve must be managed independently, and policies must be enacted to this effect.

Issuers of asset-referenced tokens are exempt from the above requirements if the asset-referenced tokens are marketed and distributed exclusively to qualified investors or the average outstanding amount of asset-referenced tokens does not exceed €5,000,000 or the equivalent in another currency over a period of 12 months.

Legal persons seeking to offer asset-referenced tokens in the EU or admitting them to trading on a trading platform for crypto-assets must apply to the competent authority of their home Member State for authorisation as issuers of asset-referenced tokens. The competent authority must notify the European Banking Authority (‘EBA’), the European Securities and Markets Authority (‘ESMA’ and the European Central Bank (‘ECB’) of all authorisations granted.

Issuance of electronic money tokens

In order to offer electronic money tokens to the public in the EU or admit them to trading on a trading platform for crypto-assets, the issuer must be authorised as a credit institution or as an electronic money institution, comply with the requirements pertaining to electronic money institutions, and publish a whitepaper and notify the competent authority. It is pertinent to note that e-money tokens which reference a Union currency are deemed to be offered to the public in the Union.

These requirements shall not apply to electronic payment tokens addressed solely to qualified investors and if the average outstanding amount of electronic money tokens does not exceed €5,000,000 over a period of 12 months.

If an e-money token is classified as a significant e-money token, the EBA shall be responsible for its supervision.

Authorisation and operating conditions for Crypto-Asset Service providers

The draft Regulation establishes requirements applicable to all crypto-asset service providers. Firstly, crypto-asset services may only be provided by legal persons having a registered office in a Member State of the Union and must be authorised as crypto-asset service providers. The Regulation also sets out minimum capital requirements which must be maintained at all times depending on the type of service provided, and must also have an insurance policy in place. The Regulation also sets out numerous organisational requirements, for example, natural persons who own more than 20% of the share capital or voting rights must be of good repute and competent. Furthermore, a number of mechanisms and policies must be in place, such as those relating to safekeeping of clients’ funds, complaint handling procedures, conflicts of interest handling policies, and outsourcing policies.

Legal persons who intent to provide crypto-asset services must apply to the Competent Authority of the Member State where it has its registered office in order to obtain authorisation. Such competent authority shall be required to consult the competent authority of another Member State prior to granting authorisation in certain situations, for example if the prospective crypto-asset service provider is a subsidiary of a crypto-asset service provider in another Member State. The competent authority would be required to come to a final decision within three months from the receipt of the application, and inform ESMA of all authorisations granted. Authorisations shall be valid throughout the EU and allow crypto-asset service providers to provide services throughout the EU, either through the right of establishment (for e.g. through a branch) or though the freedom to provide services. ESMA will maintain a register of all authorised crypto-asset service providers which will be publicly available.