EUROPEAN CRYPTO LICENSE.
MARKETS IN CRYPTO-ASSETS
REGULATION – MICA

  • Crypto-asset issuance
  • Crypto-asset exchange listing
  • Stablecoin issuance
  • CASP authorization
  • Crypto exchanges
  • Crypto custody
  • Swaps
  • Marketplaces etc.

Existing European National Crypto Regulations and MiCA

The recently adopted European Markets in Crypto-Assets Regulation (MiCA) introduced a pan-European crypto regulatory framework, including a passportable Crypto Assets Service Provider (CASP) license and authorizations for certain crypto-asset issuers across the European Union and European Economic Area (EU/EEA). However, until MiCA is fully implemented at the end of 2024, the European national Virtual Asset Service Provider (VASP) authorizations will remain effective.

Types of national Asset Service Provider Authorizations

Currently EU member states, predominantly provide 2 types of CASP authorizations:

  • Crypto currency exchange operator – for FIAT to crypto-asset, crypto-asset to FIAT, and crypto-asset to crypto-asset exchange services
  • Crypto currency depository wallet operator – for crypto-virtual asset custody and management of clients’ crypto-asset wallets

The type of authorization may vary depending on the country. Some jurisdictions require separate authorizations for crypto-asset issuance (tokens/coins) and related processes (ICO, IEO), and crypto-asset service provision.

Companies currently holding a VASP authorization in EU/EEA countries are subject to the supervision by national Anti-Money Laundering authorities and financial regulators in their countries of registration.

What needs to be considered when choosing a European jurisdiction for a VASP authorization prior to the implementation of MiCA:

– Company incorporation and registered share capital requirements

– Local presence requirements in the country of registration and employment of local AML officer/MLRO

– Possibility of a bank/EMI account opening for the company

– Client onboarding, KYC, and AML reporting requirements

– Regulatory reporting and company maintenance costs

For instance, Poland is an attractive jurisdiction for VASP authorization because of the absence of additional capital requirements.

Lithuania, on the other hand, is attractive because of a wide selection of licensed crypto-friendly financial institutions offering bank/EMI accounts for crypto companies. This is important because usually it is easier to raise the capital than it is to create a reliable business infrastructure and find crypto-friendly financial institutions.

Lithuanian Crypto Exchange and Crypto-asset Wallet Service Provider Authorization

Lithuania being a widely recognized traditional finance jurisdiction for payment and electronic money institutions in Europe became one of the most popular jurisdictions in Europe for crypto companies as well. Lithuania is one of few countries in the European Union and European Economic Area (EU/EEA) that offers transparent and cost-effective national crypto-asset exchange and crypto-asset custody wallet operator authorization.

Lithuanian national crypto-asset regulation is currently considered one of the most crypto-friendly in the European Union because it allows the provision of crypto-asset-related services in other European markets. The simplicity of the procedures for obtaining a cryptocurrency license in Lithuania, and the speed of its entry are just a few of the most prominent advantages in obtaining a crypto-asset licenses in Lithuania.

Accordingly, Lithuania has attracted the world’s biggest crypto exchange Binance. ECOVIS advised Binance during the entire process, which included among other things, the incorporation matters and the authorization process. As a result, with the assistance of ECOVIS, Binance currently holds a Lithuanian crypto-asset exchange and crypto-asset custody wallet authorization since mid-2020.

Lithuanian VASP authorized companies can further obtain VASP authorizations in other European countries such as Germany, Italy, France, and Spain under the same Lithuanian registered company and without incorporating of additional companies/branches in other European member states. The Company’s capital, employed personnel, and local bank accounts opened in Lithuania can be used for business operations in all other large European national markets saving business expenses.

General VASP Requirements in Lithuania

Before the MiCA regulation harmonizes the requirements for crypto activities, the national requirements may vary. However, there are some general requirements for the entities engaged in VASP activities in Lithuania that are common in other jurisdictions as well:

– Customer identification and verification

– Reporting to the Lithuanian FIU

– Keeping records and client data

– Meeting Lithuanian presence requirements and employment of AML officer

– Implemented AML/KYC polices and internal control procedures

– Members of the Management Board, as well as Ultimate Beneficial Owners (UBO’s) of the company, must meet the requirements of impeccable reputation.

– There is no requirement for the directors and members of the board to be Lithuanian/European residents.

 

MiCA Implementation Roadmap

MiCA at a glance

Objectives

  • The MiCA regulation is intended to adapt the EU regulation for the digital age by enabling the use of innovative technologies in the future-ready economy
  • It is set out to level out and regulate the crypto-asset industry on an EU level without curbing the development of the underlying technology
  • The uniformity of EU rules will provide legal clarity in the industry in the EU and have a significant regulatory impact globally
  • A harmonized EU-wide legal system will impose its requirements to all crypto-asset industry actors within its scope
  • The regulation classifies market actors into crypto-asset issuers and crypto-asset service providers.

 

MiCA SCOPE MiCA

Crypto-assets non-stablecoin

  • Utility tokens
  • Crypto-assets
  • Stablecoins
  • NFTs, etc.

Crypto-Asset Issuers

  • Crypto-assets
  • Stablecoins

Crypto-Asset Service Providers

  • Exchanges
  • Wallet providers
  • Swaps
  • Payment facilitators etc.
The MiCA regulation applies to all crypto-assets and crypto market actors. Albeit, some are either completely exempted or may be exempted under certain conditions.

Exemptions and exceptions

  • NFTs – Non-fungible tokens are completely exempted;
  • Airdropped tokens – may be exempted under certain conditions;
  • Mining / staking rewards – may be exempted under certain conditions;
  • Utility tokens – may be exempted under certain conditions;

Key definitions

  • Issuers – issuers of crypto-assets. 2 basic types: stablecoins and non-stablecoins.
  • Stablecoin – a crypto-asset backed by other assets which maintain its stable value.
  • Non-stablecoin – crypto-asset whose value may fluctuate depending on the market conditions.
  • CASP – crypto asset service providers that provide one or multiple services prescribed by MiCA.
  • E-money tokens (EMTs) – stablecoins backed by FIAT currency, equated to e-money.
  • Asset Referenced Tokens (ARTs) – stablecoins backed by any assets, not equated by e-money.
  • Significant stablecoin – tokens that have a significant enough market presence to influence the financial market or prevent other issuers from issuing their stablecoins.

As the MiCA regulation is going to be rolled out in stages, the first stage is already in effect from 2023-07 with EU authorities already busy on compiling the necessary guidelines explaining the regulation’s implementation.

The first round of the regulation’s requirements rolling out on 2024-07-30 are going to affect stablecoin issuance; and the last stage in 2024-12-30 for the rest of crypto market actors. Accordingly, with less than a year left for the regulation to take effect the industry’s participants should take full advantage of the transitional period. This was reiterated by the EBA in their crypto market statement for stablecoin issuers.

Key takeaways

  • MiCA – implemented in stages
  • Possible exemptions and exceptions
  • EBA urges preparation during the transitional period
  • Classification of crypto-assets and market actors
  • 2 types of stablecoins – EMTs and ARTs
  • 10 different services for CASPs

To ensure a smooth transition, the crypto market participants should familiarize themselves with the current regulatory framework in their home member state which is still applicable during the transitional period, and use the requirements of the MiCA regulation as a blueprint for adjusting their arrangements in accordance to the upcoming regulatory regime.

Notwithstanding narrow exemptions, all crypto-asset issuers will have to prepare a white paper, including the information about:

  • The issuer;
  • The crypto-asset project;
  • The token;
  • The underlying technology including environmental effect;
  • The associated risks;

Stable coin issuance

MiCA identifies two types of stablecoins – E-money tokens (EMTs) and asset-referenced tokens (ARTs). Even though they both purport to do the same thing i.e. to maintain a stable value pegged to a FIAT currency, the difference is the possible issuers and the underlying assets backing up their value.

  • ARTs – can be issued by any entity, provided they are authorized to do so, and can be backed by any assets.
  • EMTs – can only be issued by credit or electronic money institutions, without the need to be separately authorized, and can be backed by the FIAT currency it’s pegged to.
  • Once authorized to issue stablecoins by a single EU regulator, the issuers will have the right of issuance across the EU.
  • Granting interest for holding stablecoins will be prohibited.
  • Both stablecoins can be considered “significant” if, among other things, their daily transaction
  • volumes and market capitalization exceeds a certain threshold.

As with most crypto activities, stablecoin issuance is heavily technology-dependent that’s why it’s important to set up not only a reliable future-resistant DLT infrastructure, but also one that is compliant and has the required tracking and reporting capabilities.

CASP authorization

The provision of any of the 10 crypto-asset services is subject to an authorization by the competent authorities of the home member state. The applicant entity has to be a legal person or an undertaking with a registered office in the member state where it aims to provide at least some of its activities. The information that needs to be provided during the application process and the prudential requirements will depend on the services that the authorization is sought for.

General requirements for CASP authorization:

  • Legal person, undertaking, other undertakings ensuring an equivalent level of protection as a legal person;
  • Registered office in EU member state of activity;
  • Effective management in the EU;
  • At least one of the directors resident in the EU;
  • Authorization valid across EU;
  • Different rules for already licensed entities;
  • Clear description of activities;
  • Sound governance arrangements;

Practice Areas

Crypto-asset issuance

Seeking to issue crypto-assets or have them listed on an exchange?

  • Company establishment
  • White paper
  • Airdrops
  • Crypto-asset classification

Stablecoin issuance

Planning to issue e-money or asset-referenced tokens?

  • White paper
  • Crypto-asset classification legal opinion
  • Policies
  • Governance

Crypto-asset service providers

Seeking to provide crypto-asset services?

  • Authorization
  • DeFi operations
  • Governance
  • Prudential requirements

Kęstutis Kvainauskas

Lawyer, attorney at law, partner of the law firm.

Contact person

+370 5 212 40 84 [email protected]