On June 30, 2022, the Council and the European Parliament reached a provisional agreement on the markets in crypto-assets (MiCA) proposal which aims to harmonize the regulation of crypto companies throughout the European Union. This is the first time when the EU brings crypto-assets, crypto-assets issuers, and crypto-asset service providers under a regulatory framework. The Council of the European Union announces that MiCA will better protect Europeans who have invested in crypto-assets, and prevent the misuse of crypto-assets while being innovation-friendly to maintain the EU’s attractiveness. The regulation deals with such topics as authorisation, liability, registers, supervision, and definition of crypto companies. The regulation is expected to come into force in 2024. So what do you need to know about the new cryptocurrency regulation?
Who is Subject to MiCA Regulation?
One of the main concerns of the MiCA regulation is an ever-evolving crypto space that constantly introduces new crypto-related products. To ensure that the regulation keeps its relevance and is applicable to most crypto companies, MiCA introduces the term “crypto-asset service provider” (CASP), which is defined as “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 include:
- the custody and administration of crypto-assets on behalf of third parties,
- the operation of a trading platform for crypto-assets,
- the exchange of crypto-assets for fiat currency that is legal tender,
- the exchange of crypto-assets for other crypto-assets,
- the execution of orders for crypto-assets on behalf of third parties,
- placing of crypto-assets,
- the reception and transmission of orders for crypto-assets on behalf of third parties,
- providing advice on crypto-assets.
Currently unregulated non-fungible tokens (NFTs) and their marketplaces will also be subject to the regulation, however, only those NFTs (and marketplaces that provide a platform to sell them) that are a part of a collection for purchase (e.g., CryptoPunks, Bored Ape Yacht Club, etc.), i.e., such NFTs fall under existing crypto-asset categories, or those that can be considered as a financial instrument. NFTs that are genuinely unique and incapable of being traded with each other – assets that do not belong to a larger collection nor grant unique and non-fungible rights – will be exempt from the MiCA regulation. However, this information is only provided implicitly, no actual references to NFTs are included in the regulation.
Authorisation and Passporting
According to the proposal, CASPs will have to obtain an authorisation to provide crypto-related services in the EU. Authorised companies will have a right to passport the authorized services across the entire EU. This means that having one authorisation is enough for operating in whole EU. Moreover, this offers a decisive advantage compared to the currently applicable individual national rules, which the undertakings have to examine with a lot of effort on a separate basis.
Since Lithuanian regulator performs authorisation of crypto companies, already authorised companies will be subject to a simplified authorisation process. Such companies will be exempted from the obligation to provide information and documents already known to the regulator. Additionally, already authorised companies will have an 18-month grace period to operate before obtaining authorisation under the MiCA regulation.
Consumer Protection and Liability of Crypto Companies
Since the crypto space is notorious for various scams, the MiCA regulation seeks to increase the customer protection and the responsibility of CASPs. Such responsibility will include:
- signing written agreements with customers that clearly identify the responsibilities of CASP,
- compensations for loss of crypto-assets due to cyber-attacks or malfunctions,
- providing customers the information about characteristics, functions and risks of crypto-assets they intend to purchase,
- acting honestly, fairly and professionally in the best interest of the customer (e.g., making pricings public),
- customer asset safeguarding.
Register of Crypto Companies
Another addition to the MiCA regulation is a public register of all authorised CASPs in the EU. The register will be established and maintained by the European Securities and Markets Authority. The register will include the CASP’s name, legal form, branches, address, website, list of provided services, the authority that granted authorisation and other relevant information. That register should also include the crypto-asset white papers notified to competent authorities and published by issuers of crypto-assets.
In addition to the above-mentioned register, MiCA also foresees a public register of non-compliant CASPs. The register will be maintained by the European Banking Authority.
It is worth mentioning that according to the latest Lithuanian AML/CTF Draft Law, all of the crypto companies established in Lithuania will be publicly listed from February 1, 2023.
The fact that a regulation and not a directive was chosen as the means of legislation for this means that this area is then even more harmonised than other financial services. It is an attractive option for new market participants to apply now for an authorisation as a MiFID institution. When MiCA regulation comes into force, these institutions will not be exposed to the uncertainties that a new implementation of the law creates.
ECOVIS ProventusLaw lawyers and experts are ready to help you prepare for the upcoming changes in the EU and local legislation to mitigate any possible risks.
Prepared by ECOVIS ProventusLaw Associate Vilius Neverdauskas
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