Helicopter View of MiCA

Following on from our Introduction to the Markets in Crypto-Assets Regulation, we provide here a brief overview (the helicopter view) of MiCA.

Peter Howitt

Managing Director

Following on from our Introduction to MiCA, we provide here a brief overview (the helicopter view) of MiCA.

Subsequent articles will explore each Title of MiCA in more detail. We will also look at MiCA from the perspective of a CASP or crypto-asset issuer that is outside of the EU and also with our DeFi, Dex and DAO glasses on.


What is a crypto-asset under MiCA?

Given that it is a market regulation in crypto-assets let’s start with how it defines and treats different types of crypto-asset (Recital 18, MiCA):

This Regulation classifies crypto-assets into three types…The classification is based on whether the crypto-assets seek to stabilise their value by reference to other assets.” 

The first is defined as an e-money token:

“The first type consists of crypto-assets that aim to stabilise their value by referencing only one official currency. The function of such crypto-assets is very similar to the function of electronic money as defined in Directive 2009/110/EC. Like electronic money, such crypto-assets are electronic surrogates for coins and banknotes and are likely to be used for making payments. Those crypto-assets should be defined in this Regulation as ‘e-money tokens’.

The second are stablecoins that are not tied to one fiat currency or are otherwise meant to be stable by reference to other assets.

The second type of crypto-assets concerns ‘asset-referenced tokens’, which aim to stabilise their value by referencing another value or right, or combination thereof, including one or several official currencies. That second type covers all other crypto-assets, other than e-money tokens, whose value is backed by assets, so as to avoid circumvention and to make this Regulation future-proof.”

Finally, we have nearly everything else:

Finally, the third type consists of crypto-assets other than asset-referenced tokens and e-money tokens, and covers a wide variety of crypto-assets, including utility tokens.” 


What is outside of the scope under these definitions?

Earlier drafts of MiCA excluded so called algorithmic tokens. However, the final draft has caveated this approach such that such tokens may be caught by the definition of e-money or asset referenced tokens.

“When a crypto-asset falls within the definition of an asset-referenced token or e-money token, Title III or Title IV of this Regulation should apply, irrespective of how the issuer intends to design the crypto-asset, including the mechanism for maintaining a stable value of the crypto-asset. The same applies to so-called algorithmic ‘stablecoins’ that aim to maintain a stable value in relation to an official currency, or in relation to one or several assets, via protocols, that provide for the increase or decrease in the supply of such crypto-assets in response to changes in demand.”

Even if such tokens are outside of those definitions, offerors of such tokens are still caught by the Title II (Offering Rules) provisions:   

“Offerors or persons seeking admission to trading of algorithmic crypto-assets that do not aim to stabilise the value of the crypto-assets by referencing one or several assets should in any event comply with Title II of this Regulation.”

However, crypto-assets issued by decentralised organisations (such as DAOs) are outside of MiCA since the definition of an issuer only refers to natural or legal persons:

“‘issuer’ means a natural or legal person, or other undertaking, who issues crypto-assets;”

This is a practical and legal requirement given that many financial services rules can only really be applies to persons acting in a centralised manner. In other areas of financial services law it is clear that a group of people may undertake an activity that is outside of scope of financial services law (such as collective ownership of property). For example, with collective investment schemes (aka funds), the question to be asked in the regulated investment space is always one of whether one or more persons has sufficient control over a project. This control is seen to determine the project’s chances of success – and where other people (i.e. investors) are relying on that person(s) when making an investment decision. 

The more decentralised a project is the less likely that it could fall within the definition of a security or collective investment scheme given the lack of a separate manager or promoter and the ability of each participant to determine the project’s governance, strategy and success (i.e. have some day to day control).


MiCA Structure

MiCA is made up of Recitals –these explain the purpose of the regulation and can be helpful for interpretation – and 9 main operative Titles (with some subsections called ‘Chapters’ within the Titles):


Title I: Scope and definitions

Title II: Crypto-assets other than asset referenced tokens or e-money tokens (the Offering Rules)

Title III: Asset referenced tokens (including multi-fiat and some crypto backed stablecoins)

Title IV: E-money tokens (single fiat backed stablecoins)

Title V: Authorisation and operating conditions of crypto-asset service providers (CASP Rules)

Title VI: Market Abuse

Title VII: Competent authorities, EBA & ESMA

Title VIII: Delegated Acts

Title IX: Transitional and final provisions


1. Scope of the regulation

MICA will apply to all crypto-assets that are offered or sold to, or used by, consumers in the European Union (by way of the regulated activity of making an offer to the public) and to all specified service providers – CASPs – undertaking regulated activities from or within the EU.

The full list of Crypto-Asset Service Providers is:

(a) providing custody and administration of crypto-assets on behalf of clients;

(b) operation of a trading platform for crypto-assets;

(c) exchange of crypto-assets for funds;

(d) exchange of crypto-assets for other crypto-assets;

(e) execution of orders for crypto-assets on behalf of clients;

(f) placing of crypto-assets;

(g) reception and transmission of orders for crypto-assets on behalf of clients;

(h) providing advice on crypto-assets;

(i) providing portfolio management on crypto-assets;

(j) providing transfer services for crypto-assets on behalf of clients.

2. Licensing requirements

All CASPs will be required to obtain a license from a national competent authority unless they are non-EU and permitted to undertake token sales subject only to the Offering Rules. The requirements for obtaining a license (authorisation) will vary depending on the type of CASP and the services that they offer. For example, exchanges will be required to meet more stringent requirements than advisors. We will cover this in more detail in future articles.

In addition, CASPs and crypto-assets that are defined as “significant” have additional regulations and requirements:

“Given that EBA should be mandated with the direct supervision of issuers of significant asset-referenced tokens and significant e-money tokens, and ESMA should be mandated to make use of its powers in relation to significant crypto-asset service providers, it is necessary to ensure that EBA and ESMA are able to exercise all of their powers and tasks in order to fulfil their objectives of protecting the public interest by contributing to the short-, medium- and long-term stability and effectiveness of the financial system, for the Union economy, its citizens and businesses…” (Recital 116)

In respect of e-money and asset referenced crypto-assets, ‘significant’ means:

“(a) the number of holders of the … token is larger than 10 million;

(b) the value of the … token issued, its market capitalisation or the size of the reserve of assets of the issuer of the … token, is higher than EUR 5[bn] ;

(c) the average number and average aggregate value of transactions in that asset-referenced token per day during the relevant period, is higher than 2,5 million transactions and EUR [500m] respectively;” (Art 43 (1))

In respect of CASPs, significant is defined as:

“A crypto-asset service provider shall be deemed significant if it has in the Union at least 15 million active users, on average, in one calendar year, where the average is calculated as the average of the daily number of active users throughout the previous calendar year.” (Art. 85 (1))

3. Additional Requirements for CASPs

CASPs will be required to comply with a number of requirements, including:

  • KYC and AML requirements including nominating a Money Laundering Reporting Officer and reporting suspicious transactions to the authorities.
  • Market abuse requirements
  • Consumer protection requirements


Some CASPs will also need to meet prudential capital requirements and have sufficient wind-down capital (Art 67).

4. MiCA Offering Rules (Requirements for Token Sales)

One of the main requirements is that incorporated entities issuing crypto-assets to trade on EU trading venues or offering crypto-assets to the public in the EU will be required to use White Papers that are of approved format and there are notification obligations to the relevant regulators in respect of those offers.  The requirement for a White Paper with mandatory disclosures borrows from existing EU approaches in respect of investment offering documents.

“In order to ensure their protection, prospective retail holders of crypto-assets should be informed of the characteristics, functions and risks of the crypto-assets that they intend to purchase. When making an offer to the public of crypto-assets … or when seeking admission to trading for such crypto-assets, in the Union offerors or persons seeking admission to trading should draw up, notify to their competent authority and publish an information document containing mandatory disclosures (‘a crypto-asset white paper’).” (Recital 24)

There is also a requirement for promotional information to be fair, clear and not misleading:

“The information contained in the crypto-asset white paper as well as in the relevant marketing communications, such as advertising messages and marketing material, and including through new channels such as social media platforms, should be fair, clear and not misleading. Advertising messages and marketing material should be consistent with the information provided in the crypto-asset white paper. “

5. Market Abuse

Many elements of the EU Market Abuse Regulation  for capital markets have been incorporated into MiCA. These apply to crypto-assets traded on EU crypto trading venues. The requirements include:

  • publishing inside information as soon as possible (subject to limited exceptions)
  • rules prohibiting insider dealing, market manipulation and unlawful disclosure of inside information;
  • requirements that any persons professionally arranging or executing transactions in crypto-assets are required to have in place systems and procedures to monitor and detect market abuse.


6. Enforcement

The MICA regulation will largely be enforced by the national competent authorities in each EU member state. The authorities will have the power to take a number of enforcement actions, including fines and prohibition from trading. However, in respect of significant CASPs, ARTs and EMTs the supra-national EU authorities (EBA and ESMA) will assume direct supervisory control.


7. Impact of the regulation

The MICA regulation is expected to have a significant impact on the crypto industry in the European Union. The regulation will make it more difficult for new entrants to the market and it will increase the costs of compliance for existing players. However, the regulation will also provide greater certainty for consumers and investors.

The MICA regulation is largely seen as a positive step for the crypto industry in the European Union. The regulation should help to protect consumers and investors and it will create a more level playing field for all participants across the EU.

Some of the benefits of the MICA regulation include:

  • Increased consumer protection: The MICA regulation will require CASPs to comply with a number of consumer protection requirements as well as KYC and AML requirements. This will help to mitigate  fraud and other risks.
  • Increased market integrity: The MICA regulation will introduce a number of measures to improve market integrity, such as market abuse requirements. This will help to prevent market manipulation and other forms of fraud.


Increased innovation has also been mooted as a purported benefit and it is true that the MICA regulation provides a clearer regulatory framework for crypto-assets. Whether this will help to foster innovation in the crypto industry and make it easier for new businesses to enter the market remains to be seen. Much depends on how the EU member states implement the practical requirements of the Regulation. One might also wonder whether a Regulation of such broad and deep scope is actually intended to support the innovation it purports to, or whether a lighter first touch from the EU may have been more likely to encourage innovation.

The MICA regulation is a significant piece of legislation that will have a major impact on the crypto industry in the European Union and beyond. It is crucial for market participants to understand and prepare for the implications of MiCA to navigate the evolving regulatory environment and harness.


MiCA for US and non-European companies

In our next article we provide a summary of the territoriality of MiCA and the impact of MiCA for non-EU companies and lawyers (including our American cousins).

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