Cryptocurrencies need consistent regulation – an overview of Europe’s MiCA bill

Author: Faisal Zaidi, CoinDesk; Compiled by: Songxue, Golden Finance

In the ever-evolving world of blockchain and cryptocurrency, one has synergy The regulatory and business development ecosystem is critical to foster collaboration and innovation. Building a decentralized economy becomes more difficult in a fragmented world where companies must abide by different rules in each country in which they operate. Recently, Crypto Oasis, Crypto Valley, DLT Science Foundation, and Inacta Ventures joined forces to launch the first-ever Global Protocol Report, designed to help the industry navigate an increasingly complex world of regulations and protocol developments.

The following is an excerpt from a submission written by Timea Nagy, senior counsel at AlpinumLaw, regarding the Cryptoasset Markets Regulation Act (MiCA), This is Europe’s comprehensive encryption standard that is about to take effect, allowing the company to achieve coordinated promotion of its products across the EU’s 27 member states.

Looking at the cryptocurrency space, we find that regulations can vary widely around the world, involving different regions, legal jurisdictions and regulatory agencies. In an important step towards creating a more integrated framework, the European Union (EU) introduced the Markets in Crypto-Assets Act (MiCA). This initiative has the potential to become a model for other jurisdictions around the world. As of now, MiCA exists as a symbol of the possibility of harmonizing cryptocurrency regulations on an international scale.

MiCA is more than a stand-alone regulation; it is an important part of the comprehensive digital finance strategy developed by the European Commission. This broader strategy covers various aspects, including the upcoming Digital Operations Resilience Regulation (DORA), which will include provisions for crypto asset service providers. Another noteworthy inclusion is new regulations surrounding distributed ledger technology (DLT) pilot regimes, with a focus on enhancing the operation of financial market infrastructure built on DLT principles.

The regulation itself covers a wide scope, touching on everything from the issuance of unbacked crypto-assets to stablecoins, and from crypto-asset trading platforms to the wallets that store them. It aims to provide an integrated regulatory framework. The regulation defines crypto-assets as digital representations of value or rights that can be transferred and stored in electronic devices. It classifies them into utility tokens, asset reference tokens and electronic tokens, effectively including crypto-assets that are currently not regulated by existing financial services regulations.

The new regulations emphasize transparency, disclosure, authorization and supervision, which all have important impacts. It is worth noting thatCryptoasset Service Providers (CASPs) need to obtain authorization from national authorities to provide their services throughout the EU. This authorization essentially serves as their passport to operate within the league. But what does this mean for Switzerland or other non-EU countries?

Switzerland, as well as any other non-EU country, is affected by MiCA as long as it provides encryption-related business in an EU country. This means that Swiss companies need to analyze whether they comply with MiCA's regulations and, if so, whether they have the necessary licenses.

MiCA generally applies to three categories of persons: (i) issuers of cryptoassets, (ii) cryptoasset service providers (CASPs), and (iii) any transaction involved has been authorized The act of trading crypto-assets on a crypto-asset trading platform operated by a crypto-asset service provider, or has made a request to trade on such a trading platform. Additionally, MiCA distinguishes between different types of cryptoassets:

1. Asset Reference Token: One that is not an electronic currency Tokens are cryptoassets that maintain a stable value by reference to other values, rights, or combinations thereof, including one or more official currencies.

2. Electronic Currency Token: A cryptoasset that maintains a stable value by reference to the value of an official currency.

Utility tokens. Refers to cryptoassets that are used solely to provide goods or services provided by their issuer. Please note! Outside the scope of MiCA include: DeFI protocols, pure NFTs, CBDCs, security tokens or other crypto-assets that qualify as financial instruments under MiFID II.

License. MiCA introduces licensing requirements for cryptoasset service providers, issuers of asset reference tokens and issuers of electronic currency tokens. In general, CASPs will trigger licensing requirements unless they are already a credit institution licensed under MiFID. As mentioned earlier, even with an existing license, companies are still required to notify the relevant authorities of their intention to provide crypto asset services.

Regulation. At the Member State level, the competent authorities will be responsible for supervising CASPs and ensuring that they comply with the regulations set out in MiCA. CASPs with more than 10 million active users will be classified as "significant CASPs." While these important CASPs will continue to be regulated by the relevant authorities, the European Securities and Markets Authority (ESMA) will be given "intervention powers". This authority empowers ESMA to take measures to prohibit or restrict CASPs from providing crypto-asset services, particularly where there is a threat to market integrity, investor protection or financial stability.

For stablecoins, the regulatory field involves the intervention of the European Banking Authority (EBA). Specifically, stablecoins with more than 10 million users or asset reserves exceeding 5 billion euros will be regulated by the EBA. In addition, the ECB will have the power to exercise veto power to influence the operation of any stablecoin it deems problematic.

Market Abuse Restrictions. Crypto-assets that do not qualify as financial instruments under MiFID II will not be within the scope of EU market abuse regulations. However, MiCA has developed its own market abuse rules for the crypto asset market to safeguard market integrity. These rules will apply to cryptoassets traded on cryptoasset trading platforms operated by authorized cryptoasset service providers.

Conclusion

There is no doubt that MiCA’s impact on CASP will be huge. This means we may face delays and potentially difficult phases in implementing the necessary changes. While there may be some obstacles ahead, we are optimistic because we are ready to address these challenges from both a practical and legal perspective.