MiCA: What new European cryptocurrency regulations mean for the industry

Author: Alys Key, Translator: shawna zhou, The SeeDAO

01 What is MICA?

Background: Markets in Crypto Assets (MiCA) is a regulatory framework proposed by the European Union to regulate and supervise the crypto asset market. MiCA debuted in September 2020 in a European Commission proposal as part of the EU’s digital finance strategy. MiCA’s goal is to establish a unified regulatory framework within Europe to ensure the stable, transparent and legal operation of the digital asset market.  

The main points of MiCA regulations include:

1. Registration and supervision: MiCA regulates crypto-asset service providers Registration is required and regulated by European market regulators. This includes the regulation of crypto exchanges, digital asset wallet providers, and some initial token providers, among others.  

2. Transparency: Regulations require greater transparency in the digital asset market, including requiring detailed white papers and information disclosures.

3. Investor Protection: MiCA focuses on protecting the rights and interests of investors, including stipulating anti-money laundering (AML) and know-your-customer (KYC) regulations, as well as investor risks warning.  

4. Market order: Regulations attempt to ensure order in the digital asset market, including combating market manipulation and fraud.

After more than two and a half years of discussion and adjustments, the European Union looks ready to pass this landmark cryptocurrency regulation.

The new set of regulations is expected to be put to a vote the week of April 17.

The Market for Crypto-Assets (MiCA) is part of a larger EU initiative to update the Alliance’s approach to blockchain on several digital finance frontiers. MiCA itself focuses on cryptoasset providers and the reporting obligations they are subject to. It also sets strict requirements for stablecoin operators.

Most importantly, however, it unifies the approach of the 27 member states.

However, this month’s vote is far from the end of the story.

If members of the European Parliament approve the changes, countries will have up to 18 months to implement them. The specific application details of MiCA will be settled by the EU securities regulator ESMA.

However, this is not only a major milestone for the European encryption field, but also an important event globally.

Companies based in other countries will also be affected if they wish to provide services to EU customers, and Finance Commissioner Mairead McGuinness spoke passionately about the possibility of sharing ideas with American counterparts.

“This is very political,” said Marina Markezic, co-founder and executive director of the European Crypto Initiative. The organization is an industry group formed in response to MiCA's proposals. “Brussels thinks they are setting very good standards that ideally will be rolled out to other jurisdictions — that’s the Brussels effect.”

02 Europe begins to regulate “crypto-asset service providers”< /h2>

MiCA has formulated a series of regulations that apply to companies related to a broad category of industries known as "Crypto Asset Service Providers" (CASP).

This includes companies with activities ranging from operating trading platforms and providing asset custody to promoting new assets and providing crypto consulting.

Under MiCA, any institution wishing to make crypto assets publicly available is required to produce a white paper disclosing relevant information. This will include information about the issuer or entity wishing to be brought into the transaction, what the capital raised will be used for, what rights or obligations are associated with the asset, and what its underlying technology is.

They also need to be candid about the potential risks their investment may face.

In some cases, the CASP responsible for producing this white paper may be the issuer of the asset; in other cases, it may be the trading platform that provides the asset to customers.

The concept of a white paper is familiar to many in the crypto space, but Sam Tyfield, a corporate M&A lawyer at UK law firm Shoosmiths, said the EU rules would force a more rigorous, standardized approach.

Based on Tyfield's experience revising and extending a draft white paper to make it nominally compliant with MiCA regulations, he stated that "the amount of information and data required to do this is significantly beyond the current white paper." common practice, which is a significant challenge for most potential issuers of crypto assets or tokens.

“This is not a bad thing, because it may lead to some being less reliable,” he told Decrypt. Crypto asset issuers withdraw projects. ”

Anne-Sophie Cissey, head of legal compliance at French market maker Flowdesk, agrees.

As someone from a traditional finance background, she believes this is equivalent to what would apply to issuing equity. Tough standards. She said: "I know how people raise money and just say 'OK, this is a great thing, just give us money and everything will be better', but they don't have a plan. With MiCA, we will have this information. "

However, what she doesn't want to see is the gradual growth of paternalistic management. "But what I am worried about is not MiCA itself, but the use of MiCA, or what they are doing in the United States, they want to To protect investors from harm. "We are adults and we can make decisions," Cissey said. ”

03 ​​MICA’s Regulations on Stablecoins and NFTs

Another important component of MiCA’s regulations is the strengthening of regulations on stablecoins. Under these proposals, issuers are required to maintain supporting tokens. Asset reserves of coins. These assets must be segregated from their own assets and invested in a low-risk manner. EU lawmakers have also left room for large-scale stablecoin issuers to accept more stringent regulations, such as higher capital requirements .

However, these regulations will not affect central bank digital currencies (CBDCs), which are exempt. Observers have long pointed out that the origins of the MiCA regulations are in response to Facebook’s now-shuttered Diem (officially known as Libra) project, which stems from concerns about a non-governmental currency gaining ground in the region.

Shortly after the regulations were first proposed, Wolf-Georg Ringe, director of the Institute of Law and Economics at the University of Hamburg, “A closer reading of the proposals reveals concerns about losing monetary sovereignty to private actors, and not coincidentally, just days after the Commission’s proposals were released, the European Central Bank (ECB) launched its digital euro proposal. ”

One notable exception to the MiCA regulations is NFTs.

Explicitly stating that the requirement to develop a white paper does not apply to “unique and irreplaceable assets, including digital art and collectibles.” ”

However, further clarification in the document raises the possibility that “assets issued in a large-scale series or collection” may be considered fungible. Experts have suggested that this may affect To large-scale projects like Bored Apes Yacht Club (BAYC) and CryptoPunks, the scale affects their claims of uniqueness.

This is one of the issues that ESMA’s guidance may clarify.< /p>

The MiCA regulations also exclude other aspects of digital finance, but some hope these may be considered in future versions or other regulations.

“Since the MiCA draft was drafted, many Technologies have emerged, most notably staking,” commented Nick Taylor, EMEA public policy director at crypto exchange Luno: “More and more crypto companies are now considering incorporating this into their value proposition, turning to staking mechanisms. , and the guidelines for its use have not yet been clearly specified in MiCA. Future versions of MiCA may also consider DeFi, NFTs, and lending. ”

Some senior European institutions have identified the limitations of the regulation. Last week, a member of the European Central Bank’s advisory committee said that recent progress on the regulation was not enough.

In a In a blog post, ECB Supervisory Board member Elizabeth McCaul said that companies like Binance and the now-shuttered FTX may not be considered "important" in their current form, and that the company's overall operations need to be considered, not just is the scale of their presence within the EU.

04 'Overwhelmed' by compliance regulations

EU encryption initiative Since MiCA was first proposed Organizations have been particularly concerned about how startups will cope with new regulatory burdens.

Markezic said: “I think they may not have the financial capacity or the staffing to meet their obligations. We may see some of these companies essentially get crushed by this.

Flowdesk's Cissey said her company is "90 percent done" in preparing for MiCA. But she doubts any new entrants to the market might choose to look elsewhere when they first launch. "If I wanted to start a new project and I would do it in the BVI, the Cayman Islands or the Bahamas," she said.

Dion Seymour, director of crypto and digital asset technology at Anderson LLP, said this " "Regulatory options" may already be the case. "Especially for some of the smaller companies, typically, as with any small business, the regulations imposed on them can be quite difficult and they do need to work with regulatory lawyers," he said. It's not cheap. ”

However, the positive side is that a harmonized approach will provide opportunities for any company that can cope with the new regulations.

Once authorized in one country, it can be marketed across the EU "I would say the best part of MiCA is really the access it provides to the entire EU market," Markezic said. Now in all member states the situation is very, very different. Some countries have some regulations, some don't, and it's very difficult to comply there. For larger companies, a unified European approach could offer more. ”

Przemyslaw Kral, CEO of Polish crypto exchange Zonda, takes a similarly optimistic approach. “While MiCA will undoubtedly pose a challenge to some smaller crypto startups, I expect the overall effect will be positive ,” he said.

Kral said: “The regulatory clarity and certainty provided by MiCA will be attractive to institutional investors and larger companies, leading to increased investment and growth opportunities in the European crypto market. ”