The Markets in Crypto-Assets regulation was published in the Official Journal of the European Union on 9 June 2023. Firms should begin implementing the requirements now.

30 June, 2023

The Markets in Crypto-Assets (MiCA) regulation enters into force on the 20th day following its publication in the Official Journal of the European Union.

The requirements will become applicable for issuers of asset-referenced tokens and electronic money tokens 12 months after it enters into force and will become applicable for issuers of utility tokens and Crypto Asset Service Providers (CASPs) 18 months after it enters into force. Member States have discretion for CASPs operating within national law prior to the date of application to continue to operate for up to 18 months or until an authorisation has been granted.

The impact of the MiCA regulation on investors or potential investors is far-reaching and will have significant implications for businesses.

To prepare for the implementation of the MiCA regulation, firms will need to analyse the legislation’s impacts on their business. Efforts should focus on updating policies and procedures, staff training and technology implementation.

What is the purpose of the MiCA regulation?

The MiCA regulation regulates crypto-assets and crypto-asset-related services and activities carried out in the EU.

In a world of uncertainty in the crypto-asset industry, the MiCA regulation aims to protect investors, prevent the misuse of crypto-assets, preserve financial stability, provide regulatory clarity, and protect against market abuse and manipulation while continuing to support innovation.

The MiCA regulation establishes a harmonised EU framework and provides a unified EU licensing regime, which removes the requirement for national laws and provides legal clarity for crypto-assets.

Who is in scope?

The MiCA regulation applies to:

Offerors of certain crypto-assets that are not ‘financial instruments’ under existing EU legislation. These require a licence and benefit from an EU passport—for example, cryptocurrency exchanges that offer cryptocurrencies and tokens.
Crypto Asset Service Providers (CASPs), which are subject to authorisation (i.e. by the Central Bank of Ireland) whether the crypto-asset is issued under the MiCA regulation or otherwise and also benefit from an EU passport.

In general, most business activities related to crypto-assets in the EU fall under the MiCA regulation. Non-EU crypto-asset firms carrying out activities for EU customers must also comply with the requirements.

Products in scope

The MiCA regulation identifies three categories of crypto-assets:

Asset-referenced tokens (ART);
Electronic money tokens (EMT); and
Other crypto-assets not covered by existing EU legislation (including utility tokens).

While the MiCA regulation does not use the term ‘stablecoin’, both ARTs and EMTs are variants of stablecoins and may be classified as 'significant' by the European Banking Authority (EBA) based on a prescribed set of criteria. Specific provisions and stricter regulatory requirements are applied to significant ARTs and EMTs (e.g. capital requirements).¹

The MiCA regulation does not apply to crypto-assets that are unique and not fungible with other crypto-assets.

The European Securities and Markets Authority (ESMA) will issue technical guidelines within 18 months of the regulation coming into force to clarify certain requirements in the MiCA regulation.

Potential impacts of the MiCA regulation on CASPs

Prudential requirements: CASPs are required to be authorised in the EU and will have a general duty to act honestly, fairly and in the best interests of their clients.
Governance requirements: CASP senior management must have good repute, sufficient knowledge and skills to perform their duties, and establish adequate policies and procedures to ensure compliance with the MiCA regulation.
Conflicts of interest and complaints handling: CASPs must maintain and operate a procedure for the handling of client complaints and an effective policy to identify and disclose conflicts of interest.
Capital requirements and safekeeping measures: CASPs must adhere to the minimum capital requirements set out in the MiCA regulation and safeguard their clients’ ownership rights of crypto-assets.
Environmental requirements: CASPs have an obligation to make publicly available, on their website, information related to the adverse environmental impact of the crypto-assets to which they provide services.
Significant CASPS: CASPs deemed to be ‘significant’ will be subject to increased oversight and supervision by their National Competent Authority (NCA). The MiCA regulation deems a CASP as ‘significant’ if the CASP has at least 15m active users, on average, in one calendar year in the EU.²

Potential impacts of the MiCA regulation on issuers of crypto-assets other than ARTs and EMTs (except stablecoins)

White paper requirement: issuers or offerors of crypto-assets other than ARTs and EMTs do not need to be authorised by their NCA. However, they must publish a crypto-asset white paper and notify their NCA before offering crypto-assets to those in the EU. The MiCA regulation lays out a limited number of exemptions where a white paper is not required. Before the publication of the white paper, no marketing communications can be disseminated.
Right of withdrawal: retail holders will have a period of 14 calendar days to withdraw their agreement to purchase crypto-assets without incurring fees or costs. This is aligned with consumer protection requirements for the sale of goods and services.³

Potential impacts of MiCA on issuers of ARTs and EMTs (stablecoins)

Authorisation requirement for ARTs: issuers of ARTs require authorisation from their NCA before offering ARTs, which includes the publication of a crypto-asset white paper.
Authorisation requirement for EMTs: EMTs can only be issued by credit institutions or e-money institutions under the E-Money Directive (2009/110/EC) and must also comply with the requirement to issue a crypto-asset white paper.
Reporting requirements: issuers of ARTs must adhere to the reporting requirements under the MiCA regulation, including a quarterly report to their NCA for ARTs with an issued value higher than €100m.
Reserve of assets: issuers of ARTs are subject to a range of requirements relating to the assets held in reserve and shall at all times constitute and maintain a reserve of assets, ensuring the reserve of assets is operationally segregated from the issuer’s estate and from the reserve of assets of other tokens.⁴
Custody of assets: issuers of ARTs shall establish, maintain and implement custody policies and procedures and can be entrusted to credit institutions, CASPs (where the reserve assets take the form of crypto-assets) or investment firms (regulated under MiFID II).
Permanent redemption right: issuers of ARTs must establish a policy setting out the right of ART holders to redeem against the ART issuer or reserve assets at any time.
Capital requirements: ART issuers are required to hold capital that is the higher of €350,000, 25% of fixed overheads of the preceding year or 2% of the average amount of reserve assets.⁵
Recovery plan requirement: issuers of ARTs and EMTs are required to prepare a recovery plan to provide measures for any issues related to the reserve of assets. Issuers of ARTs will also be required to have a plan for the orderly redemption of tokens to ensure the rights of ART holders are protected.⁶
Significant issuers: issuers of ‘significant’ ARTs and EMTs are subject to stricter requirements, including higher capital requirements and interoperability requirements. They should also establish a liquidity management policy.
Market abuse regime: the MiCA regulation sets out a market abuse regime, which includes a duty to publish inside information and the prohibition of insider dealing, unlawful disclosure of inside information and market manipulation. Firms must implement systems and procedures for the prevention and detection of market abuse.

We are here to help you

PwC has deep experience in helping clients to implement new regulations. We can support in complying with the MiCA regulation, from the initial gap analysis assessment of its impacts on your business, through to operational implementation. Our Crypto Centre also provides insights into the latest business and technology developments in the crypto industry.

Footnotes:

_{[1] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets, and Amending Directive (EU) 2019/1937, (6b)}

_{[2] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets, and Amending Directive (EU) 2019/1937, Article 75a (1).}

_{[3] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets, and Amending Directive (EU) 2019/1937, Article 12 (1).}

_{[4] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets, and Amending Directive (EU) 2019/1937, Article 32 (1ab).}

_{[5] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets, and Amending Directive (EU) 2019/1937, Article 31 (1).}

_{[6] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets, and Amending Directive (EU) 2019/1937, (42c).}