Demystifying MiCA: A Guide for Crypto Businesses Entering the EU Market
June 3, 2024

The EU Markets in Crypto Assets (MiCA) Regulations will be coming into effect on the 30th of June this year. While there are some fears and doubts going around, it is inarguably a notable landmark in the field of crypto regulation. Crypto projects are currently trying to get their books straight and exchanges are threatening to delist any token that isn’t compliant. We’re in a very defining phase as an industry.

It can be challenging for businesses to stay compliant with MiCA, as it requires significant resources, but this article will provide you with a firm foundation that you can build upon.

Today, we will be breaking down MiCA and providing a guide for crypto businesses that want to enter the EU Market or are currently in it. 

Mica: Basics

The MiCA regulation, as it stands, is a draft legislation by the European Union that aims to provide an all-encompassing legal framework for regulating all things crypto related in the EU. MiCA is applicable to all issuers and service providers of crypto assets, including those outside of the EU that provide crypto services within the EU. If you fall into this category, you should pay rapt attention as you read this blog. Examples of theses businesses include:

  • Custodial wallets
  • Exchanges for crypto to crypto transactions or crypto to fiat transactions
  • Crypto-trading platforms
  • Crypto-asset advising firms and crypto-portfolio managers

Token Categories under MiCA

Assets under MiCA are divided into 3; asset-referenced tokens, e-money tokens, and utility tokens. 

  1. Asset-referenced tokens: Asset-Referenced Tokens (ARTs) are tokens that reference a specific asset or basket of assets. They are pegged to multiple currencies, commodities or assets to maintain their stable value. They are subject to different requirements under MiCA than other crypto assets. ARTs must meet certain disclosure requirements to ensure transparency.
  2. E-money tokens (EMTs): These are assets that are crypto surrogates/equivalents of coins and banknotes. They can be used as a means of payment.
  3. Other Crypto Assets (OCAs): OCAs are usually protocol-based. They must meet certain requirements, such as being used for a specific purpose and not being transferable to other parties.

Requirements Of Tokens under MiCA

  1. Asset-referenced Tokens (ARTs): 
  1. White Paper and Prospectus Requirements: ART issuers must provide a white paper and prospectus that includes information on the assets underlying the token, the value of the assets, and the methodology used to determine the value.
  2. Custody and Investor Protection: ART issuers must ensure that the assets underlying the token are held in custody by a regulated custodian and that investors are protected from the risk of loss or theft of the underlying assets.
  3. Disclosure Requirements: ART issuers must disclose any conflicts of interest and provide regular updates on the value of the underlying assets and the methodology used to determine the value.

2. E-money Tokens (EMTs/Stablecoins): 

  1. Stablecoins must maintain a 1:1 ratio of assets to coins issued.
  2. The issuer must have a reserve of assets that can be redeemed for stablecoins at any time.
  3. If the issuer is a credit institution, it must be authorised and supervised by a competent authority.

3. Other crypto assets (OCAs / Utility Tokens):

  1. Transparency: OCAs must provide clear and accessible information to users on the functioning and risks of the token, as well as any associated fees or charges.
  2. Issuer Obligations: Issuers of OCAs must be authorised by a member state or registered with the European Securities and Markets Authority (ESMA). They must also have a registered office in the EU and maintain a white paper outlining the token's features and risks.
  3. Investor Protection: MiCA requires OCAs to provide investors with clear and accurate information on the risks of investing in the token, as well as any applicable fees or charges. OCAs must also have a mechanism for resolving disputes and protecting investors in the event of issuer insolvency.

Obtaining a Licence: Practical Steps

Step 1: Observe the regulatory environment. We recommend that you put in enough research (or hire a blockchain lawyer) to understand the rules and licensing requirements in your chosen country.

Step 2: Prepare your documentation. This includes, but is not limited to, your business plans, AML/KYC policies, details of your team, etc. Your documentation should prove that your company has the ability to meet regulatory requirements and assure safe operations.

Step 3: Apply for a licence. You should submit your documentation and application to the appropriate regulatory authority in your country of choice. This process may also include preliminary consultations, depending on the jurisdiction.

Step 4: Collaborate with the regulatory authorities. The review process may require more documentation, adjustments or further information. Be willing to comply and collaborate to aid your approval.

For the founder, it is necessary that you have a positive business and personal reputation, i.e., no criminal record or financial irregularities. You should also have sufficient start-up capital (“sufficient” is determined by the regulatory authorities in the jurisdiction and the type of licence).

Choosing the Right EU Jurisdiction for Your Business

Many countries in the EU are actively developing stable legal frameworks to regulate cryptocurrency, while others are just starting to do this. A crypto licence is quite important, so you should spend time researching and determining which side of the spectrum will fit your business better. 

Jurisdictions with more developed crypto regulations will give a business stability and can also enhance its credibility (e.g. Switzerland, Malta, Estonia, Gibraltar). However, this can also mean that procuring a licence will entail a rigorous application process, hefty supervision fees, etc. 

In contrast, countries that are still in the early stages of the maturity of their frameworks can be more lenient in their requirements for a crypto licence application (e.g. Bulgaria). These countries will most have more manageable capital intensive requirements. This might inevitably mean that sudden changes might be made to their legislation (since they’re still growing). Jurisdictions without a specific legal framework for crypto assets, and that don’t require a dedicated crypto licence also have this risk. Countries like this are suitable to companies that are willing to adapt to evolving regulations (e.g. Poland, Czech Republic).

Please do more research on each of these countries, or enlist the services of a blockchain lawyer to aid you in making the right decision. Speak to one of our representatives at SBCR by scheduling a free discovery session here →

Potential Challenges of MiCA Compliance

Like we stated earlier, complying to MiCA can present challenges to companies, and a major concern is that regulation will hinder innovation. We will discuss a few of these challenges below:

  1. Reporting Requirements: The reporting requirements for MiCA are extensive and complex, and will require significant resources to implement and maintain.
  2. KYC/AML Compliance: MiCA requires strict KYC/AML compliance for all crypto asset transactions, which may be difficult to implement and enforce given the decentralised nature of many crypto assets.
  3. Lack of Clarity: There is still a lack of clarity around certain aspects of MiCA, such as the definition of 'significant' crypto asset service providers, which may create uncertainty and confusion in the industry.

Looking Forward

The future is regulation, whether we like it or not. It’s a truth that we will have to live with; particularly in the centralised sphere of crypto companies. We expect to see some  changes and growth to crypto regulation in the near future.

  1. More comprehensive and sophisticated regulations are put in place: One area where we may see increased regulation is in the decentralised finance (DeFi) space. As this area of the industry continues to gain popularity, regulators may begin to focus their attention on it and develop specific regulations for DeFi platforms and protocols.
  2. Geographical reach: Currently, regulations vary widely from country to country, and this can create challenges for companies operating in multiple jurisdictions.
  3. More international cooperation and standardisation of enforcement.

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