What is MiCA?
Markets in crypto-assets (MiCA) is a regulatory framework for crypto-assets that was proposed by the European Commission in September 2020 as part of its Digital Finance Strategy. The framework aims to provide a consistent set of rules for the issuance, distribution, and trading of crypto-assets within the European Union (EU) eliminating the need of complying with national laws in the EU. The purpose of MiCA is to promote innovation and investment in the sector while also protecting consumers and investors.
The objectives of MiCA are to:
- Create a clear legal framework for crypto-assets that are not currently regulated under financial services legislation, in order to provide legal certainty.
- Encourage the growth and development of crypto-assets by establishing a fair and appropriate regulatory framework.
- Protect consumers, investors, and the integrity of the market from the risks associated with crypto-assets.
- Implement safeguards to address potential risks to financial stability.
Crypto Asset Classes Regulated by MiCA
The Markets in crypto-assets (MiCA) framework, if adopted, would regulate the following types of crypto-assets:
- Utility Tokens – which are used to access applications, services, or resources on distributed ledger technology (DLT) networks.
- Asset-referenced Tokens – which are designed to maintain a stable value and can be used as a means of payment or store of value. These tokens may be backed by one or more currencies, commodities, or other assets.
- E-money Tokens – which are stable in value and based on a single fiat currency. These tokens are intended to function similarly to electronic money as defined by the EU’s Directive 2009/110/EC.
Obligations for Issuers of Crypto-Assets under MiCA
Under the Markets in crypto-assets (MiCA) framework, issuers of crypto-assets would be required to:
- Publish a whitepaper similar to a prospectus as required under prospectus regulation.
- Obtain authorization to issue crypto-assets.
- Comply with certain prudential rules when marketing crypto-assets.
- Act honestly, fairly, and professionally towards crypto-asset holders, particularly in regard to conflict management and maintaining security access protocols.
MiCA AML Framework
- The “travel rule” will be extended to cover transfers of crypto-assets. This means that providers will have to verify that the source of the asset is not subject to restrictive measures or sanctions and that there is no risk of money laundering or terrorism financing before making the assets available to beneficiaries.
- The regulation applies to all transactions involving crypto-asset service providers (CASPs). There is no minimum threshold for exemptions of low-value transfers, as originally proposed.
- The rules will also cover transactions between so-called un-hosted wallets and hosted wallets managed by CASPs. If a customer sends or receives more than 1000 euros to or from their own un-hosted wallet, the CASP will need to verify whether the un-hosted wallet is effectively owned or controlled by the customer. The rules do not apply to person-to-person transfers conducted without a provider, such as on bitcoin trading platforms, or among providers acting on their own behalf.
- If there is no guarantee that personal data privacy will be upheld by the receiving end, such data including a name and an address required by the travel rule should not be sent.
Capital Requirements for CASPs under MiCA
|Class||Capital Required (€)||Description|
|1||50,000||CASPs that receive and transmit orders on behalf of other individuals or entities, provide advice on crypto-assets, execute orders on behalf of other individuals or entities, place crypto-assets, manage portfolios of crypto-assets, and transfer crypto-assets.|
|2||125,000||CASPs offering everything in class 1 plus exchanging one crypto-asset for another or for funds, and offering custody services for crypto-assets.|
|3||150,000||CASPs offering in class 2 plus operating a crypto exchange.|
It is not clear when the MiCA framework will be implemented. The proposal is currently being reviewed by the EU and may be subject to further changes before it is adopted.
This page was last updated on January 4, 2023.