MiCA cryptocurrency legislation

In April 2023, an important step forward was taken in terms of global cryptocurrency regulation when the European Parliament approved the Markets in Crypto-Assets (MiCA) regulation by a clear majority. MiCA is the most comprehensive cryptocurrency legislation in the world to date and is scheduled to come into effect during 2024 and 2025.

              
MiCA’s definitions
MiCA refers to the commonly used term cryptocurrency as crypto-asset. A crypto-asset is defined in MiCA as a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology. MiCA also defines three sub-categories of crypto-assets:
Asset-referenced token (ART): a type of crypto-asset that purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets.
Electronic money token (EMT): a type of crypto-asset the main purpose of which is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender.
Utility token: a type of crypto-asset which is intended to provide digital access to a good or service, available on DLT, and is only accepted by the issuer of that token.
A practical example of an asset-referenced token is PAX Gold (PAXG), which is a token on the Ethereum blockchain tracking the price of physical gold and is backed by physical gold. An example of an e-money token is the EUROe-stablecoin launched this year by the Finnish company Membrane Finance. EUROe is backed with 100% real euros. Utility tokens, on the other hand, are several assets that for many people first come to mind from the word cryptocurrency. Commodity tokens include bitcoin and Ethereum (ether).
MiCA’s objectives
Four general objectives have been set for MiCA:
 
Provide legal clarity and certainty to promote the safe development of crypto-assets and use of DLT (distributed ledger technology) in financial services.
Support innovation and fair competition by creating an enabling framework for the issuance and provision of services related to crypto-assets.
Ensure a high level of consumer and investor protection and market integrity.
Address potential financial stability and monetary policy risks that could arise from an increased use of crypto-assets and DLT.
MiCA’s effects in general
First, let's look at the effects of MiCA in general. The effects of MiCA can be seen to be quite strongly linked to the objectives of MiCA listed above. First, MiCA will provide regulatory certainty related to crypto-assets, which has not been at that high level before MiCA. Among other things, this will facilitate the involvement of institutional actors in the crypto market. MiCA will also create common rules for all crypto players operating in the EU, making the competitive environment fairer and safer. In addition, MiCA will improve the protection of consumers operating in the crypto market, which is naturally in the interest of individuals investing in crypto-assets.
 
MiCA for crypto-asset service provider
MiCA sets a number of requirements for acting as a crypto-asset service provider (CASP). First, a crypto-asset service provider must be authorized by an authority domiciled in an EU member state, which in the case of Finland is the Financial Supervisory Authority. In addition to the authorization itself and related requirements, MiCA defines the obligations to be fulfilled by all crypto-asset service providers and the obligations imposed on the different types of crypto-asset service providers.
 
In general, it can be said that, for example, the already existing requirements of the Financial Supervisory Authority correspond quite well to the requirements set out in MiCA for crypto-asset service providers. However, there are some differences between the MiCA requirements and the current requirements of the Financial Supervisory Authority. The most significant of these are likely MiCA's requirements for prudential adequacy, the introduction of a complaint handling procedure, disclosure of conflicts of interest, and the presentation of crypto-asset descriptions.
 
For its part, MiCA will also facilitate the operation of crypto-asset service providers who have obtained a license from one or more EU states. With MiCA, crypto-asset service providers do not need to apply for a license separately from the authority of several EU countries. After MiCA fully enters into force, the crypto-asset service provider can offer its services in all EU countries, when it has been granted a license in one EU country.
 
MiCA for issuer of crypto-assets
Following the entry into force of MiCA, the issuer of crypto-assets will have to publish a white paper on the crypto-asset to be launched. This description shall include detailed information of the crypto-asset and the issuer among other things. For utility tokens, MiCA imposes disclosure, transparency, and governance requirements on issuers.
 
For asset-referenced tokens and e-money tokens, the requirements for the issuer are higher than for the issuer of utility tokens. In the case of an asset-referenced token, the issuer must apply for an operating license, which includes several requirements related to, among other things, the capital and the issuer's operating practices.
 
E-money tokens can only be listed on a trading platform of crypto-assets by credit institutions and e-money institutions under EMD2. Although MiCA does not have a separate authorization requirement for e-money institutions, these operators are likely to have to meet a number of requirements related to the authorization of an issuer of asset-referenced tokens.
 
Areas excluded from MiCA
While MiCA is the most comprehensive piece of crypto-asset legislation to date, it excludes many aspects related to crypto-assets. MiCA largely excludes DeFi, i.e., decentralized finance, NFTs, i.e., digital commodities on top of blockchain, crypto-asset financial services, DAOs, i.e., decentralized autonomous organizations, and security tokens. Of these, securities tokens have been excluded from MiCA because they already have their own legislation. The other areas listed above have such specific features that legislators need to carry out further analysis to configure a regulatory framework that suitably addresses the risks. MiCA is likely to evolve in the coming years when at least some of the areas that have been left out will be covered by some kind of legislation.
 
MiCA’s entry in force
MiCA is a proposal originally presented by the European Commission in September 2020. MiCA was finally approved by the necessary EU decision-making bodies during April and May 2023. The next step towards becoming a decree is the publication of MiCA in the Official Journal of the European Union, probably in June or July 2023. The decree enters into force 20 days after publication in the journal. MiCA will then become applicable after 12 months for stablecoins and after 18 months for the other parts. In practice, this means that MiCA will start to be applied during the second half of 2024 and the beginning of 2025.
 
Summary
MiCA is a significant step forward in global cryptocurrency regulation. Many cryptocurrency experts see MiCA as a whole as a positive thing for cryptocurrencies. One of the likely most significant effects of MiCA will be to facilitate the entry of institutional players into the crypto market, as the regulatory uncertainty often associated with cryptocurrencies until now will be significantly reduced. In addition, MiCA is likely to promote the position of crypto players in the EU area compared to, for example, US operators who have had an exceptional number of regulatory problems with the SEC over the past year.

Ville Viitaharju
Cryptocurrency specialist