Services and activities related to crypto assets under the Markets in Crypto Assets Regulation (MiCA)

On 24 September 2020, the European Commission submitted the legislative proposal for the Markets in Crypto Assets Regulation (MiCA) as a part of the package regarding the digitalisation of the financial sector. In addition to the MiCA proposal, the package includes the Digital Operational Resilience Act(DORA), a proposal for a pilot regulation for market infrastructures that are based on distributed ledger technology (DLT) and a strategy for a digital financial sector.

The MiCA Regulation is aimed at creating a harmonised European regulatory framework for crypto assets that promotes innovation and enables use of the potential offered by crypto assets while ensuring financial stability and investor protection.

Regulatory content

Though the MiCA Regulation has not yet been finally adopted, it is nevertheless clear from today’s standpoint which activities will be subject to the regulation. MiCA distinguishes between the activities carried out on the primary market, i.e. the issuance of crypto assets, and the services provided on the secondary market, known as crypto asset services. In detail, MiCA regulates transparency and disclosure requirements for issuing and trading crypto assets, the authorisation requirement for and supervision of crypto asset service providers and issuers of crypto assets, the proper business organisation of crypto asset issuers and crypto asset service providers. The regulation also addresses investor and consumer protection for the issuance, trading and custody of crypto assets and provides for the prevention of market abuse on crypto currency exchanges.

Frequently asked questions: MiCA

How are crypto assets defined under MiCA?

MiCA defines crypto assets as a digital representation of value or rights which may be transferred and stored electronically using distributed ledger technology or similar technology (Article 3(1) No 2).

Which crypto assets do not fall under the scope of MiCA?

MiCA does not apply to crypto assets which, under Article 2(2), are classified as follows:

1. a) financial instruments as defined in Article 4(1) point 15 of Directive 2014/65/EU;
2. b) electronic money (e-money) as defined in Article 2 point 2 of Directive 2009/110/EC, except where they qualify as electronic money tokens under MiCA;
3. c) deposits as defined in Article 2(1) point 3 of Directive 2014/49/EU of the European Parliament and of the Council;
4. d) structured deposits as defined in Article 4(1) point 43 of Directive 2014/65/EU;
5. e) securitisation as defined in Article 2 point 1 of Regulation (EU) 2017/2402 of the European Parliament and of the Council.

Which crypto assets does MiCA regulate?

MiCA defines and provides requirements for the issuance and trade of the following crypto assets:

• asset-referenced tokens (ARTs),
• e-money tokens (EMTs) and
• crypto assets that are neither ARTs nor EMTs and also do not fall under the exemptions provided for in MICA.

How does the regulation define asset-referenced tokens (ARTs)?

An asset-referenced token (ART) is 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 (Article 3(1) No 3).

How are e-money tokens (EMTs) defined?

An e-money token (EMT) is 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.

Does the issuance of ARTs require authorisation under MiCA?

For those ARTs that are not financial instruments as defined by existing supervisory legislation, the MiCA draft regulation provides for issuer and authorisation requirements.

The offering of ARTs to the public and their admission to trading on a trading platform for crypto assets requires authorisation by the competent supervisory authority (Article 15 in conjunction with Article 19). Furthermore, the regulation stipulates that only legal entities that are established in the European Union (EU) can be granted an authorisation. MiCA also requires issuers to publish a white paper and notify the white paper to the competent authorities.

Does MiCA provide for any exemptions from the authorisation requirement for the issuance of ARTs?

Under Article 15(3), the issuance of ARTs is exempted from the authorisation requirement if:

• over a period of 12 months, calculated at the end of each calendar day, the average outstanding amount of ARTs does not exceed EUR 5,000,000, or the equivalent amount in another currency;
• the offer to the public of the ARTs is solely addressed to qualified investors and the ARTs can only be held by such qualified investors;
• the issuer of ARTs is authorised as a credit institution in accordance with Article 8 of Directive 2013/36/EU.

Notwithstanding the exemptions from the authorisation requirement, the issuers of ARTs must produce a crypto asset white paper in accordance with Article 17 and submit this white paper to the competent authority of their home Member State for approval.

What are the obligations and requirements that issuers of ARTs have to fulfil under MiCA?

MiCA includes a number of obligations and requirements for issuers of ARTs (Article 23 et seq.). In addition to various obligations regarding communication with clients, publication, marketing communications, complaint handling, disclosure, governance and business organisation, MiCA stipulates that issuers of ARTs must hold a sufficient level of own funds, create a recovery plan and a redemption plan and hold a reserve in the amount of their commitments arising from the issuance of tokens.

In addition, the regulation sets out requirements regarding the custody and investment of the reserve assets.

Does MiCA set out any specific additional provisions for certain ARTs?

Where ARTs are classified as significant by the European Banking Authority (EBA) based on some of the criteria defined in Article 39 (size, volume, interconnectedness, etc.), the issuers must fulfil additional obligations set out in Article 41.

How does MiCA regulate the issuance of EMTs?

Authorisation to issue EMTs is not granted to just anyone or any company. No electronic money tokens are to be offered to the public in the EU or admitted to trading on a trading platform for crypto assets unless the issuer of such EMTs

1. a) is authorised as a credit institution or e-money institution within the meaning of Article 2(1) of Directive 2009/110/EC;
2. b) complies with requirements applying to e-money institutions set out in Titles II and III of Directive 2009/110/EC, unless stated otherwise in this Title and
3. c) publishes a crypto asset white paper that has been notified to the competent authority, in accordance with Article 46 (Article 43(1)).

It is thus not possible to apply for separate authorisation to issue EMTs; existing authorisation for credit institutions or e-money institutions constitutes the prerequisite for additionally issuing EMTs.

Since e-money tokens, as their name implies, are closely related to e-money, EMTs are explicitly to be regarded as e-money. In addition, EMT issuers are expected to comply with the provisions of e-money regulations to a large extent, with only a few specific adjustments and additional requirements, particularly where significance thresholds are exceeded. Key aspects include the token holder’s right to the reimbursement of the EMT at par value at any moment and compliance with the security requirements under e-money regulations.

What are the obligations and requirements that issuers of EMTs have to fulfil under MiCA?Article 44 of MiCA sets out provisions regarding the issuance and redeemability of EMTs. In detail, MiCA grants the holders of EMTs a claim on the issuer of the respective EMTs. Moreover, MiCA requires issuers, on receipt of funds, to issue EMTs at par value. EMT holders are entitled to request that an issuer redeem, at par value and at any moment, the monetary value of the EMTs. Neither EMT issuers nor crypto service providers are authorised to grant EMT holders interest or any other benefit during the period in which EMTs are held (Article 45).

Furthermore, MiCA covers questions concerning liability for white paper content and sets out rules regarding the investment of funds received in exchange for EMTs.

How does MiCA regulate the issuance of crypto assets that are neither ARTs nor EMTs?

In contrast to the requirements for the issuance of ARTs and EMTs, the regulation does not provide for an authorisation requirement for the issuance of other crypto assets. To issue or offer to the public any type of crypto assets (in the event that no exemptions apply), issuers must notify a white paper to the competent authority and publish it, comply with requirements for marketing communications and grant token holders rights of withdrawal.

The aforementioned requirements do not apply, for example, to issuers or providers of crypto assets that are offered free of charge or where crypto assets are issued as mining rewards.

When is an ART or EMT considered significant?

The EBA classifies ARTs or EMTs as significant under Article 39(1) and 50(1) if at least three of the following criteria are met:

1. a) size of the customer base of the promoters of the ARTs or EMTs;
2. b) value of the ARTs/EMTs issued or, where applicable, their market capitalisation;
3. c) number and value of transactions in those ARTs/EMTs;
4. d) size of the reserve of assets of the issuer of the ARTs/EMTs;
5. e) significance of the cross-border activities of the issuer of the ARTs/EMTs;
6. f) interconnectedness with the financial system.

How does MiCA define crypto asset services?

Crypto-asset services are defined as:(Art. 3 (1) Nr. 9 -17):

1. custody and administration of crypto assets on behalf of third parties: safekeeping or controlling, on behalf of third parties, crypto assets or the means of access to such crypto assets – where applicable in the form of private cryptographic keys;
2. operation of a trading platform for crypto assets: managing one or more trading platforms for crypto assets, within which multiple third-party buying and selling interests for crypto assets can interact in a manner that results in a contract, either by exchanging one crypto asset for another or a crypto asset for fiat currency that is legal tender;
3. exchange of crypto assets for other crypto assets: concluding purchase or sale contracts concerning crypto assets with third parties against other crypto assets by using proprietary capital;
4. execution of orders for crypto assets on behalf of third parties: concluding agreements to buy or to sell one or more crypto assets or to subscribe for one or more crypto assets on behalf of third parties;
5. placing of crypto assets: the marketing of newly-issued crypto assets or of crypto assets that are already issued but that are not admitted to trading on a trading platform for crypto assets, to specified purchasers and which does not involve an offer to the public or an offer to existing holders of the issuer’s crypto assets;
6. reception and transmission of orders for crypto assets on behalf of third parties: the reception from a person of an order to buy or to sell one or more crypto assets or to subscribe for one or more crypto assets and the transmission of this order to a third party for execution;
7. providing advice on crypto assets: offering, giving or agreeing to give personalised or specific recommendations to a third party, either at the third party’s request or on the initiative of the crypto asset service provider providing the advice, concerning the acquisition or sale of one or more crypto assets, or the use of crypto asset services.

Is the provision of crypto asset services subject to an authorisation requirement?

Crypto asset services may only be provided by service providers that have a registered office in the EU and have been authorised as crypto asset service providers of by competent authorities in accordance with Article 55 (Article 53).

Who supervises ART/EMT issuers and crypto asset service providers?

Crypto asset service providers are supervised by the national competent authorities (Article 53 et seq.). Issuers of ARTs and EMTs are supervised by the national competent authorities (Article 15 et seq. and Article 43 et seq.). Issuers of significant ARTs and EMTs are supervised by the EBA (Article 98).