What is Markets in Crypto-Assets (MiCA)?

What is MiCA?

Markets in Crypto-Assets (MiCA) is a bill to regulate cryptocurrencies in the European Union. It sets rules that apply to issuers of unbacked digital assets and stablecoins, as well as trading and custody platforms.

The document aims to protect investors and consumers across the EU’s 27 countries, and to foster transparency and stability in the crypto industry. MiCA proposes a unified approach to regulating digital assets, simplifying interactions between specialised firms and supervisory authorities and reducing administrative costs for market participants.

The bill is expected to improve the EU’s investment appeal and trust in the industry through a single licence and strict oversight.

The regulation introduces stringent investor- and consumer-protection rules, including disclosure requirements and adherence to AML/CFT standards, and tightens requirements for stablecoins, which must be backed by a segregated reserve of assets.

On April 20, 2023, the European Parliament approved MiCA. On May 16, the Council of the EU gave its approval. New rules for stablecoins take effect from June 30, 2024; the rest from December 30, 2024.

How does MiCA regulate crypto-asset issuers?

The bill defines three types of tokens:

• utility tokens — crypto-assets intended to provide access to an issuer’s goods or services;
• asset-referenced — crypto-assets designed to keep a stable price by referencing the value of several fiat currencies, commodities, crypto-assets, or a combination thereof;
• e-money — crypto-assets whose primary purpose is use as a means of exchange and maintaining a stable price by referencing the value of a fiat currency that is legal tender.

An issuer of crypto-assets is a legal entity that offers any type of crypto-asset to the public or seeks to have it admitted to a trading platform.

Key requirements for issuers of the three types above include preparing a detailed white paper and having it approved by the competent authority of an EU member state, and preventing potential conflicts of interest.

How does MiCA regulate service providers?

The bill classifies crypto-asset service providers (CASPs) as persons who, on a professional basis, provide one or more crypto-asset-related services to third parties:

• custody and administration of crypto-assets, and execution of orders in relation to them on behalf of third parties;
• operation of a trading platform for crypto-assets;
• exchange of crypto-assets for fiat currency that is legal tender, or for other digital assets;
• placement of crypto-assets;
• provision of advice on virtual assets.

CASPs must have a registered office in an EU member state, obtain authorisation as a service provider, meet organisational and reputational requirements, and comply with rules on the safekeeping of crypto-assets.

Minimum share capital must range from €50,000 to €150,000, depending on the services provided.

A separate funds-transfer law aimed at combating money laundering requires CASPs to verify their clients’ identities.

The largest crypto-asset service providers will be supervised by ESMA.

How does MiCA regulate stablecoins?

The bill requires stablecoin operators to obtain a licence from the competent authority of an EU member state and to comply with rules to ensure the stability of their tokens.

According to the European Banking Authority’s (EBA) “guidelines”, issuers of “stable coins” must:

• ensure full disclosure for clients;
• present a public business model;
• establish effective governance, including risk management;
• create a redemption mechanism and maintain sufficient reserves;
• register with the EBA.

MiCA also requires stablecoin issuers to hold adequate reserves. According to EBA chair José Manuel Campa, the authority will pay “special attention to the diversification of these funds”. Operators also need to eliminate conflicts of interest and disclose connections between custody arrangements and trading platforms.

If stablecoins are deemed “significant”, the document envisages higher capital requirements for their issuers.

Preliminary criteria for such coins include:

• the share of assets issued by regulated financial institutions, excluding deposits;
• market share in cross-border payments;
• number of users;
• market capitalisation.

Under MiCA, issuers of such assets must conduct stress tests and cover 3% of reserves with their own funds (the figure is 2% for other institutions).

What do experts say about MiCA?

France’s finance and economy minister, Bruno Le Maire, said the bill “will put an end to the Wild West in the crypto industry”.

Former Binance CEO Changpeng Zhao (CZ) called MiCA “fantastic”, but “a little strict” on stablecoins. He also praised the work of EU authorities. In his view, the document could become “a global standard” for crypto regulation in other jurisdictions.

Martin Brunko, executive vice-president of Binance’s European unit, believes MiCA will benefit small companies in the digital-asset sector. According to him, they will no longer have to spend a lot of time and money ensuring full compliance across different EU jurisdictions.

“We are actually, I would say, almost thrilled about MiCA, because [the bill] creates a single market,” the executive said.

Former head of the CFTC Christopher Giancarlo noted the threat of imposing the European model of crypto-asset regulation. In his words, this would harm the ability of U.S. supervisory authorities to effectively craft their own rules.

SEC commissioner Hester Peirce saw in the EU bill a model for regulating the crypto industry in the United States. She is also not very optimistic about the prospects for reducing regulatory uncertainty in the States.

According to experts interviewed by ForkLog, MiCA will increase the EU’s investment appeal but could also raise the cost of regulatory compliance.