MiCA Regulation: At the Starting Line

Introduction

MiCA is the European regulation on crypto asset markets, transmitted on September 24, 2020, by the European Commission to the European Parliament and the Council.

Regulation instead of Directive: a decision that allows the introduction of a single set of immediately applicable rules throughout the single market, aimed at harmonizing any existing national frameworks applicable to crypto assets in the Member States.

After more than two years since the first European legislative proposal, the current formulation was approved by the Council in October 2022, but a final vote is awaited before the publication, which is likely to take place in April 2023.

Aims and Recipients

As stated in the accompanying report to the MiCA draft, the objectives are multiple. “To harmonize the European framework for the issuance and trading of various types of cryptographic tokens as part of the European digital finance strategy”, “to ensure legal certainty for crypto assets not covered by the existing EU legislation on financial services,” and “to establish uniform rules for issuers and service providers for crypto assets at the EU level.”

It pursues essentially:

1. legal certainty;
2. support for innovation;
3. adequate protection for consumers, investors, and market integrity;
4. financial stability.

This is a regulation that aims to position Europe at the forefront of innovation and the diffusion of Blockchain technology by applying “to those involved in the issuance of crypto assets or providing services related to crypto assets in the Union,” with some absolute exceptions: European Central Bank and national central banks of the Member States when acting as monetary authorities; European Investment Bank; European Stability Mechanism, European Financial Stability Facility, and international public organizations.

For identifiable service providers – with the exception, therefore, of all those entirely decentralized protocols for which it is impossible to identify a subject who manages their operation – the MiCA Regulation provides for the obligation to establish a corporate form established within a Member State, with the possibility of providing services in other States under the establishment or free provision of services regime, the obligation of presence of the management and at least one administrator in the territory of the Union, minimum capitalization requirements varying depending on the service provided, integrity and professionalism of management and shareholders with a qualified participation.

Authorizations

The regulation aims to subordinate the provision of services for crypto assets within the European Union to an authorization issued by a competent authority of each Member State, a domestic supervisory authority, which wants to constitute an index of reliability of the operator in order to guarantee the protection of both the individual service user and the entire financial market involved.

The powers of the above authorities – one for each Member State – relate to the request for information, the suspension or prohibition of service delivery, the disclosure of information relevant to the protection of consumers or the market, and others. It is therefore allowed for such entities to exercise the power to impose administrative sanctions, but not criminal ones, which remain within national discretion.

Requirements for issuers or service providers.

• Capital reserve

Issuers must establish and maintain a reserve of subordinated assets subject to a custody policy that ensures complete separation between the issuer’s assets and the reserve assets that cannot be encumbered or used as collateral and must always be easily accessible. For this reason, crypto service issuers always have their own funds available equal to at least the higher value between €350,000 and 2% of the average amount of reserve assets.

• White paper

Subject to some exemption hypotheses, issuers must publish a document called a white paper, which is similar to a simplified version of the traditional prospectus required in the case of an offer on the market of actual financial products.

Here is the information that the white paper must contain:

1. a detailed description of the issuer, the project, the participants, the technologies used, and the characteristics of the public offerings;
2. rights and obligations related to crypto assets;
3. a statement that the issuer of the crypto asset is solely responsible for the content of the white paper;
4. a clear and unambiguous declaration that crypto assets can lose all or part of their value;
5. provision for the possibility of exercising the right of withdrawal, revocation, and refusal.