FinTech & Blockchain

Navigating MiCA Regulation: What is regulated and what not 

Last Updated 09/10/2023

The world of cryptocurrency and distributed ledger technology (DLT) has been booming with innovation and potential, but it hasn’t been without its regulatory challenges. The latest development in this arena is the Markets in Crypto-Assets (MiCA) Regulation, an ambitious move by the European Union (EU) to create a comprehensive framework for crypto assets.  

Does the MiCA Regulation cover utility tokens? Does MiCA regulate security tokens? What about stablecoins, e-money tokens (EMT), and asset-referenced tokens (ART)? Does MiCA apply to Swiss and other non-EU companies? In our blog post series, we’ll break down the upcoming MiCA Regulation and its implications for crypto and FinTech companies dealing with crypto projects and DLT technologies in the EU. This first blog post gives an introduction and informs about what is regulated under MiCA and what is not. 

What MiCA means for the EU crypto market 

The MiCA Regulation isn’t just another set of rules; it’s a significant step towards integrating the world of cryptocurrency and DLT into the wider financial landscape of the EU. Here’s why it matters to crypto companies: 

  • Entrance to EU market: MiCA provides a unique opportunity for tech companies dealing with crypto projects to access the vast EU market. With a single set of rules applicable across all 27 EU countries, the barriers to entry are significantly reduced. 
  • Passporting regime: Once licensed in one EU country, crypto and tech companies can potentially offer their crypto services throughout the entire EU without the need for additional licenses. This streamlined process facilitates cross-border operations and expansion. 
  • Uniform rules: MiCA aims to create a harmonized regulatory environment across the EU, ensuring consistent rules and compliance requirements. This eliminates the need to navigate differing regulations in each country, providing consistency and legal certainty for crypto projects. 
  • New global market standard: MiCA has the potential to establish a new global standard for the regulation of crypto markets, just like the EU General Data Protection Regulation did for privacy. This can lead to regulated EU crypto companies obtaining a global advantage, increased investor trust, wider adoption, and a more mature ecosystem that’s attractive to both tech companies and potential investors. 

Tokens regulated by MiCA  

MiCA covers different types of crypto assets with its own regulations. Crypto assets are defined as a digital representation of value or rights that may be transferred and stored electronically, using distributed ledger technology or similar technology. The MiCA Regulation covers three main types of crypto assets: 

  • E-money tokens (EMTs): These tokens are backed by one official currency to maintain a stable value. EMTs play a crucial role in bridging the gap between traditional fiat currency and digital assets in the EU. EMTs fall under the common classification of stablecoins. A sample of an EMT would be USDC or USDT.  
  • Asset-referenced tokens (ARTs): A type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies. Also, ARTs fall are commonly classified as stablecoins. A sample of an ART would be Meta’s (now defunct) Libra / Diem project.  
  • Other crypto assets: These include all crypto-assets other than ARTs and EMTs and are crypto-assets considered not regulated under other existing financial regulations in the EU. These include in particular utility tokens, a type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer. Also, fractionalized NFTs or large NFT collections may fall under the MiCA Regulation. 

While MiCA covers a wide range of crypto assets, it’s essential to note that certain crypto assets fall outside its regulatory scope, in particular those that are already regulated by other laws:  

  • MiFiD II – Financial instruments (security tokens): MiCA doesn’t regulate financial instruments like security tokens, which MiFiD II Regulation already covers. Security tokens represent ownership or other rights to transfer value from an asset and fall under a separate regulatory framework. 
  • Fractionalized NFTs and large NFT collections: MiCA does not regulate non-fungible tokens (NFT). These assets, which often represent digital art and unique collectibles, have their own dynamics within the crypto ecosystem. Fractionalized NFTs and large NFT collections can, however, fall under the MiCA Regulation.  
  • Central bank digital currencies (CBDC): Central bank digital currencies issued by central banks are also not covered by MiCA.  
  • Structured deposits, insurance, and pension products: MiCA doesn’t regulate structured deposits, insurance, or pension products, each with distinct regulatory requirements outside MiCA’s scope. 

Understanding the assets not covered by MiCA is crucial and a first step in analyzing the applicability of MiCA and should therefore always include an assessment of whether the token in question may be regulated under a different EU regulation. However, importantly, MiCA will override any national legislation regulating crypto assets as defined in MiCA. 

Regulated activities 

The MiCA Regulation casts a wide net over various players in the crypto industry and applies in particular to: 

  • Issuers/Offerors: Crypto companies issuing or offering crypto assets or seeking to admit crypto assets to a trading platform fall under MiCA’s regulatory scope.  
  • Crypto Asset Service Providers (CASPs): CASPs cover a range of services relating to crypto assets, including custody, trading platform operation, exchange services, advisory roles, and more. 

However, decentralized Finance (DeFi) and peer-to-peer (P2) transactions remain outside MiCA’s scope. Where the line between actual DeFi offerings and projects that are ‘decentralized in name only’ (DINO) remains to be seen.  

Applicability to non-EU companies 

Non-EU companies offering services in the EU are also affected. MiCA applies to services offered within the EU to EU investors, irrespective of the service provider’s location. This means that non-EU companies offering services in the EU need to understand and comply with MiCA regulations. The reverse solicitation exemption in the MiCA Regulation allows firms outside the EU to provide crypto services to EU clients upon their client’s initiative, without triggering regulatory requirements, provided that the firm doesn’t engage in active solicitation or marketing efforts. Service providers need to beware, however, that in the digital age, it can be difficult to draw the line between an offering that is targeting EU customers and one that does not – indications can be the languages used on the website and the currencies available for payment.

MiCA Regulation timeline and key dates 

The timeline for MiCA implementation involves several significant milestones and key dates: 

  • July 2023 – Consultation Package 1: In July 2023, the EU published the first Consultation Package. The package includes technical standards indicating requirements, especially for CASPs and ARTs, e.g., content and a template of an application for authorization by CASPs. 
  • October 2023 – Consultation Package 2: The Consultation Package 2 is expected for October 2023. Further standards for CASPs will be defined. Notably, the classification, templates and format of crypto-asset white papers will be addressed. 
  • Q1 2024 – Consultation Package 3: The first quarter of 2024 witnesses the release of Consultation Package 3, the final phase of consultations. This stage addresses any remaining concerns and further refines the regulation based on feedback gathered from previous consultations. The guidance on the qualification of crypto-assets as financial instruments and input on the reverse solicitation mechanism will be very relevant. 
  • June 2024 – Provisions for ARTs and EMTs apply: By June 2024, specific provisions of the MiCA Regulation come into effect, particularly concerning ARTs and EMTs. This marks the first tangible step towards fully implementing the MiCA Regulation. 
  • December 2024 – MiCA is fully applicable: By December 2024, the MiCA Regulation becomes fully applicable. This marks a significant milestone as the comprehensive regulatory framework takes effect. Market participants, including crypto tech companies, need to align their operations with the regulation’s requirements. 
  • July 2026 – Transitional measures end for CASPs: In July 2026, the transitional measures for CASPs come to an end. By this date, CASPs need to have completed the authorization process to continue offering their services within the EU. 

Conclusion and Practice Tips 

As the MiCA Regulation looms on the horizon, tech companies offering services in the EU dealing with crypto projects and DLT need to prepare. Here are some practical tips to consider: 

  • Assess your tokens: Analyse whether the tokens you issue or provide services for are considered crypto assets or not. Thereby, you can find out whether MiCA is the relevant regulatory framework for your token. 
  • Assess your services: Determine whether your crypto services fall under MiCA’s scope. Understanding the specific regulations that apply to your offerings is essential for compliance. 
  • License and authorization: If your services require licensing or authorization under MiCA, be proactive in obtaining these approvals. Starting the process early can prevent last-minute hurdles and potential delays. 
  • Legal expertise: Given the complexity of MiCA, consider seeking legal advice to ensure your company is compliant. Legal experts can provide guidance tailored to your unique situation and help you navigate the legal intricacies. 
  • Stay informed: Keep a close watch on the MiCA Regulation timeline and any updates from EU regulators. Staying informed about the evolving regulatory landscape is crucial for adapting effectively. 
  • Transparency: Transparency is a key theme in MiCA. Be prepared to fulfill transparency requirements, including publishing whitepapers and adhering to disclosure regulations.  

MiCA offers the potential for legitimacy, access to a wider market, and a harmonized regulatory environment in a rapidly evolving landscape. By understanding its key points and preparing accordingly, tech companies can navigate these new waters and thrive in the EU’s crypto ecosystem. Remember, staying ahead of the curve in terms of compliance can lead to a competitive advantage in the long run. In the next blog posts, we will discuss the different token types and the requirements for the issuance of crypto assets, the different types of CASP activities and licensing regimes, and finally, the regulation of DeFi and P2P transactions under MiCA.  

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By Lars Rohrberg

Senior Legal Counsel


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