Regulation of Crypto Asset Markets in the European Union

Scope of MiCA

MiCA applies to cryptoassets and related services and activities not covered by other European Union regulations on financial services.

Crypto-assets are defined as “a digital representation of a value or of a right that can be transferred and stored electronically using distributed ledger technology or similar technology”. The crypto-assets regulated by MiCA are categorized into three main groups and may be subject to different provisions:

• E-money tokens are crypto-assets that aim to stabilize their value by referencing only one official currency. Like electronic money, such crypto-assets are electronic surrogates for banknotes. They are expected to be potentially used for making payments.
• Asset-referenced tokens are crypto-assets whose value is determined by reference to another value or right, or a combination thereof, including one or more official currencies.
• Other tokens include crypto-assets other than e-money tokens and asset-referenced tokens.

MiCA does not apply to crypto-assets that are unique and not fungible with other crypto-assets (NFTs), including digital art and collectibles. NFTs are therefore excluded from MiCA unless they replicate a financial instrument or the issuer is creating a “collection” of assets for purchase.

Furthermore, MiCA does not apply where crypto-asset services are provided in a fully decentralized manner without any intermediaries. Where there is no identifiable issuer of crypto-assets, some parts of the MiCA do not apply. However, crypto-asset service providers offering services related to such crypto-assets are still covered by the MiCA.

Cryptocurrency Issuance

Under MiCA, the public offering of crypto-assets within the European Union or trading on a trading platform for crypto-assets is subject to certain requirements.

First, the crypto-asset issuer needs to be established as a legal entity in the European Union.

A white paper prepared following the content and form requirements set out in MiCA must be made public and notified to the supervisory authorities of the relevant Member States. The information required to be included in the white paper is detailed in the annex to MiCA. Accordingly, the white paper should include (i) general information about the issuer or the person offering it for trading; (ii) explanations about the crypto-asset project to be realized with the capital raised; (iii) the number of crypto-assets to be issued, the issue price, explanations regarding the phases of the issuance (e.g., if a discount will be applied for early purchase), an explanation about the technical specifications that the buyer must have to acquire the relevant crypto-asset; (iv) the type of crypto-asset to be issued; (v) information about the rights and obligations attached to the crypto-assets; (vi) information about the technology used; (vii) a description of the risks; and (viii) a description of the negative environmental and climate-related impacts of the consensus mechanism used to issue the crypto-asset. For asset-referenced tokens, the white paper should include detailed information about the asset reserve and a description of the custody arrangements for the asset reserve.

All information in the white paper and other marketing communications should be transparent, consistent and clear, and not misleading.

As clearly stated in Art. 8(3), Art. 29(4), Art. 51(11), and Art. 53 of the MiCA, the publication of white papers and related marketing communications does not require prior approval from any authority. However, the issuer must notify the competent authority of the relevant Member State at least 20 business days prior to the publication of the white paper.

Crypto Asset Service Providers

Under Art. 3/16 MiCA, a crypto-asset service means any of the following services and activities related to any crypto-asset:

• providing custody and administration of crypto-assets on behalf of clients;
• operation of a trading platform for crypto-assets;
• exchange of crypto-assets for funds;
• exchange of crypto-assets for other crypto-assets;
• execution of orders for crypto-assets on behalf of clients;
• placing of crypto-assets;
• reception and transmission of orders for crypto-assets on behalf of clients;
• providing advice on crypto-assets;
• providing portfolio management on crypto-assets;
• providing transfer services for crypto-assets on behalf of clients.

Crypto asset service providers are legal entities whose occupation or business is to provide a professional crypto asset service to clients and who are permitted to provide crypto asset services under Art. 59 MiCA.

Those who wish to operate as a cryptoasset service provider must be authorized by meeting the conditions set forth under Art. 59 et seq. of MiCA. For authorization, the crypto-asset service provider must be established as a legal entity in at least one European Union member state; meet the capital adequacy requirements set out in the MiCA; have established good governance arrangements that can prevent market manipulation and abuse, and internal control systems that guarantee the provision of services in a manner that promotes the best interests of its clients. In addition, shareholders controlling ten percent or more of the voting rights of the crypto-asset service provider are required to have a good reputation and not have been convicted of crimes such as money laundering and terrorism financing.

Conclusion

MiCA aims to increase transparency, security and order in the sector by providing a comprehensive and clear legal framework for crypto-assets. MiCA aims to ensure market stability by introducing specific rules for crypto-asset issuers and crypto-asset service providers. These regulations minimize the potential risks of crypto-assets while promoting investor protection and fair competition.

By regulating the principles for the publication of white papers and introducing regulations on the authorization of crypto-asset service providers, it is aimed to ensure that market players operate transparently and reliably and to help investors make informed decisions.