In April 2023, the European Parliament approved the Regulation on Markets in Crypto assets (better known as “MiCA”), establishing the first comprehensive, pan-European regulatory framework for crypto assets and related services. This is momentous as it is the largest, most comprehensive crypto-related legislation by a leading global jurisdiction. As such, MiCA is likely to be seen as the global benchmark and gold standard as other countries seek to develop their own national frameworks.

This is a transformative moment for the Cryptocurrency industry – to date, crypto companies that wanted to serve a pan-European market would have to navigate a patchwork of different national licensing regimes and regulatory frameworks, leading to increased complexity and costs.

MiCA mandates that all EU nations implement uniform requirements for the issuance, offering and placement of different types of crypto assets, creating one of the most encompassing regulatory regimes globally for the operation of crypto asset service providers and for the performance of crypto asset related activities.

Given the uncertainty around cryptocurrency globally, the addition of regulatory clarity will attract investment, businesses, and talent to the region, boosting Europe’s reputation as a global crypto hub.

Evolving legislation and regulation can be difficult to understand and navigate. As a trusted partner to merchants in the digital assets space, Worldpay from FIS supports merchants in navigating these changes by sharing up to date and relevant information. This blog endeavours to provide a starting point for merchants, outlining the scope of MiCA and its impact on a range of participants in the Web3 space.

What is MiCA?

MiCA, or Markets in Crypto assets, is a comprehensive set of regulations that will govern the cryptocurrency industry in the European Union (EU). The regulation was proposed by the European Commission in 2020 and was adopted by the European Parliament in April 2023.

Once in force, MiCA will broadly regulate the following.

• crypto assets issuance activities
• crypto asset service providers

What are the key features?

MiCA creates a broad regulatory framework for crypto assets in the EU which encompasses:

• Authorisation requirements
• Transparency and disclosure requirements
• Operational, organisational, and governance requirements
• Protections for crypto asset holders and clients of crypto asset service providers (including consumer protection rules)
• Prohibition of market abuse
• The role of supervisory bodies, including the co-operation and sanctions framework, available to competent authorities

What entities does MiCA cover:

In general, MiCA’s scope encompasses most business activities related to crypto assets in the EU that are not already covered under existing EU regulation. In addition, non-EU firms conducting crypto-related activities for EU customers would also fall under MiCA’s ambit.

• Offerors of crypto assets that are not considered to be ‘financial instruments’ under existing EU legislation. This includes exchanges that offer cryptocurrencies and tokens Crypto Asset Service Providers (CASPs)

What assets does MiCA cover:

MiCA has a broad definition of “crypto assets” – which are defined as a digital representation of a value or a right which may be transferred or stored electronically, using distributed ledger or similar technology”.

This broad definition encompasses cryptocurrencies, such as Bitcoin and Ethereum, as well as stablecoins and utility tokens.

How are these assets regulated:

MiCA differentiates between crypto assets based on their risk profile, creating three primary subcategories of assets, subject to different regulations and requirements. The risk classification depends on whether crypto assets stabilise their value by reference to other assets or independently.

• Electronic Money Tokens / E-Money Tokens: Tokens that use a single currency to stabilize their value
• Asset – Referenced Tokens:Tokens which peg their value to something else, or to a basket of currencies and assets
• All other crypto assets: All other crypto assets. These are regulated less onerously than the first two categories

That seems quite broad – what is not covered:

• Assets that qualify as regulated instruments under existing EU regulations
• Central Bank Digital Currencies issued by the ECB or other national central banks
DeFi protocols and truly "unique" nonfungible tokens (NFTs) are excluded from MiCA

Scope of MiCA

• Cryptocurrencies
• Stablecoins
• Utility Tokens

Out of Scope for MiCA

• Security tokens qualifying as transferrable securities
• Crypto assets qualifying as financial instruments
• Deposits or structured deposits
• Electronic money under existing EU financial services legislation
• Securitisation positions
• Insurance products
• Pension products
• Unique non-fungible tokens (NFTs) (unless they replicate a financial instrument or are included in a collection of assets for purchase)
• Central bank digital currencies issued by the ECB
• Digital assets issued by a NCA (acting in their capacity as a monetary authority or providing services related to crypto assets)

I am a crypto asset issuer. What does MiCA mean for me?

MiCA differentiates assets based on their risk profile, creating a base regime for all crypto asset issuers while imposing additional obligations on issuers of stablecoins.

Base Regime: Regulated crypto assets will have to, at the minimum, comply with the following:

• White Paper: An issuer of crypto assets will, following legal incorporation in the EU, will be required to publish a white paper detailing the crypto asset in question and to share this white paper to the relevant national regulatory authority. The white paper should include the following:
• Describe the crypto project and the main participants
• Describe the type of blockchain consensus mechanism used, e.g., proof of work (PoW) or proof of stake (PoS)
• Detail the terms of the offer to the public
• Detail the rights attaching to the crypto assets in question
• Disclose the key risks associated with the crypto assets; and
• Include a summary, to help potential purchasers make an informed decision

• Withdrawal Rights: Retail holders will have a period of 14 calendar days to withdraw from the crypto asset purchase agreement, without incurring costs or fees.

Issuers of Stablecoins: MiCA subjects stablecoin issuers to additional requirements. Requirements differ based on if the asset is defined as a

• Electronic Money Token or EMT’s: A token that is pegged to a single fiat currency
• Asset Referenced Tokens or ART’s: A token whose value can be pegged to more than 1 fiat, physical asset, cryptocurrency, or a mixture of all three

I issue ARTs and EMTs. What does MiCA mean for me?

• Licensing: Issuers of ARTs must be established and authorised (licensed) in the EU
• Authorization requirement: Issuers of ARTs require approval from their NCA prior to offering an ART
• Reporting Requirement: Issuers of ARTs must adhere to all MiCA reporting requirements. ARTs with an issued value greater than EUR 100M, must also issue a quarterly report to their relevant NCA (National Competent Authority)
• Asset Reserves: Issuers of ARTs are required to maintain a segregated reserve of asset for each token.
• Asset Custody: Issuers of ARTs are required to establish, maintain, and implement custody policies and procedures. They are permitted to entrust this to regulated credit institutions, CASPs or investment firms
• Redemption Rights: Issuers of ARTs must implement policies detailing the right of ART holders to redeem their ART at any time
• Capital Requirements: ART issuers are mandated to hold established amounts of capital, with the amount being the higher of EUR 350k, 25% of previous year overheads or 2% of average reserves held
• Recovery Plan: ART issuers are required to maintain a recovery plan to mitigate against any risk or issues pertaining to the reserve of assets as well as have a plan for the orderly redemption of tokens
• Investor protection: MiCA contains detailed requirements which pertain to, inter alia, fair treatment of customers, ongoing disclosure, complain handling, governance and systems and controls

• Permitted Issuers / Authorization: The issuance of e-money tokens is only permitted for EU credit institutions and for electronic money institutions
• Safeguarding Requirements: Funds received will need to be safeguarded as per EU regulations, with at least 30% deposited with credit institutions and the remainder invested in low risk, liquid financial instruments
• Redemption Rights: E-money tokens must amount to a claim on the issuer and must be redeemable at par
• Recovery Plan: EMT issuers are required to maintain a recovery plan to mitigate against any risk or issues pertaining to the reserve of assets

Significant Stablecoins: In addition to the above, MiCA imposes additional rules for the regulation of “significant” stablecoins with a focus on liquidity maintenance, recovery, and redemption planning.

What is a Crypto Asset Service Provider?

A CASP is a legal person or other undertaking who provides one of the following, to third parties, on a commercial basis:

How does MiCA regulate Crypto Asset Service Providers?

All CASPs must adhere to a base regime of regulation, with varying additional responsibilities depending on the service provided.

Key Base Regime Responsibilities:

- Licensing and Authorization:

• Authorization: Obtaining and maintaining proper CASP authorization unless exempted by MiCA (e.g., financial entities authorized under other financial regulations) may provide certain crypto asset services without the need to obtain additional authorization under MiCA)
• Licensing: Having a registered office in an EU Member State, having effective management in the EU with at least one director being a resident of the EU.

- Capital and Investor Protection

• Prudential Requirements: Prudential requirements, including specific minimum capital requirements and insurance policies
• Investor Protection: CASP’s must provide risk disclosures associated with transactions in crypto assets as well as make pricing, costs, and fee policies publicly available in a prominent fashion on the website
• Governance Requirements: CASP’s are required to act honestly, fairly, and professionally in the best interest of clients. In addition, MiCA mandates that CASP’s establish and maintain effective policies and procedures to identify, prevent, manage, and disclose conflicts of interests, including prominently disclosing conflicts of interest on the CASP's website

- Policies and Procedures:

• Business Continuity Policy: Establishment of business continuity policy (including disaster recovery plan), systems and procedures to safeguard the security, integrity and confidentiality of information, and compliance with various requirements under the Digital Operational Resilience Act (DORA Regulation)
• Record Keeping: Maintenance of records of all crypto asset services, activities, orders, and transactions for a period of five years, or up to seven if required by the competent authority and allowing clients to receive such records.
• Complaint Management: Establishing and maintaining proper complaint handling procedure, informing clients of a possibility to file a complaint, investigate all complaints in a timely and fair manner and inform the clients with an outcome of such investigations within a reasonable timeframe
• Insolvency planning: Establishing an appropriate plan to support an orderly wind-down, as well as other applicable policies and procedures

Activity Specific Requirements:

In addition, CASPs may have to adhere to additional restrictions, depending on the type of service provided. Firms will need to undertake a detailed review of the requirements they are subject to under MiCA which relate to the crypto asset service they provide.

I operate a crypto trading platform – am I a CASP? What are my responsibilities?

Yes, operators of crypto trading platforms / exchanges are CASPS. In addition to the base regime, trading platforms will also be required to undertake the following:

1. Establishing, maintaining, and implementing clear and transparent operating rules for the trading platform
2. Prior to admitting an asset to trading, assessing the suitability of assets, and ensuring that the asset follows all operating rules
3. Blocking admission of assets with inbuilt anonymization functions
4. Avoiding trading on their own platform from their own account
5. Avoiding matched principal trading without client consent
6. Developing effective systems, procedures, and arrangements in compliance with MiCA
7. Monitor and flag cases of market abuse and notify competent authorities in requirements with MiCA
8. Advertise and make public all bid and ask prices and the depth of trading interest and volumes
9. Make public the transaction prices, volume, and times
10. Adhere to the stipulated settlement time frames
11. Develop and maintain transparent, fair, and non-discriminatory fee structures and refrain from the creation of incentives that contribute to disorderly trading or market abuse
12. Establish specific record keeping requirements, along with requirements relating to the provision of access to such records

I facilitate the exchange of crypto assets for fiat or other crypto currencies– am I a CASP? What are my responsibilities?

Yes, providers of these services would be CASPS. In addition to the base regime, they would also have to undertake the following:

1. Institute a non-discriminatory commercial policy, that clearly defines the type of accepted client and the conditions to be met by them
2. Publishing a firm price of the crypto assets or method for determining the price
3. Executing clients’ orders at the displayed prices and informing clients about all conditions
4. Publishing details of concluded transaction

When am I legally required to comply by MiCA?

The EU Parliament and then the EU Council recently approved MiCA. The laws were entered into the EU Official Journal on the 8th of June, 2023 and came “into force” 20 days later. Companies will, however, be given time to adhere to these rules. The amount of time provided differs depending on the type of service provided.

• The MiCA provisions on stablecoins will start to apply in July 2024
• The provisions on issuers of other crypto assets and crypto asset service providers will start applying in January 2025