Following publication of MiCAR in the official journal of the European Union, MiCAR entered into force on 29 June 2023.
Introduction and scope of MiCAR: crypto-assets
Prior to the introduction of MiCAR, European legislation did not regulate the provision of virtual assets services; meaning that the provision of virtual asset services is generally subject to the legislation of the different EU member states. MiCAR provides a sound legal framework for the crypto-asset markets to develop within the EU and is intended to cover assets, markets and service providers that slipped through the regulatory net prior to MiCAR.
MiCAR will apply to issuers of crypto-assets, in relation to offers to the public and admission to trading of crypto-assets and to those persons providing crypto-asset services.
A “crypto-asset” is defined as “a digital representation of value or rights which may be transferred and stored electronically using distributed ledger technology or similar technology”.
Under MiCAR, three types of crypto-assets can be distinguished:
- asset-referenced token (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;
- electronic money token (EMTs) (or e-money token): a type of crypto-asset that purports to maintain a stable value by referencing to the value of one official currency; and
- utility token: a type of crypto-asset which is only intended to provide access to a good or a service supplied by its issuer.
MiCAR will not apply to assets that are already within the scope of other EU legislation, amongst which:
- Financial instruments and structured deposits within the scope of MiFID II (Directive 2014/65/EU);
- Funds, as defined in PSDII (Directive 2015/2366/EU), other than EMTs;
- Deposits within the scope of the EU Directive on Deposit Guarantee Schemes (Directive 2014/49/EU), including structured deposits;
- Securitisations within the scope of the Securitisation Regulation (Regulation (EU) 2017/2402).
Objectives of MiCAR
The objectives of MiCAR are to increase legal certainty in the field of crypto-assets that are not covered by the existing financial services legislation, to support innovation and fair competition, to promote the development of crypto-assets and use of distributed ledger technology (DLT), to protect consumers, investors and market integrity considering the risks associated with crypto-assets, and to ensure financial stability.
Following the adoption of MiCAR, the whole crypto-asset industry in Europe is confronted with a new set of rules on:
- the transparency and disclosure requirements for the issuance and admission to trading of crypto-assets;
- the authorisation and supervision of crypto-asset service providers (CASPs) and issuers of ARTs and issuers of EMTs.
- requirements for the protection of holders of crypto-assets in the issuance, public offering and admission to trading of crypto-assets;
- the protection of clients of CASPs; and
- market abuse to ensure the integrity of crypto-asset markets.
Provision of crypto-asset services
The “crypto-asset services” that will be regulated include the following:
- the custody and administration of crypto-assets on behalf of third parties;
- the operation of a trading platform for crypto-assets;
- the exchange of crypto-assets for funds;
- the exchange of crypto-assets for other crypto-assets;
- the execution of orders for crypto-assets on behalf of clients;
- the placing of crypto-assets;
- the reception and transmission of orders for crypto-assets on behalf of clients; and
- providing advice on crypto-assets;
- providing portfolio management on crypto-assets; and
- providing transfer services for crypto-assets on behalf of clients.
CASPs will be subject to authorisation requirements and general prudential requirements, rules on conduct of business, and governance requirements, as well as additional requirements that apply depending on the types of crypto-asset services being provided, such as the custody and administration of crypto-assets and the operation of a trading platform.
Under certain conditions, regulated entities amongst which banks, investment firms, e-money institutions and AIFM’s are allowed to provide crypto-asset services without the need to obtain an authorisation as a crypto-asset service provider under MiCAR.
Issuers of crypto-assets
Crypto-asset issuers are persons who offer to the public any type of crypto-assets or seek the admission of such crypto-assets to a trading platform for crypto-assets (i.e. a crypto-exchange). Depending on the type of crypto-assets involved, issuers are subject to several requirements, which can be categorized as follows: (i) white paper requirements, (ii) organizational requirements, and (iii) conduct requirements based on MiCAR, amongst which:
- Issuers of ARTs require an authorisation on the basis of MiCAR (unless it concerns a credit institution), whilst issuers of EMTs are subject to a license obligation as a credit institution or e-money institution;
- Issuers are required to draft a white paper that complies with prescribed form and content requirements;
- Marketing communications have to comply with form and content requirements on the basis of MiCAR; and
- The white paper and marketing communications have to be submitted to the regulatory authority of the home member state of the issuer at least 20 working days before publication of the white paper. No prior approval of the home state regulator is required.
MiCAR entered into force on 29 June 2023: 20 days after its publication in the Official Journal of the European Union. Since MiCAR is a regulation, it is directly applicable in the different EU member states (i.e. no national implementation will be required, ensuring a high level of harmonization at EU level in crypto ecosystem). MiCAR will apply as of 30 December 2024. In derogation thereof, Titles III and IV shall apply as of 30 June 2024. These titles describe the obligations in relation to the issuance of ARTs and EMTs.
Delegated acts and guidance EBA/ESMA
MiCAR includes a substantial number of mandates to the European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) for drafting or adopting delegated acts, technical standards or guidelines. During the implementation phase of MiCAR, ESMA is planning to consult (in close cooperation with EBA, EIOPA, and the ECB) with the public on a range of technical standards that will be published in three packages.
- The first consultation package was delivered in July 2023, which amongst others concerns technical standards on the contents of the application for authorisation as CASP, the complaint handling procedure and management and prevention of conflicts of interest.
- The second consultation package was delivered in October 2023. This package provides regulatory and technical standards for amongst others, sustainability disclosures, trade transparency, record keeping requirements and disclosure of inside information requirements. The date for the entry into application of the measures is subject to their adoption by the European Commission and approval by the European Parliament and the Council of the EU.
- The third consultation package will concern investor protection, market abuse monitoring obligations, qualification of crypto-assets as financial instruments and system resilience. The package is expected to be published in the first quarter of 2024.
As of 20 October 2023, the EBA and ESMA have published consultations on guidelines for suitability of management body members of issuers of ARTs and of CASPs, the suitability of shareholders and members with qualifying holdings in issuers of ARTs and in CASPs.
The EBA has published multiple consultations for guidelines under MiCAR. These guidelines concern the internal governance for issuers of ARTS, liquidity stress testing, recovery plans and reporting on ARTs and EMTs denominated in a non-EU currency.
MiCAR includes a number of transitional measures. For instance, the requirement to publish a white paper does not apply to offers to the public which ended before the entry into application date of MiCAR. Issuers of ARTs (other than credit institutions) may continue their activities if tokens were issued before 30 June 2024 until they are granted or refused an authorisation under MiCAR, provided they apply for authorisation before 30 July 2024. For credit institutions that issued ARTSs prior to 30 June 2024, a white paper has to be approved before 30 July 2024 in order to be able to continue their activities.
Furthermore, MiCAR provides for a transitional regime for entities providing crypto-asset services that provided their services in accordance with applicable law before 30 December 2024. Such crypto-asset service providers may continue to do so until at the latest 1 July 2026 or until they are granted or refused an authorization as a CASP under MiCAR. Member States may however decide not to apply the transitional regime for entities providing crypto-asset services or to reduce its duration where they consider that their national regulatory framework applicable before 30 December 2024 is less strict than MiCAR.
The Dutch Ministry of Finance published a consultation for the draft Implementation Act of MiCAR, in which it proposes to use the grandfathering clause for entities providing crypto-asset services which were already active prior to the entry into force of MiCAR. This concerns parties holding a registration as entities providing crypto-asset services with the Dutch Central Bank (DNB) under the Dutch AML Act (Wet ter voorkoming van witwassen en financiering van terrorisme). Whilst no specific timeline has been decided on yet, the Ministry aims for a transitional period of a maximum of six months. The transition period will be published in the Decree Dutch EU-regulation implementation for financial markets (Besluit uivoering EU-verordening financiële markten). Member States have until 30 June 2024 to notify the Commission and ESMA whether they have exercised the grand-fathering clause and duration of their transitional regime.
Furthermore, Member States may apply a simplified procedure for authorisation applications submitted between 30 December 2024 and 1 July 2026 by entities already permitted under national law to provide crypto-asset services on 30 December 2024. In the consultation proposal to implement MiCAR, the Dutch legislator indicates it does not wish to make use of this option.
Transfer of Funds Regulation
MiCAR will be complemented by an anti-money laundering framework for the transfer of crypto assets. This is done by extending the scope of the Wire Transfer Regulation (WTR II), also referred to as the Transfer of Funds Regulation, to the transfer of crypto assets. The WTR II its provisions will enter into force on 29 June 2023 and shall apply from 30 December 2024 repealing the existing “revised Wire Transfer Regulation”. The WTR II entails that relevant originator and beneficiary data should be disclosed for all crypto transfers without a minimum threshold (i.e. the so-called travel rule). Before making the crypto-assets available to beneficiaries, providers will have to verify that the source of the asset is not subject to restrictive measures or sanctions, and there are no risks of money laundering or terrorism financing.
The rules would also cover transactions from so-called un-hosted wallets (a crypto-asset wallet address that is in the custody of a private user) when they interact with hosted wallets managed by CASPs.
In case a customer sends or receives more than EUR 1,000,- to or from their own un-hosted wallet, the CASP will need to verify whether the un-hosted wallet is effectively owned or controlled by this customer.
The foregoing entails that CASPs will have to comply with the rules on the basis of the WTR II in case of any crypto transfers.
Last updated on 24 November 2023