The EU brings crypto-assets, crypto-assets issuers and crypto-asset service providers under a regulatory framework. Setting an EU level legal framework for this sector for the first time, the Council has adopted a regulation on markets in crypto-assets (MiCA).
MiCA will protect investors by increasing transparency and putting in place a comprehensive framework for issuers and service providers including compliance with the anti-money laundering rules. The new rules cover issuers of utility tokens, asset referenced tokens and so-called ‘stablecoins’. It also covers service providers such as trading venues and the wallets where crypto-assets are held. This regulatory framework aims to protect investors, preserve financial stability, while allowing innovation and fostering the attractiveness of the crypto-asset sector.
It also introduces a harmonized regulatory framework in the European Union which, given the global nature of crypto markets, is an improvement compared to the current situation with national legislation in some member states only.
The European Commission presented the MiCA proposal on 24 September 2020. It is part of the larger digital finance package, which aims to develop a European approach that fosters technological development and ensures financial stability and consumer protection. In addition to the MiCA proposal, the package contains a digital finance strategy, a Digital Operational Resilience Act (DORA), that covers crypto-asset service providers as well, and a proposal on distributed ledger technology (DLT) pilot regime for wholesale uses.
This package bridges a gap in existing EU legislation by ensuring that the current legal framework does not pose obstacles to the use of new digital financial instruments and, at the same time, ensures that such new technologies and products fall within the scope of financial regulation and operational risk management arrangements of firms active in the EU. Thus, the package aims to support innovation and the uptake of new financial technologies while providing for an appropriate level of consumer and investor protection.
The Council adopted its negotiating mandate on MiCA on 24 November 2021. Trilogues between the co-legislators started on 31 March 2022 and ended in a provisional agreement reached on 30 June 2022. The formal adoption of the regulation is the final step in the legislative process.
Security tokens not regulated by MiCA
MiCA applies to crypto-assets that are not subject to pre-existing European regulations. It consists of a standardization of the crypto-assets regime – which is not comparable neither to an electronic currency nor to financial instruments – through the following main areas:
- The issuance and trading of crypto-assets, including stablecoins (asset-referenced tokens and electronic-money tokens)
- The licensing and supervision of crypto-asset service providers, CASPs
- The prevention of market abuse
MiCA does not apply to crypto-assets that fall under existing EU financial services regulations. Under MiCA, security tokens are defined as “crypto-assets that represent transferable securities or other financial instruments” and are subject to the existing EU securities regulations, such as the Prospectus Regulation and the Market Abuse Regulation. Security token issuers will be required to publish a prospectus approved by the competent authority unless certain exemptions apply.