The proposed European Union Crypto Asset Markets Regulation, or MiCA, was put to a vote on March 14, 2022, in the Economic and Monetary Affairs Committee of the European Parliament. As we reported on Kriptokoin.com, the proposed bill was rejected, effectively restricting proof-of-work (PoW)-based cryptocurrencies, which would result in a Bitcoin (BTC) ban.
What factors are behind the regulation?
The question of how to evaluate crypto assets from the perspective of environmental regulation continues with the European Parliament responsible for the text stating that crypto assets will be included in the domain of the union like all other financial products. The proposed arrangement is part of the digital finance package, which includes a proposal for a pilot program for distributed ledger technology (DLT)-based market infrastructures concerning the security token sector, adopted by the Parliament’s Committee on Economic and Monetary Affairs this January.
The EU Commission is considering several options for regulating the crypto-asset sector. In the end, he opted for the option of full harmonization within the EU of an EU passport and the rules applicable to issuers and service providers in crypto assets, rather than a preference regime option for obtaining an EU passport with the application of national regimes. For stablecoin, the Commission opted for a tailor-made legislative regime with regulations under the E-Money Directive.
So, what are the main provisions of the MiCA Regulation, which should enter into force before the end of the year and target four purposes, after the vote between the Council, Parliament and the Commission after the vote on March 14? The four objectives include: legal certainty, support for innovation, consumer and investor protection, and market integrity and financial stability.
What is the purpose and scope of the regulation for bitcoin and altcoins?
The purpose of the regulation is to establish rules regarding:
- Transparency requirements for the issuance and acceptance of trading in cryptocurrencies.
- Authorization and supervision of cryptocurrency service providers, asset-backed token issuers, and issuers of electronic money.
- Operation, organization and management of asset-backed token issuers, electronic money token issuers and crypto asset service providers.
- Consumer protection rules for the issuance, trade, exchange and custody of crypto assets.
- Measures to prevent market abuse to ensure the integrity of crypto asset markets.
The regulation applies to individuals who issue crypto assets or provide crypto-asset-related services in the EU. The Regulation does not apply to:
- Financial instruments (equities, debt securities, units or shares in collective investment undertakings and financial futures contracts) or crypto assets that are electronic money.
- Certain entities or individuals, such as the European Central Bank and national central banks of member states, insurance organizations, a liquidator or director acting in bankruptcy proceedings, individuals providing crypto-asset services exclusively for their parent, subsidiary or other subsidiary . European Investment Bank, European Investment Bank and international public institutions.
Rules for issuing “utility tokens”
The section of the regulation on “utility tokens” starts here. These “utility tokens”, namely “utility tokens” have a non-financial purpose related to the operation of a digital platform and digital services and should be considered as a special type of crypto asset. These can include cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), or Tezos (XTZ).
The Regulation prohibits the public offering or acceptance for trading of crypto assets by a merchant unless the issuer is a legal entity and a whitepaper conforming to the Regulation is prepared, notified to the competent authority and published. . Rules are provided for fair, honest and professional behavior and communication, management of conflicts of interest and compliance with protocol security standards. The obligation to prepare reports does not apply when crypto assets are offered for free. In addition, NFTs are not valid for projects submitted to less than 150 people per member country, for projects whose bid amount does not exceed 1 million euros within a 12-month period, or where the offer is exclusive to qualified investors.
What are the rules for cryptocurrencies backed by an asset?
Those wishing to issue certain asset-backed tokens by stabilizing their value must obtain permission from the competent authority of their own member country, as long as they do not exceed 5 million euros over a period. The authorization provides access to the European passport. The whitepaper should be prepared. Such an issuer is subject to a range of obligations, including those related to marketing communications, conflicts of interest and governance.
These reserve assets should be managed prudently and efficiently, segregated from the issuer’s assets and entrusted to credit institutions or crypto-asset service providers. These reserve assets may only be partially invested in highly liquid and low-risk financial instruments. Special rules are provided for the purchase of token issuers referring to the assets, including the obligation to notify the proposed acquisition to the competent authority that may object to the purchase.
Rules applicable to the issuance of cryptocurrencies of electronic money
This category refers to cryptoassets designed primarily as a means of payment with the aim of balancing their value with reference to a single fiat currency. Like e-money, these cryptoassets are electronic substitutes for coins and banknotes and are used to make payments. Electronic money issuers are authorization as a credit institution or an electronic money institution. It should also produce a whitepaper. If e-money tokens can only be held by qualified investors or if the average outstanding amount of tokens for 12 months does not exceed 5 million euros, such a whitepaper will not be required.
Rules applicable to Bitcoin and altcoin services providers
Cryptocurrency services will only be provided by legal entities authorized as crypto asset service providers with their registered office in a member country of the union. Authorization as a crypto-asset service provider will be union-wide and should enable crypto-asset service providers to provide services for which they are authorized under the right or freedom of association, including through a branch office.
Bitcoin and altcoin service providers will act honestly, fairly and professionally in the interests of their customers and potential customers, and will not be fair, open and misleading to their customers, especially in their commercial communications, that should be defined as such. will provide inaccurate information. Crypto-asset service providers should alert their clients to the risks associated with purchasing crypto-assets. They should make their pricing policies public and have various safeguards. Although the minimum capital required for various services varies, it is generally seen to be in the range of 50,000-150,000 euros.
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