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What changes does MiCA crypto regulation bring?

MiCA will require regulatory clearance for providers of certain cryptocurrency services.

What changes does MiCA crypto regulation bring? After months of intense waiting and debate, the European Parliament approved the final text of MiCA on April 20, pending its formal approval by the Council and its expected publication this June. If the project meets the planned schedule, the rules for issuing asset-backed and e-money tokens will be enforceable as of July 2024, while the other obligations will apply as of January 2025.

MiCA implies a radical change in the regulatory landscape regarding crypto assets. Currently, only platforms offering custody and exchanging cryptocurrencies for fiat (legal tender) are subject to registration with the country’s respective central banks for money laundering prevention purposes. All other services related to crypto assets (e.g., advice, crypto-for-crypto transfer or exchange services, crypto asset portfolio management, placement) are not subject to any regulatory license, except for those referring to crypto assets that may qualify as financial instruments (to which existing regulations in this regard apply and MiCA does not regulate are not regulated under MiCA).

MiCA will move to require regulatory authorization for providers of certain crypto asset services, which, once authorized, will be able to supply services across the European Union. Credit institutions, electronic money institutions, and investment services firms will not have to obtain a separate authorization and can provide such services by adapting their approval.

MiCA regulates the offering and issuance of crypto assets inspired by the rules of traditional markets, including the obligation to notify the “white paper” to the regulator before issuance and its approval for certain types of tokens. The regulation includes exceptions for offerings limited to qualified investors and certain thresholds. These rules are stricter in the case of issuance of asset-backed tokens (e.g., stablecoins) and e-money tokens due to their higher risk to the financial system.

MiCA Consumer Protection

In addition, MiCA strengthens consumer protection. On the one hand, they will have a 14-day right of withdrawal from the transaction, exercisable up to the maximum offer period and before the crypto-asset trading admission. In addition, they will have a right of redemption against the issuer of e-money tokens and active referenced tokens (a compelling level of collateral comparable to that existing in open-end investment funds). They try to mitigate insolvency risks by obligations to safeguard funds and assets by a third party and to have an “asset reserve” to cover the issuer’s liabilities to investors of asset-backed tokens.

Although it is an extensive regulation, certain services or issues remain outside MiCA. In particular, DAOs and specific Defi models, such as loans on crypto assets and NFTs (single and non-fungible tokens), are not regulated. Likewise, the rules on the issuance of crypto assets (other than e-money tokens and asset-backed tokens) will not apply when (i) developers offer them for free (MiCA does not consider a “free offer” when granted in exchange for personal data), or (ii) they are utility tokens that give access to an existing good or service, or that you can only use the tokens in a limited network of merchants.

However, given the breadth and flexibility in the configuration of rights assigned to a crypto asset, defining its qualification and, therefore, the applicable regulations is often a significant challenge, in particular, to exclude its definition as a security token. This issue and other technical aspects of MiCA will be subject to development and discussion over the coming months.

What is MiCA regulation?

The MiCa regulation, also known as the Markets in Crypto-Assets Regulation, is a set of rules proposed by the European Union to regulate the cryptocurrency market. The law aims to provide clarity and legal certainty for businesses and investors operating in the crypto industry.

The MiCa regulation proposes a framework that will categorize cryptocurrencies into three groups: e-money tokens, asset-referenced tokens, and utility tokens. E-money tokens are digital currencies that can be used for payment purposes, while assets like gold or real estate back asset-referenced tokens. Utility tokens, on the other hand, provide access to a specific product or service.

The regulation also sets out requirements for crypto businesses, such as mandatory registration and authorization with the relevant authorities. Crypto exchanges and wallet providers must comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. Additionally, the ordinance proposes strict rules for initial coin offerings (ICOs) to ensure investor protection.

The MiCa regulation aims to create a level playing field for all crypto businesses operating within the EU. The authors designed MiCA to protect consumers and investors while promoting innovation in the crypto industry. The regulation also seeks to prevent using cryptocurrencies for illegal activities such as terrorist financing and money laundering.

Overall, the MiCa regulation is a significant step toward the rule of the cryptocurrency market in Europe. It will provide legal certainty for businesses and investors while promoting innovation and protecting consumers.

What’s the equivalent of MiCA in the U.S.?

The regulation that is comparable to the MiCA regulation in the United States is the Securities and Exchange Commission’s (SEC) regulatory framework for digital assets. The SEC has been working diligently to establish clear guidelines for cryptocurrencies and other digital assets, and it took enforcement actions against companies that have violated securities laws in this field. However, it is crucial to note that the regulatory landscape in the United States is still evolving, and companies that operate in this space must remain up-to-date with the latest developments and consult with legal experts to ensure compliance.

The SEC’s regulatory framework for digital assets aims to deliver transparency for investors and market participants while mitigating the risk of fraud and manipulation. The framework includes requirements for digital asset issuers and trading platforms, such as registration with the SEC and compliance with anti-money laundering and know-your-customer regulations.

While the SEC’s regulatory framework provides oversight and protection for investors and market participants, it is essential to note that the application of securities laws to digital assets is still a subject of debate and interpretation. As such, companies operating in this space must navigate a complex and ever-changing regulatory landscape and seek guidance from legal experts to ensure compliance with applicable laws and regulations.

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