The European Union signed the Markets in Crypto-Assets (MiCA) regulations into law on May 31, making way for the landmark regulatory guidance on crypto assets and service providers to come into effect.
First drafted in 2020, the EU’s regulatory package will govern the issuance and scope of services related to the cryptocurrency market.
The European Parliament passed the MiCA regulations on April 20, and the bill was subsequently sent to the European Council for approval. On May 31, European Parliament President Roberta Metsola, and Swedish Rural Affairs Minister Peter Kullgren, signed the framework into law. Sweden currently holds the presidency of the Council of the EU.
MiCA was published in the Official Journal of the European Union (OJEU) on June 9, triggering the countdown for the law to come into effect. This means crypto businesses have set timelines to implement and comply with MiCA’s requirements. Stablecoin rules will apply from June 30, 2024, and rules for exchanges will take effect on Dec. 30, 2024.
MiCA defines a crypto asset as “a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology.” The legislation also offers guidance on what qualifies as “cryptocurrencies” and what makes certain digital assets “tokens.”
Additionally, MiCA establishes standards for crypto asset service providers (CASPs) and cryptocurrency asset issuers. Issuers of crypto assets are required to follow standards governing disclosure and openness, and offer complete and transparent information about the crypto assets they issue. CASPs must also adopt security measures and adhere to Anti-Money Laundering regulations.
The MiCA legislation establishes CASPs as separate legal entities. The service providers can obtain a license in any of the 27 EU member states and conduct business there. Service providers must be able to counteract market manipulation and abuse, and will be under the supervision of regulators like the European Banking Authority.
Stablecoin service providers will be required to provide a white paper that contains key details about the product and the key players involved in the business. The white paper must also include the terms of the public offer, the kind of blockchain verification mechanism it will use, the rights associated with the relevant crypto assets, the main risks involved for investors, and a summary to assist potential buyers in making an educated decision about their investment.
MiCA will not govern digital assets that qualify as transferable securities and behave like shares or equivalents. The EU legislation does not cover nonfungible tokens (NFTs) or crypto assets already recognized as financial instruments under current law.
Neither does MiCA regulate central bank-issued digital assets, be it the European Central Bank’s digital currency, national central banks’ digital assets or services linked to crypto assets provided by those institutions.
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David Schwed, head of blockchain cybersecurity firm Halborn, told Cointelegraph that MiCA is a pivotal development, demonstrating that a comprehensive framework can be established to provide clear direction to specific market segments. He added that even though MiCA excludes certain aspects of crypto, such as NFTs and decentralized finance, the regulations are a significant step forward.
“This regulation is a significant step forward for the crypto community. It presents a uniform framework for all EU member states, setting a precedent that I believe, and hope, the rest of the world will take note of and consider adopting,” Schwed said.
Europe takes the crypto lead
The passing of the MiCA regulations into law, nearly two years after they were first proposed, has added some regulatory clarity to cryptocurrency businesses in Europe. Although not perfect, crypto companies have definite guidelines to adhere to and access the market.
In contrast to the United States, with no set legislation and growing enforcement actions against many crypto exchanges, Europe could become a more dominant crypto hotspot.
Binance CEO Changpeng Zhao tweeted about the recent introduction of MiCA and said there are exciting business opportunities for compliant crypto service providers in Europe.
Important dates for the industry coming up, MiCA has now been published in the official journal of the EU: https://t.co/in3qlQO3wV
— CZ Binance (@cz_binance) June 9, 2023
This means crypto businesses now have firm timelines to implement and be compliant with MiCA's requirements. Stablecoin rules apply from June 30,… https://t.co/qQtZbxZWqV
Zhao’s comments came after the recent lawsuit filed by the U.S. Securities and Exchange Commission against Binance and its CEO, alleging securities law violations.
Kadan Stadelmann, chief technology officer at open-source blockchain technology firm Kodomo, told Cointelegraph that although MiCA’s effectiveness can be debated, it’s undeniable that MiCA sets the groundwork for crypto regulation worldwide:
“[Other countries] will probably choose a ‘wait and see’ approach before making their own regulations. Still, MiCA’s influence is clear; most nations will feel pressure to adopt some form of regulation to avoid getting left behind in a sector that has growing importance.”
Alex Shevchenko, CEO of layer-2 platform Aurora Labs, told Cointelegraph that implementing MiCA could “potentially influence policymakers and regulators in the U.S. to consider similar approaches, striking a balance between consumer protection and market development. As a result, this may lead to increased collaboration and harmonization efforts between jurisdictions.”
Indeed, members of the U.S. House Financial Services Committee are currently working on a draft bill that aims to establish more clear laws for certain types of cryptocurrencies and bring stablecoins under the regulatory purview of the Federal Reserve.
Crypto legislation around the globe
While MiCA is — for the time being — a one-of-a-kind regulatory framework that will govern certain crypto activities in 27 countries, several jurisdictions have been actively developing some form of crypto legislation in recent years.
Joey Garcia, head of regulatory affairs at Xapo Bank, told Cointelegraph that the MiCA framework is often only compared to the regulatory landscape in the U.S., which, in his view, is far too narrow a comparison in the context of the global, cross-border and digital industry:
“There are many other jurisdictions. Singapore’s crypto regulations are extremely advanced and Hong Kong’s new framework took effect on June 1. Smaller jurisdictions like Gibraltar have been regulating this space since 2018, developing frameworks and guidelines around critical factors such as market integrity for crypto trading platforms, which is far more comprehensive than MiCA.”
Garcia said the rest of the world could learn a thing or two from MiCA, i.e., how to adapt classic financial services principles to nascent crypto technology. He adds that regulators outside the EU “will also need to learn and develop their understanding in not only implementing standards, but also subsequently being able to actively monitor and supervise those businesses.”
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MiCA’s approval comes as Hong Kong positions itself as a regional crypto hub, making way for independent legislation separate from China’s blanket ban approach.
Stadelmann added that Hong Kong definitely has the potential to become an even larger crypto hot spot than Europe. Before China banned crypto-related businesses in 2021, “Hong Kong was previously home to several growing crypto startups. With greater regulatory certainty in 2023, I think more crypto startups will start considering Hong Kong as a viable option,” he said.