MiCA compliance

Understanding the Markets in Crypto-Assets Regulation (MiCA)

MiCA is a comprehensive regulation that aims to standardise the market rules for crypto-assets across the European Union (EU). The regulation caters to crypto-assets that aren't already covered under existing financial services regulations, focusing on transparency, disclosure, authorisation, and oversight of transactions. The overarching goal of MiCA is to maintain financial stability and integrity within the market, govern public offers of crypto-assets, and enhance consumer awareness of potential risks associated with such assets.

 MiCA officially came into effect in June 2023, introducing a series of Level 2 and Level 3 measures that need to be fully established before the regime is implemented, within an expected 12 to 18-month timeframe.

How can we help you to become MiCA compliant?

We offer a comprehensive range of services that span across crypto-native and Trad-Fi businesses, such as:

  • Crypto exchanges

  • Token issuers

  • Crypto funds

  • Traditional financial institutions entering the crypto space

MiCA applies the core components of the EU’s existing regulation for securities (MiFID II / MiFIR) and market abuse (MAD II / MAR) to crypto-assets. While some may see this as over-reach, it provides a clear framework for investor protection and market integrity.

Our Services

Crypto asset strategy

Whether you are a crypto native business or a traditional financial services business looking to enter the crypto space, we can help you define your business strategy within regulatory perimeters

Regulatory compliance

Regardless of where you are in your journey as a crypto business, we can help you achieve and maintain compliance with MiCA in a pragmatic way. We can help you design relevant documentation (e.g. crypto-asset white paper, policies, and procedures) and leverage out in-house developed toolkit to accelerate your path to compliance.

Risk Management

 We can help you design and implement risk management and control frameworks that are proportionate to your business capabilities and size. From conducting initial risk identification to mapping control gaps and designing risk mitigation activities we cover the end to end lifecycle of risk management requirements

MiCA overview

Key objectives of MiCA

 MiCA primarily seeks to regulate crypto-assets and related services within the EU. Given the uncertainties in the crypto-asset market, the regulation aims to protect investors and prevent the misuse of crypto-assets whilst promoting financial stability and innovation.

 MiCA creates a unified regulatory framework across the EU and establishes a singular EU licensing regime, which eliminates the need for national laws and offers a clear legal structure for crypto-assets.

MiCA entities application

 The MiCA regulation applies to:

  • Entities offering specific crypto-assets that do not qualify as ‘financial instruments’ under current EU laws. These entities need a license and can avail the benefits of an EU passport— for instance, cryptocurrency exchanges dealing in cryptocurrencies and tokens

  • Crypto Asset Service Providers (CASPs), which need to be authorised by a National Competent Authority regardless of whether the crypto-asset is issued under MiCA or otherwise, and can also avail the benefits of an EU passport

  • Generally, most business operations related to crypto-assets within the EU are subject to the MiCA regulation. Even non-EU crypto-asset companies conducting business for EU clients must comply with the regulation.

MiCA key requirements

Crypto Asset Service Providers (CASP)

  • Prudential requirements: CASPs must be authorised in the EU and are required to act honestly, fairly, and prioritize their clients' interests.

  • Governance requirements: CASP senior executives must be trustworthy, adequately knowledgeable and competent to perform their duties, and they must institute robust policies and procedures to ensure MiCA compliance.

  • Handling conflicts of interest and complaints: CASPs are required to have a procedure for managing client complaints and an effective policy for identifying and disclosing conflicts of interest.

  • Capital requirements and secure measures: CASPs must abide by the minimum capital requirements outlined in MiCA and protect their clients' ownership rights of crypto-assets.

  • Environmental requirements: CASPs are obligated to publicly share information on their website about the environmental impact of the crypto-assets they service.

  • Significant CASPS: CASPs that are considered ‘significant’ will face heightened scrutiny and supervision from their National Competent Authority (NCA). MiCA defines a CASP as ‘significant’ if it has at least 15m active users, on average, in a calendar year within the EU.

Issuers of crypto-assets other than ARTs and EMTs

  • White paper: issuers or offerors of crypto-assets other than ARTs and EMTs are not required to get authorisation but they must publish a white paper and notify their NCA before offering crypto-assets to EU customers.

  • Right of withdrawal: retail clients have a 14-day window to revoke their agreement to buy crypto-assets without any fees or costs.

MiCA implementation across EU Member States

Considering that some EU Member States already have national regulatory frameworks for the crypto-industry, MiCA allows Member States to implement a simplified procedure for authorisation applications submitted by entities already authorized under national law to provide crypto-asset services. In such instances, National Competent Authorities (NCAs) must ensure these applicants adhere to key MiCA requirements.

 Furthermore, EU lawmakers allow Member States to grandfather the status of authorised CASPs to entities providing crypto-asset services in line with national frameworks, for up to 18 months post MiCA implementation date or until they secure a new MiCA license (whichever is sooner).

MiCA product application

 MiCA identifies three types of crypto-assets:

  • Asset-referenced tokens (ART)

  • Electronic money tokens (EMT)

  • Other crypto-assets not regulated by existing EU legislation (including utility tokens)

 Although the term ‘stablecoin’ is not used in MiCA, both ARTs and EMTs are forms of stablecoins and can be deemed 'significant' by the European Banking Authority (EBA) based on certain criteria. More stringent regulatory requirements apply to significant ARTs and EMTs such as capital requirements.

 MiCA does not extend to crypto-assets that are unique and not interchangeable with other crypto-assets.

Issuers of ARTs and EMTs

  •  Authorisation requirement for ARTs: ART issuers require authorisation from their NCA before offering ARTs, including the publication of a white paper.

  • Authorisation requirement for EMTs: EMTs can only be issued by credit institutions or e-money institutions under the E-Money Directive (2009/110/EC) and must also comply with the requirement to publish a white paper.

  • Reporting requirements: ART issues must comply with new reporting requirements such as a quarterly report to their NCA for ARTs with an issued value higher than €100m.

  • Reserve of assets: ART issuers are subject to requirements relating to the assets held in reserve and must at all times maintain a reserve of assets, ensuring the reserve of assets is operationally segregated from the issuer’s estate and from the reserve of assets of any other tokens

  • Assets custody: ART issuers must establish custody policies and procedures and can be entrusted to credit institutions, CASPs or investment firms (regulated under MiFID II).

  • Permanent redemption right: ART issuers must establish a policy setting out the right of ART holders to redeem against the ART issuer or reserve assets at any time.

  • Capital requirements: ART issuers are required to hold capital that is the higher of €350,000, 25% of fixed overheads of the preceding year or 2% of the average amount of reserve assets.

  • Recovery plan: ART and EMT issuers need to comply with recovery plan requirements to provide measures for any issues related to the reserve of assets.

  • Significant issuers: issuers of ‘significant’ ARTs and EMTs are subject to higher capital interoperability requirements. They must also establish a liquidity management policy.

  • Market abuse regime: firms must implement systems and procedures for the prevention and detection of market abuse, including personal account dealing and inside information controls.

Existing financial services firm adopting crypto

 MiCAR is less stringent than the rules for existing regulated financial entities in the EU. Therefore, MiCAR permits an equivalence regime for certain regulated institutions that can offer crypto-asset services using their existing licenses. Here's how it applies to different types of regulated entities and the crypto-asset services they can provide under their existing licenses:

  •  MiFID II investment firms can offer crypto-asset services equivalent to the MiFID investment or ancillary service they are already authorised to provide (e.g., custody and administration of crypto-assets for third parties if the investment firm is authorised under national law to provide safekeeping and administration of financial instruments for the account of clients).

  • Credit institutions under the CRD/CRR framework can provide all crypto-asset services.

  • Electronic money institutions under EMD II can provide custody and administration of crypto-assets on behalf of third parties and transfer services for crypto-assets on behalf of third parties related to the e-money tokens they issue.

  • UCITS management companies or AIFM can offer crypto-asset services equivalent to the portfolio management and top-up services they are authorised to provide under the UCITS/AIFMD framework.

  • Market operators under MiFID II can operate a trading platform for crypto-assets.

  • Central securities depositories can provide custody and administration of crypto-assets on behalf of third parties.