The Markets in Crypto-Assets Regulation (MiCAR) represents landmark legislation designed to establish a unified framework for regulating crypto-assets and related services across the European Union (EU).
Understanding MiCAR's Scope and Timeline
Enactment: Passed by the European Parliament and Council in June 2023, MiCAR became effective on 30 June 2024, with phased applicability:
- Full applicability from 30 December 2024.
- Partial provisions effective from 30 June 2024.
Objectives:
- Enhance legal certainty, consumer protection, and market integrity.
- Promote financial stability while fostering innovation via cross-border operational rights for Crypto-Asset Service Providers (CASPs).
👉 Explore how MiCAR impacts global crypto markets
Classification of Crypto-Assets Under MiCAR
MiCAR defines crypto-assets as "digital representations of value or rights transferable via distributed ledger technology (DLT)." Key categories include:
1. Electronic Money Tokens (EMTs)
- Definition: Pegged to a single fiat currency (e.g., USDT, USDC).
- Regulation: Similar to e-money under EMD2 but utilizing DLT.
2. Asset-Referenced Tokens (ARTs)
- Definition: Stablecoins backed by assets (e.g., commodities, crypto baskets).
- Examples: Dai (DAI), Paxos Gold (PAXG).
3. Other Tokens
Types:
- Utility tokens (access to services/platforms).
- Payment tokens (e.g., BTC, ETH).
- Hybrid tokens (e.g., governance tokens).
Significant Tokens: Identified by the European Banking Authority (EBA) based on user base, transaction volume, and systemic impact.
Authorization and Compliance Requirements
For Crypto-Asset Issuers
- Whitepaper Mandate: Detailed disclosure of project goals, risks, and governance.
Authorization:
- EMT/ART issuers require home-state approval.
- Other tokens exempt but must comply with transparency rules.
- Ongoing Oversight: EMT/ART issuers face continuous supervision; violations may trigger sanctions.
For Crypto-Asset Service Providers (CASPs)
- Licensing: Mandatory authorization to offer services (e.g., custody, trading).
Key Obligations:
- Prudential safeguards (e.g., capital adequacy).
- AML/CTF compliance aligned with AMLD5/6.
- Client asset segregation and transparency.
👉 Discover CASP licensing pathways under MiCAR
Transitional Provisions and Exemptions
- Grandfathering: Existing CASPs may operate until 30 June 2025 without MiCAR authorization but must notify authorities.
- DLT Pilot Regime: Five-year sandbox for DLT-based trading/settlement infrastructures.
- Exclusions: Central banks and public institutions are exempt to preserve monetary sovereignty.
Impact on Investment Firms and Travel Rule
- Investment Firms: MiFID II-authorized firms can service crypto-assets classified as financial instruments without additional MiCAR licensing.
- Travel Rule: CASPs must share transaction details (sender/receiver info) by 30 June 2024, aligning with FATF standards.
Leading EU Jurisdictions for MiCAR Compliance
France:
- PACTE Law (2019) offers optional CASP registration and ICO approvals.
- Supportive regulator (AMF) and EBP membership bolster blockchain integration.
Germany:
- Banking Act treats crypto-assets as financial instruments under MiFID II.
- BaFin’s rigorous oversight ensures market stability.
Malta:
- Virtual Financial Assets Act (2018) provides tailored licensing for issuers/CASPs.
- Proactive MFSA guidelines attract firms like Binance.
Conclusion
MiCAR establishes a transformative framework balancing innovation with regulatory rigor. While challenges persist—particularly for EMT/ART issuers and CASPs—its phased implementation allows stakeholders to adapt strategically.
FAQ Section
Q1: When does MiCAR fully apply?
A1: 30 December 2024, with partial rules from June 2024.
Q2: Are NFTs covered under MiCAR?
A2: Only if they function as transferable crypto-assets; unique collectibles may be exempt.
Q3: How does MiCAR affect non-EU CASPs?
A3: Must secure EU authorization to serve customers within the bloc.
Q4: What’s the penalty for non-compliance?
A4: Fines up to 5% of annual turnover or revocation of authorization.
By Andy Lian, Blockchain Investment Lead at Passion Venture Capital.