Regulating Markets in Crypto-assets  – How Mighty is MiCA?

We look at the EU regulation aiming to turn the wild West crypto-cliché into a trusted trading environment

More properly known as the ‘Regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending Directive (EU) 2019/1937′, MiCA is shorthand for quite a mouthful.  And it’s tackling a tough topic, as the first-ever European-level legislative initiative that aims to introduce a harmonised and comprehensive framework for the issuance, application, and provision of services in crypto-assets.

Why is it necessary?  Crypto-assets are notoriously unregulated. But while a wild-West reputation certainly has charisma, it’s become a cliché, which unchecked, may prove deeply damaging to investors and providers alike.

Download Sionic’s expert guide: Regulating Markets in Crypto-assets – How Mighty is MiCA?

So just how mighty is MiCA? 

The immediate aim is to eliminate the uneven playing field for Crypto-Asset Service Providers (CASPs) and ultimately improve the efficiency of the internal market. Due to the lack of a common EU framework, both CASPs and their customers are currently at substantial risk when dealing with crypto-assets.

With MiCA, the plan is that by 2024, the EU will have put in place a comprehensive framework enabling the uptake of distributed ledger technology (DLT) and crypto-assets in the financial sector.  It will mean that:

  • Only legal persons with a registered office in one of the European Union (EU) Member States and who have obtained an authorisation from the relevant national competent authorities as CASPs in accordance with MiCA will be permitted to provide services in crypto-assets.
  • ‘Passporting’ will apply as per other pieces of European markets regulation, where an authorisation in one state is valid for the entire EU.
  • Persons located in a non-EU jurisdiction and wishing to actively promote and/or advertise their services to clients in the EU will have to obtain full authorisation.

What will be required?

MiCA rests on three key principles:

a) Act fairly and professionally: CASPs will be obliged to act honestly, with the best interests of their clients and prospective clients, including making their pricing policies publicly available.

b) Prudential requirements: CASPs will need to have in place prudential safeguards composed of own funds and an insurance policy. This obligation to maintain such prudential safeguards will also apply to investment firms providing services in crypto-assets.

c) Organisational Structure and IT: Resilient and secure systems, including internal control mechanisms and procedures for risk assessments will be need to be demonstrated. Additional organisational requirements such as record keeping, complaints handling procedures and procedures for prevention, identification, management, and disclosure of conflict of interests, will need to be in place as will systems, procedures and arrangements to monitor and detect market abuse. Crypto-asset service providers relying on third parties for the performance of operational functions will need to comply with the rules on outsourcing as set out by MiCA.

Find out exactly what you need to do about MiCA.

Download Sionic’s expert guide: Regulating Markets in Crypto-assets – How Mighty is MiCA?

About the author

I specialise in helping FinTech and Virtual Asset Service Providers execute and assure financial crime compliance objectives