Weekly SmartPills #4
EUROPEAN REGULATION: THE MICA
The rules that service providers will have to comply with in order to operate smoothly in the European Union have now been defined. The MiCA ( Marketsin-Crypto-Assets Regulation) is moving toward implementation for the 27 member states of the European Union. This regulation will introduce a comprehensive legal framework covering various activities such as: Issuance and trading of crypto-assets; Authorization and supervision of crypto service providers; Consumer protection; and Prevention of market abuse.
The advent of this legislation could create a real boom in the crypto sector as Banks and Funds will also be able to offer services with official licensing. Just think of stablecoins or tokenized assets such as Bonds. These proposed rules are a really important step in creating a safe and sustainable environment for the cryptocurrency world.
Such rules are also necessary in light of the events of recent months. FTX, Terra Luna, Celsius and Voyager have caused huge losses to investors and regulation can only benefit this environment full of dark areas. But what are the key aspects of MiCA?
Regulated Space
The new text will bring cryptocurrency markets into the regulated space by providing legal certainty for market participants. The scope will include asset-referenced tokens, e-money tokens, and finally utility tokens. Activities outside the scope such as NFTs ( subject to European Securities and Markets Authority ESMA guidelines) and DeFi subject instead to European Banking Authority EBA guidelines. Paragraph (22) of the text explicitly states that these rules do not apply “where services are provided in a fully decentralized manner and without any intermediary..” However, the committee reserves the right to re-evaluate “the DeFi case” 18 months after MiCA comes into force aware that it is an evolving industry. Paragraph (10) states that regulation will NOT apply to NFTs such as digital artworks, collectibles or real estate. But the next point clarifies that fractional NFTs or released in large series fall within the regulation.
Abuse Prevention
It will introduce specific rules to prevent abuses such as market manipulation.
EU location requirement
Crypto-asset service providers serving EU clients will have to be established in the EU, and will be licensed and supervised by national supervisors. These will be subject to strict prudential and conduct standards, such as rules against insider trading and market manipulation. Exchanges and service providers based outside the EU will only have to be compliant with the regulations if they directly solicit EU users for use, otherwise they will not be subject to EU rules.
Such providers will also have to disclose the environmental impact of the cryptoassets they offer to customers.
Crypto Transfers
The transfer of funds will require all crypto-asset service providers to include sender and beneficiary information in asset transfers.
After last Wednesday's vote, there will be final approval by the European Council and then final signature by the co-legislators, it is conceivable that publication in the Official Journal of the European Union will take place by the end of June, and then enter into force July 2023. The new rules will apply progressively, with MiCA's provisions on stable coins beginning to be implemented in July 2024. The decision to phase in the new rules was made to allow stakeholders time to adapt.