Revolutionary Rules of the European Cryptocurrency Market

On June 30, the European institutions reached a provisional political agreement on the proposed regulation on crypto-asset markets, also known as the Mica.[1]

MiCA’s objective is to regulate and harmonize the crypto-asset market within the European Union (EU) by establishing a regulatory framework for the protection of consumers and crypto-asset service providers. MiCA replaces existing national frameworks applicable to crypto-assets but does not replace existing EU financial services legislation, namely the Markets in Financial Instruments Directive (MiFID II)[2]the Electronic Money Directive (EMD II)[3]and the Second Payments Directive (PSD II)[4].

MiCA states that for crypto-asset service providers to operate within the EU, an “authorization” (or license) will be required. The authorization will include a “passport” mechanism, which means that once an entity receives authorization in one EU member state, the crypto service provider will be able to operate in the other 27 Member States.

Importantly, the MiCA also makes crypto-asset service providers liable for damage or loss of investors’ crypto-assets, unless the damage or loss could not have been avoided.

Under the MiCA regulation, issuers of stablecoins (known as asset-referenced tokens and e-money tokens) will be subject to stricter rules. Stable coins are considered to have higher levels of risk and are more likely to impact the stability of the financial system. Thus, among other obligations, stablecoin issuers will have to maintain liquid reserves with a ratio of 1:1 and stablecoin holders will have the right to demand payment from the issuer at any time based on the same ratio. Additionally, investments made by stablecoin issuers will need to be in low-risk and secure scenarios. Issuers of stablecoins based on a non-EU currency will need a registered office in the EU. Additionally, crypto-asset issuers and service providers will be required to disclose information about their environmental and climate footprint. For example, they will have to report what type of blockchain mechanism they work with.

After several months of negotiations, the EU co-legislators finally decided to exclude non-fungible tokens (NFTs) from the MiCA, unless they fall under already existing categories of crypto-assets.

Finally, in terms of supervision, the competent national authority of each country will be responsible for the supervision of the crypto-asset service providers it has authorized and for the application of the provisions of the MiCA. For large crypto-asset service providers (with more than 15 million active users), the applicable national competent authority will also have to report information on these large providers to the European Securities Market Authority (ESMA) , which will also have “power to intervene” if it deems there is a threat to market integrity, investor protection or financial stability. ESMA will also be empowered to issue opinions to define technical regulatory standards (for example those related to the disclosure of information on environmental and climate impact).The European Banking Authority (EBA) will also be responsible for supervising any issuer of stable coins considered material. will have the power to classify stablecoins as material in accordance with the MiCA regulations and will be empowered to deal with requests for information and to carry out standard investigations and on square.

The European Parliament and the Council of the EU must now formally approve the agreed text before it can enter into force, which is expected towards the end of 2023 or the beginning of 2024.


[1] See https://eur-lex.europa.eu/legal-content/FR/TXT/?uri=CELEX%3A52020PC0593

[2] See https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32014L0065

[3]See https://eur-lex.europa.eu/legal-content/FR/TXT/?uri=celex%3A32009L0110

[4] See https://eur-lex.europa.eu/legal-content/FR/TXT/?uri=celex%3A32015L2366

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