On the 24th September 2020, the EU Commission (“EC” / “Commission”) has officially released the Proposal for a Regulation on Markets in Crypto-assets (“MiCA”), effectively confirming MiCA’s earlier leak.
The proposed MiCA forms part of the wider EU Digital Finance Strategy, which succinctly put, aims to make the EU’s financial services more digital-friendly and stimulate responsible innovation and competition among financial services providers within the EU.
In similar fashion to certain homegrown EU national legal regimes which already regulate crypto-assets (such as Malta), MiCA proposes to differentiate between those crypto-assets that are already governed by existing EU legislation and other crypto-assets which at present fall outside of the scope of existing EU legislation.
Crypto-assets which are already governed by existing EU legislation such as those crypto-assets amounting to Financial Instruments (securities), will remain regulated by existing legislation, although the Commission has also proposed a “Pilot Regime for Market Infrastructures that wish to try to trade and settle financial transactions in crypto-asset form” ( the “Pilot Regime”).
On the other hand, for the currently unregulated crypto-assets categories, the Commission is proposing a bespoke regime through the MiCA, applicable in scope to issuers of crypto-assets and crypto-asset service providers.
In this Article, we will be focusing exclusively on the main elements of the MiCA and its expected affects on EU national crypto-asset legal regimes. A separate Article will be shortly issued focusing on the Pilot Regime.
First off, it should be noted that the MiCA sets out a number of proposed definitions of crypto-related terms in respect of which there was no fully harmonised approach to date, and this notwithstanding their extensive use in practice. Some such notable terms are mentioned below:
Establishing appropriate crypto-asset related harmonized legal terminology across the EU will be crucial for the MiCA, since the same will in turn underpin the capture of the Regulation. In this regard, it should be emphasized that the MiCA is proposed to apply only in respect of crypto-asset issuers and service providers.
MiCA will not apply to:
MiCA also provides certain exemptions with respect to credit-institutions in relation to matters relating to the issuance of asset-referenced tokens and provision of crypto-asset services, and similarly, to authorised investment firms where they only provide one or more crypto-services equivalent to the investment services and activities for which they are authorised to provide.
Issuers have been classified as “any legal person who offers to the public any type of crypto-assets or seeks the admission of such crypto-assets to a trading platform for crypto-assets”. In this respect, it should be noted that the MiCA proposes that no Issuer of crypto-assets (other than asset-referenced tokens or e-money tokens), shall, in the EU, offer such crypto-assets to the public, or seek an admission of such crypto-assets to trading on a trading platform for crypto-assets, unless that Issuer:
a. is a legal entity (i.e. issuers cannot be a natural person acting in their personal name);
b. has drafted a crypto-asset white paper in respect of those crypto-assets in accordance with the content and form prescribed by MiCA under its Article c. has notified that crypto-asset white paper to the competent authority of the Issuers home-state in accordance with Article 7 of the MiCA;
d. has published the crypto-asset white paper in accordance with the requirements prescribed by MiCA under article 8; and
e. complies with the requirements and obligations laid down under Article 13 of the MiCA.
Points (b) to (d) above are proposed to not apply to Issuers where:
Further to the above, it should be observed that the content and form of an Issuer’s whitepaper is proposed to be regulated in a somewhat similar fashion to the Prospectus Regulation and a number of home-grown national crypto regimes. Indeed, among other requirements, each whitepaper must contain:
Crypto-asset issuers are proposed to be bound to notify their white paper (and marketing communications) to the Competent Authority of their Home Member State at least 20 working days before publication of the crypto-asset white paper. While no ex ante approval of a crypto-asset whitepaper (or marketing communications) is envisaged by the Competent Authority of the Issuer’s Home Member State, it should be noted that the respective Competent Authority will be bestowed with (new) supervisory and investigative powers in this regard under article 82(1) of the MiCA.
A.2. Crypto-asset Service Providers
Crypto-asset service providers (“Service Providers”) will be classified as “any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis.”
Thus, whether a service provider amounts to a crypto-asset service provider or otherwise, will depend on whether said entity provides services which are deemed to amount to “crypto-asset services”. The following crypto-asset services and activities will be deemed to amount to “crypto-asset services” under MiCA:
Crypto-asset services within the EU can only be provided by legal persons that have a registered office in a Member State of the EU and that have been authorised as Service Providers under the MiCA in accordance with Article 55.
The crypto-asset services authorisation is meant to allow Service Providers to provide their crypto-asset services through the EU, either through the right of establishment, including through a branch, or through the freedom to provide services. Crucially, Service Providers that provide crypto-asset services on a cross-border basis shall not be required to have a physical presence in Host Member States (i.e. in the Member States where they wish to provide services, where different from the Home Member State). Thus, the authorisation is meant to be a pass-portable one.
Legal persons that intend to provide crypto-asset services need to apply for authorisation as a Service Provider with the Competent Authority of the Member State where they have their registered office. While more details are expected to be divulged once MiCA is closer to implementation, it is envisaged that the authorisation process should be somewhat expedient and efficient, with the Competent Authorities being bound to confirm whether an application for authorisation is complete by containing all prescribed information/documentation within 25 working days from receipt of the application for authorisation and then, are also bound to assess whether the applicant complies with MiCA’s requirements for authorisation within three months from the date of receipt of a complete application by the Competent Authority.
A.3. Transitional Measures
It is key to note, especially given that a number of Member States have already issued their own national crypto-asset legal regimes, that the MiCA envisages that a number of transitional measures will be introduced under Article 123 of the MiCA. More specifically:
B. MiCA’s Affect on EU National Crypto Legal Regimes: The End of National Crypto-Asset Legal Regimes with the EU seems Near
It is the author’s subjective view that the MiCA will effectively spell the end of the various fragmented national crypto-asset legal regimes that have been promulgated within the EU to date, including to mention a few, those of Malta, Estonia and France.
At the core of an authorisation process in the crypto-space, is the applicant’s need to be able to provide services on a cross-border basis within the EU – an element which to date is not present in any national authorisation process, in view of the homegrown nature of such authorisation processes.
Under a MiCA authorisation, this will now be possible and in fact, achieving EU market harmonization and prevention of national EU market regulatory fragmentation is one of MiCA’s stated main aims. To this end, the choice of legal instrument proposed by the EC should be noted. The Commission chose to propose for the MiCA the EU legal instrument of a Regulation, this to be able to lay down a single set of immediately applicable rules throughout the EU’s Single Market (as opposed to a “Directive”, which ultimately leaves some level of Member State discretion through the need of national transposition).
Similarly, Member States who purposefully chose to remain passive from a crypto regulatory perspective, will now have no choice other than to adopt the Regulation (once implemented).
All in all, once MiCA enters into force, national EU legal regimes will (in the author’s subjective view) become defunct. In the meantime, the main remaining relevance of such national EU legal regimes will be for being able to benefit from continuity in view of the Issuer exemptions and Service Provider transitional measures previously discussed, together with ensuring a level of preparedness once the MiCA enters into force.
The MiCA’s proposed text is accessible here: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52020PC0593&from=EN
Article written by Senior Associate Dr Terence Cassar.
Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.