The MiCA framework has been widely welcomed – but what does it actually say?
Last week, EU lawmakers voted in favour of Markets in Crypto-Assets (MiCA), the world’s first comprehensive cryptocurrency legal framework. Crypto communities have responded positively to the news, and multiple exchange CEOs have taken to Twitter to celebrate.
MiCA has been in the works for two and a half years and will be fully implemented in 2024.
Further guidelines will soon be published for clarity by other EU regulating bodies, but here’s what we know about MiCA so far.
1. Tighter rules on stablecoins
A key topic addressed in MiCA is the regulation of stablecoins. A stablecoin is a type of cryptocurrency that is designed to have a stable value. They are typically pegged to a fiat currency, a commodity, or an algorithmic index.
MiCA outlines that:
- Issuers of stablecoins must maintain a reserve of assets backing up the tokens. (Article 32)
- The reserve must be segregated from the issuer’s own assets. (Article 33)
- The reserve must be invested in low-risk ways. (Article 34)
Large-scale stablecoin issuers may be subject to more stringent rules, such as higher capital requirements. These rules do not apply to central bank digital currencies (CBDCs).
Commentators suggest that MiCA’s origins stem from fears of the government losing monetary sovereignty to private individuals.
Wolf-Georg Ringe, director of the Institute for Law & Economics at the University of Hamburg, wrote: “Reading between the lines, the proposal shows the fear of losing monetary sovereignty to private actors, and it is no coincidence that a few days after the Commission’s proposal was published, the ECB [European Central Bank] launched its initiative for a digital Euro.”
2. White paper disclosures for ‘crypto asset service providers’
MiCA categorises any person that provides such crypto-asset services on a professional basis a “crypto asset service provider” (CASP). CASPs can be anything from exchange platforms to marketing to crypto advice services (MiCA Clause 12, chapter 1.)
Under MiCA, CASPs must:
- Produce a white paper that discloses clear relevant information. (This doesn’t apply to small and medium-sized businesses.)
- The white paper must include information about the entity, what they will do with capital raised, the underlying technology and what obligations are attached to the asset. (MiCA clause 14, chapter 1.).
- CASPs must be upfront and transparent about investment risks.
- Significant service providers will have to disclose their energy consumption.
Unlike other regulations, MiCA provides regulatory unity across 27 EU countries.
One of the most attractive aspects of MiCA is that the regulations will apply across 27 EU member states, giving CASPs greater flexibility. It also means that compliance will be easier.
Stefan Berger, lead MEP for the MiCA regulation, said: “This puts the EU at the forefront of the token economy with 10 000 different crypto assets. Consumers will be protected against deception and fraud, and the sector that was damaged by the FTX collapse can regain trust.”
He added: “Consumers will have all the information they need and all underlying risks around crypto-assets will have to be monitored. We secured that the environmental impact disclosure will be taken into account by investors in crypto assets. This regulation brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the US.”
Disclaimer: CryptoPlug does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.