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Cryptocurrencies have become an increasingly popular way for individuals to invest and store their assets. However, the relatively unregulated nature of the crypto market in the European Union has led to concerns about its stability and security. In response to these concerns, the EU has recently finalized a regulatory plan.

The Markets in Crypto Assets Regulation, also known as MiCA, is expected to be voted on by the EU Parliament April 2023. The main goal of the regulation is to establish a harmonized framework for crypto assets throughout the EU, providing clarity and legal certainty for businesses and investors.

The most notable provisions of the proposal are:

  1. The requirement for market platforms to obtain a Crypto Assets Service Provider (CASP) license in order to operate in the EU

  2. The introduction of a new type of financial instrument – the “Specified Investment Token” (SIT) – that will be subject to investment rules and regulations

  3. The creation of a harmonized regulatory regime for crypto assets across the EU

The regulation applies to four categories of crypto assets:

  1. Asset-referenced tokens (ARTs) - a stablecoin that uses other assets, such as fiat currencies, for stabilization

  2. Electronic Money Tokens (EMTs) - a stablecoin that references only one fiat currency

  3. Utility token - a type of cryptocurrency that is designed to grant access to a product or service offered by the issuer

  4. All other cryptocurrencies that do not qualify in the aforementioned categories.

MiCA is not applicable to

  1. NFTs (nonfungible tokens) due to their unique and non-interchangeable characteristics.

  2. DeFi (decentralized finance), or

  3. Bitcoin

Registration. One of the key provisions of MiCA is the requirement for issuers of crypto assets to register with a national regulatory authority. The registration process will include submitting detailed information about the asset, including a white paper and details of the issuer. The issuer must also comply with ongoing reporting and transparency requirements, such as providing regular updates on the performance of the asset to the investors.

Custody Rules. MiCA also establishes rules for the custody of crypto assets. Custodians, which are entities that hold and safeguard crypto assets on behalf of investors, will be subject to strict operational and prudential requirements. This includes requirements for capital, segregation of client assets, and record-keeping.

CASPs. Another important aspect of MiCA is the regulation of Crypto Asset Service Providers or CASPs. These include exchanges, wallet providers, and trading platforms. Service providers must obtain authorization from the relevant regulatory authorities and will be subject to ongoing supervision and enforcement. This will help ensure that service providers provide their customers with safe and reliable services.

Implications of MiCA. These regulations provide clarity and legal certainty for businesses and investors, which could lead to increased adoption as investors become more confident in the safety and stability of the crypto markets. These regulations may also increase the cost of doing business in the crypto market, as businesses will have to comply with additional regulatory requirements.

Drafted by: Katrina Yen

Bill Wise

Sasha Hodder

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