A New Crypto Regulation in Europe: Key MiCAR Provisions You Need for Legal Compliance

As the cryptocurrency market continues to grow at an unprecedented rate, the need for clear, consistent, and effective crypto regulations has never been more urgent.

While many governments around the world are still grappling with how to regulate crypto-assets, the European Union (EU) has taken the lead with the introduction of a new crypto regulation in Europe: the Markets in Crypto-Assets Regulation (MiCAR or MiCA).

The MiCAR (or MiCA) will apply from 30 December 2024, except for rules on asset-referenced tokens and e-money tokens (Titles III and IV), which have already applied since 30 June 2024.

In this post, you will learn what the MiCAR (or MiCA) is, its key legal requirements, and the potential impact it may have on the crypto markets.

What is MiCAR or MiCA?

The Markets in Crypto-Assets Regulation (MiCAR or MiCA) is a new European crypto regulation that provides a clear set of rules for crypto-activities in the EU and EEA countries.

The MiCAR (or MiCA) will be fully applicable within the EU from December 30, 2024.

The EEA countries are currently preparing the transposition laws for the MiCAR (e.g., Liechtenstein MiCAR). Once published, the MiCAR will also be applicable to crypto-activities in the EEA countries. In other words, the MiCAR will apply to the same countries as the GDPR.

The purpose of the MiCAR is to address the regulatory gaps that have existed in the crypto space. Therefore, it will be applicable to fungible crypto-assets related activities that aren't already regulated within the EU/EEA.

This crypto regulation aligns with the existing financial legal requirements in Europe. It also balances out the development of crypto technologies and the need for financial stability and consumer protection in the crypto space.

Who does the MiCAR apply to?

The MiCAR applies to a wide range of crypto activities taking place in the EU and EEA and involving fungible crypto-assets businesses, including, among others:

• Wallet provider
• Crypto-assets exchange
• Crypto custodian
• Issuer of stablecoins, tokens or other crypto-assets
• Crypto-assets trading platform
• Crypto-asset payment services provider
• Any other crypto-related services provider

The MiCAR doesn't apply to governmental financial participants (e.g., Central Banks, European crisis management mechanisms such as EFSM and ESM, public international organizations) and doesn't apply to certain crypto-related activities.

Those assets include:

• Crypto-assets that are non-interchangeable: This refers to crypto-assets that are truly unique and non-fungible (e.g., some NFTs). This will be assessed on a case-by-case basis.
• Crypto-assets that are covered by other European financial regulation: For example, financial instruments governed by MiFID 2 such as securities tokens, pensions or insurance products

Key provisions of the MiCAR (or MiCA)

The MiCAR (or MiCA) includes several key provisions that will impact crypto businesses and the crypto markets.

Like existing financial regulations, some key provisions of the MiCAR include:

Transparency and disclosure requirements

The MiCAR aims to protect consumers from the risks associated with trading and holding crypto-assets.

Therefore, it imposes transparency and disclosure requirements on crypto-businesses, including, among others, disclosures on the:

• Risks: For example, risks investing in digital assets, risks of the project
• Fees and prices: This encompasses both the monetary and environmental costs of such crypto-activity
• Investors' rights: For example, available legal recourse to seek redress in case of issues with crypto services
• Company's information: For example, the name, address, date of registration, activity
• Information on the crypto-asset or crypto-related project: For example, the description, people involved, duration of the public offering, conflicts of interest, technologies used

Requirements vary depending on whether you are a crypto-asset service provider (CASP) or issuer as well as depending on the type of crypto-asset issued.

In any case, the idea is to act fairly, honestly and in a non-misleading manner towards your investors. Thus, these transparency and disclosures requirements are required for drafting the mandatory white paper but also all communications provided by the crypto business (e.g., on their website).

Business conduct and governance requirements

This European crypto regulation also aims at establishing clear rules to ensure that investor's assets are properly safeguarded.

Therefore, the MiCAR also subjects crypto businesses to governance and prudential obligations, including, among others:

• Minimal capital requirements
• Record requirements: For example, history of crypto-transactions
• Procedures to ensure business continuity: For example, backup, crisis management
• Acting honestly, fairly, professionally and in non-misleading manner: This leads to obligations to have procedures to manage conflicts of interest, be accountable for damages caused to investors, provide investors with a right of withdrawal

Stablecoin issuers are subject to strict regulations regarding capital and reserve requirements, as it's crucial to have sufficient reserves backing their coins.

Notification or authorization and licensing requirements

Another important change introduced by MiCAR is the requirement for crypto-asset services providers (CASPs) and some issuers (asset-referenced tokens and e-money tokens) to obtain licenses to operate within the MiCAR countries.

Be sure to check your personal situation with an attorney to ensure that you meet all the requirements for obtaining your crypto-assets provider's license.

Crypto-licenses will be granted by national competent authorities within EU member states, but the rules will be consistent across all jurisdictions within the MiCAR countries.

Market Integrity and transactions' supervision

The MiCAR also outlines the importance for crypto businesses to set up measures to preserve market integrity.

This includes measures preventing:

• Insider trading
• Unlawful disclosure of inside information
• Market manipulation
• Fraud
• Money laundering and terrorist financing

In practice, that means having clear procedures and robust systems to detect and prevent such activities as well as clear reporting obligations to European regulators.

Additional measures are required depending on your crypto-activity (e.g., for stablecoins issuers will also need to set up mechanisms to ensure stability of their coins, especially against systemic shocks).

Conclusion

Potential impacts of the MiCAR's on the crypto markets

As with data privacy through the adoption of the GDPR, the European legislator has once again taken the lead in consumer protection in the digital era.

This could result in:

• Greater coherence across the European financial market: The MiCAR is the first comprehensive crypto regulation by a major economy to formally integrate crypto-assets into their financial legal framework, as it clearly outlines where crypto-assets fit within the existing European banking and financial legal system (e.g., MiFID 2, PSD2). This will surely bring greater coherence across the European financial market and provide a more unified, transparent, and secure environment for crypto activities. Although the crypto market is still small relatively to the entire financial market, the MiCAR is certainly an important regulatory seed planted by the European legislator to encourage the growth of an emerging European crypto-market.
• Increase of crypto demands on the European market?: Could the MiCAR attract crypto businesses? On one hand the legal burden could potentially deter new crypto businesses to enter the European market, on the other hand, a protective regulated market could help boost crypto demands on the European market. One thing is clear: that the MiCAR will help prevent uncommitted and fraudulent crypto-businesses from entering the European market and therefore, ensure crypto-investors' protection.

What's next?

By adopting the MiCAR, the European legislator is validating the undeniable existence of crypto demands and therefore, acknowledging its need for a clear legal framework.

Time will tell if other legal systems will follow MiCAR's consumer protection's impulsion.

In any case, it is now clear that the crypto-market and blockchain adoption are on the rise. While still new, these topics have captured the attention of political agendas and similar crypto-regulations are currently in discussion, including the United States. As a New York attorney, I will surely pay special attention to that!