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On June 30, 2024, the first phase of the Markets in Crypto-Assets Regulation (MiCA) will come into effect, introducing significant changes to the regulation of crypto-assets in the European Union (EU). This phase includes the enforcement of Titles III and IV, which set out the rules for the authorization and supervision of Asset-Referenced Tokens (ART) and E-Money Tokens (EMT), commonly known as stablecoins. These changes mandate issuers to obtain authorization, publish detailed white papers, and adhere to stricter regulatory requirements to ensure transparency and investor protection.
MiCA aims to standardize the legal framework for crypto-assets across the EU. Although MiCA entered into force in June 2023, most of its rules won't apply until December 30, 2024. However, Titles III and IV will be applicable as of June 30, 2024. This means the rules will become mandatory and enforceable by national regulators.
As an EU regulation, MiCA will apply directly to member states without needing specific national legislation. However, countries in the European Economic Area (EEA), like Liechtenstein, need to adopt it accordingly. The Financial Market Authority Liechtenstein (FMA) announced that MiCA will take effect there on February 1, 2025.
Below are the key implications and duties of the rules effective from June 30, 2024.
Understanding the new rules requires knowing what MiCA defines as crypto-assets. MiCA defines crypto-assets as digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technology. The main types are:
Digital assets that qualify as financial instruments are regulated by the Markets in Financial Instruments Directive (MiFID) and are outside MiCA's scope.
From June 30, 2024, Titles III and IV of MiCA, related to the authorization and supervision of ART and EMT, will be enforced. These sections cover the treatment, required authorizations, and documentation for offering ART and EMT, commonly known as stablecoins, in the EU.
Offering ART to the public or for trading requires authorization from the competent authority. This is reserved for legal entities or other entities established in the EU. Already licensed credit institutions can issue ART/EMT with a white paper. Issuers without a license need authorization before offering ART/EMT, while licensed entities only need to notify authorities.
Exceptions apply if the ART's average outstanding amount is less than €5 million or if the offering is directed at qualified investors, similar to the prospectus directive for traditional investment products.
For EMT, the rules are stricter: only credit institutions and e-money institutions can issue EMT in the EU. Others can offer EMT only with the issuer's explicit written approval. EMT denominated in an official EU currency are considered public offerings in the EU.
These rules aim to prevent unauthorized crypto-asset offerings in the EU.
Issuers of both ART and EMT must publish a crypto-asset white paper. This document informs buyers about the issuer, the rights and obligations associated with the specific crypto-asset, underlying technology, risks, and includes mandatory risk warnings and a management statement on the white paper's accuracy. The white paper's content requirements are detailed in Annex II and III of MiCA.
This white paper is akin to traditional financial product documentation like prospectuses or key investor information documents (KIIDs), with strict liability for incorrect information. The issuing entity and even its management or supervisory body can be held liable for losses due to inaccuracies.
Exemptions from the white paper requirement exist if the crypto-asset is offered to fewer than 150 people per Member State, the offer amount does not exceed €1 million, or the crypto-asset is solely for qualified investors.
The European Securities and Markets Authority (ESMA) will create a public register of all ART and EMT issuers and their white papers, though it is not yet available.
The white paper requirement represents a major change, making detailed documentation mandatory for offering crypto-assets. Without a white paper or exemption, crypto-assets cannot be offered in the EU, potentially limiting offerings to certain product or client segments.
Issuers of ART and EMT have further obligations, including regular reporting to holders, complaint handling procedures, conflict of interest management, own fund requirements, asset reserve obligations, and recovery plans.
Binance and Kraken have already reacted to MiCA. Binance plans to restrict unauthorized stablecoins for EEA users from June 30, 2024. Kraken is evaluating MiCA's impact and may delist coins that lack the required authorization in the EEA.
Despite guidelines from the European Banking Authority (EBA), questions remain about the implementation and enforcement of MiCA. We will monitor developments closely and keep you updated.
Our next week’s blog will highlight developments in the area of stablecoins from a technical perspective - stay tuned!
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