MiCA regulation overview 2024


In the modern world, cryptocurrencies have become an integral part of the financial system, attracting the attention of both sides: investors and regulators. In the European Union, issues of cryptocurrency regulation have become one of the key aspects that require attention and the development of appropriate legal norms.

In this article we will look at MiCAR (Markets in Crypto-Assets Regulation) - a proposal to regulate cryptocurrencies in the EU, and we will also analyze in which countries companies will be able to legally carry out cryptocurrency transactions in accordance with the proposed regulations.
The cryptocurrency sector is actively developing in Germany. The country has a federal financial supervisory authority - The Federal Financial Supervisory Authority .

Within the framework of the German legal system, there is a list of acts regulating activities in the field of cryptocurrency. Among them:

  • Law on the Federal Financial Supervision Authority;
  • German Banking Law;
  • Rules for regulating digital assets Markets in Crypto-Assets ( MiCAR ).

Main features of crypto regulation in Germany:

  1. Licensing. In Germany, a license from the Federal Financial Supervisory Authority (BaFin) is required to conduct cryptocurrency transactions. Licensing ensures control over the activities of companies and protection of the interests of investors. A prerequisite for obtaining a cryptocurrency license is physical presence in German jurisdiction.

  2. Anti-laundering measures. As part of MiCAR, Germany pays special attention to combating money laundering and terrorist financing in cryptocurrency transactions. Companies are required to follow strict rules and procedures for identifying customers and monitoring transactions. The country has 5AMLD, the fifth Anti-Money Laundering Directive:

    • a cryptocurrency can be thought of as “a digital form of value that can be transferred, stored or traded digitally, and that can be accepted or exchanged”;
    • cryptocurrency is subject to AML/CFT applicable to financial transactions. institutions;
    • there are obligations to conduct due diligence on clients, as well as to inform the relevant authorities about suspicious activity;

  3. Investor protection. Germany strives to provide a high level of investor protection when conducting cryptocurrency transactions. This includes informing clients about risks, transparency of transactions and mandatory insurance against losses;

  4. Development of innovations. Germany supports the development of innovation in the field of cryptocurrencies and blockchain technologies, creating favorable conditions for startups and companies developing new products and services based on cryptocurrencies.

    Taking into account the rapid development of the cryptocurrency and blockchain technology market, Germany will continue to improve its legislation and regulations in this area. It is expected that the country will actively participate in the discussion and approval of MiCAR , which will create uniform rules for regulating cryptocurrency transactions within the European Union.
In Lithuania, cryptocurrency has system regulation. Crypto companies are licensed as a VASP or CASP , that is, 2 types of licenses are available - a License for cryptocurrency exchange operations, as well as a License for cryptocurrency custodial services. Registration is carried out by the Register of Legal Entities of the Republic of Lithuania and the local financial intelligence unit (FIU).

Lithuania has tightened legislation on crypto assets , in particular, major changes have been made to the Law on the Prevention of Money Laundering. Among the changes:

  • increasing the authorized capital of companies to 125,000 euros;
  • the requirement that the director can be a specially appointed employee who is registered in one company and is a local resident;

    Cryptocurrency is also regulated by 5AMLD - the Fifth Anti-Money Laundering Directive. In addition, a registered company that has received a license must provide services exclusively in Lithuania.
  • Italy.
    In Italy, crypto companies are licensed as VASPs . Registration is carried out by the Organization of Agents and Intermediaries (OAM).

    Since Italy is a member of the EU, it is also subject to the requirements of the Fifth Directive, namely that companies are subject to obligations to prevent the movement of money and money laundering.

    If a VASP company is registered in another country, it must have a permanent establishment or a stable organization in Italy.

    Mandatory conditions for a crypto company are:

  • carrying out KYC - identification of users;
  • reputational requirements (no actual criminal record of senior management, shareholders and beneficial owners);
  • ban on opening anonymous accounts;
  • limit of 700 euros when identifying clients;
  • availability of AML/CFT policy .
  • The Markets in Crypto-Assets Regulation (MiCAR) (the Regulation) introduces common rules for those issuing cryptocurrencies that were not previously covered by other EU financial laws, and for companies providing services related to these cryptocurrencies (companies dealing with cryptocurrencies). This regulation of the European Parliament and the Council of Europe is intended to regulate cryptoassets and virtual asset service providers.

    The purpose of the regulation is to create a unified legal field for regulating the crypto-asset market. The creation of such a regulation will protect consumer rights, develop legal guarantees for innovation and prevent abuse in the crypto-asset market. Also, thanks to the regulations, many requirements are introduced for companies, which will significantly improve the quality of services on the market and reduce risks for consumers.

    The text of the Regulation states: it is important to ensure that EU financial services legislation meets the requirements of the digital age and contributes to the development of an economy that is future-oriented and serves people, including through the use of innovative technologies. As follows from the provisions of the Regulation, the EU is strategically interested in developing and promoting the implementation of transformational technologies in the financial sector, including the introduction of distributed ledger technology (DLT).
    MiCAR Rules cover the following aspects:

    • requirements for transparency and disclosure of information; cryptoasset service providers and token issuers;
    • activities, organization and management of issuers and service providers of crypto assets ;
    • protection for owners of crypto assets and clients of service providers;
    • measures to prevent insider transactions.

      This Regulation identifies the following types of crypto assets:

    • electronic money tokens;
    • tokens tied to assets;
    • cryptoassets other than asset-linked tokens or electronic money tokens.

    The Regulations set out the requirements for persons wishing to gain access to trading crypto assets:

    1. legal entity status;
    2. publication of technical documentation and marketing communications;
    3. acting fairly, impartially and professionally;
    4. communication without misleading;
    5. identification, prevention and regulation of conflicts of interest;
    6. liability for damage;
    7. granting the right to withdraw funds.

    The regulation also contains requirements for issuers of tokens tied to assets that offer them to the public or seek their admission to trading on a trading platform, among them:

    1. status of a legal entity or enterprise based in the EU;
    2. availability of permission from the home state (or status of a credit institution in the EU);
    3. repurchase of tokens associated with assets at any time at the request of the owners at the market value of the specified assets or by delivery of the specified assets;
    4. acting fairly, impartially and professionally;
    5. communication without misleading;
    6. acting in the best interests;
    7. developing and maintaining effective and transparent complaints procedures;
    8. identification, prevention and regulation of conflicts of interest;
    9. maintaining a reserve of assets.

    Thus, for each specific group of entities in the cryptocurrency market, certain requirements are established, including, the reserve must be equal to the largest of the following values:

    • €350,000;
    • 2% of the average amount of reserve assets;
    • a quarter of the previous year's fixed overhead costs.

    It is important that the MiCAR rules cover issues such as:

    • acquisitions of issuers of asset-related tokens and service providers related to crypto-assets ;
    • measures to prevent and prohibit market abuses, such as insider trading and misuse of insider information;
    • vpowers and role of national authorities, the European Securities and Markets Authority.

      At the same time, the regulations do not apply to:

    • crypto-assets that are subject to other EU financial services laws (for example, those that qualify as financial instruments, pension or insurance products);
    • providers of services in the field of crypto assets exclusively for their parent companies or subsidiaries, liquidators and administrators within the framework of insolvency proceedings;
    • European Central Bank and national central banks, European Investment Bank, European Financial Stability Mechanism, European Stability Mechanism and public international organizations;
    • cryptoassets that are unique and not interchangeable (“fungible”) with others.
    In fact, this regulation brings a number of positive changes, offering a single unified approach to regulating the Central Asian market. This will significantly reduce bureaucratic procedures and administrative costs associated with the complex licensing and registration process:

    • a single license, which will significantly simplify the licensing process;
    • strict regulation to protect the rights of investors;
    • introduction of a mandatory separate reserve of assets;
    • lack of analogues in the field of cryptocurrency regulation;
    • introduction of certification, which will avoid introducing separate requirements for different countries.

      In addition, MiCAR creates legal guarantees for the work of law enforcement agencies on the issue of combating money laundering.

      Moreover, regulation will allow control of transactions both at the national level and at the international level, thanks to ESMA .

      Thanks to standardized regulation , the cryptocurrency market will gain greater legitimacy, which will allow for greater support from governments.

      However, of course, there are a number of negative consequences.

      1. Strict requirements entail an increase in bureaucratic procedures, the passage of which requires considerable costs. Operating costs are increasing and will be too large for smaller companies.
      2. Anti-money laundering procedures reveal identity, which reduces the anonymity of the market.
      3. Strict requirements may be unnecessary, risking overly broad controls and potentially inhibiting innovation.
    Clause 19 of the Regulations states that it is necessary to establish special rules for organizations that provide services related to crypto assets.

    For the purposes of Chapter 1 of the Regulations, a “service related to cryptoassets” is any of the following services and activities related to cryptoassets:

    1. storage and management of crypto assets on behalf of clients;
    2. operation of a platform for trading cryptocurrency assets;
    3. exchange of crypto assets for funds;
    4. exchange of crypto assets for other crypto assets ;
    5. execution of orders for crypto assets on behalf of clients;
    6. placement of crypto assets;
    7. receiving and transmitting orders for crypto assets on behalf of clients;
    8. providing advice on crypto assets ;
    9. provision of services for managing a portfolio of crypto assets;
    10. providing services for the transfer of crypto assets on behalf of clients;

      Among these services, the first category is to operate a platform for trading crypto assets , exchange crypto assets for funds or other crypto assets , provide custody and administration of crypto assets on behalf of clients, and provide crypto asset transfer services on behalf of clients.

      In accordance with paragraph 32 of the Regulations, the operator of the trading platform must be responsible for compliance with the requirements of Section II of these Regulations when cryptoassets are admitted to trading on its own initiative and when the technical document on cryptoassets has not yet been published in the cases required by these Regulations.

      The operator must also be responsible for complying with these requirements by entering into a written agreement to this effect with the person applying for admission to negotiations.

      Chapter 1 of the Regulations establishes uniform requirements for the public placement and admission to trading on a trading platform of cryptocurrency assets other than tokens related to the asset(s), and electronic money tokens, tokens related to the asset(s), and tokens related to the asset (assets).

      Clause 84 of the Regulation establishes that in order to ensure the orderly functioning of cryptocurrency asset markets, cryptocurrency service providers operating on a cryptocurrency trading platform must have detailed operating rules, ensure sufficient fault tolerance of their systems and procedures, and comply with transparency requirements.

      All basic rules for using the platform for trading crypto assets are enshrined in Article 76 of Chapter 1 of the Regulations.

      In accordance with the provisions of this article, the operating rules of the platform for trading cryptocurrency assets prohibit the admission to trading of cryptocurrency assets that have a built-in anonymization function, except in cases where cryptocurrency trading service providers cannot identify the owners of such cryptocurrency assets and their transaction history that manage platform for trading cryptocurrency assets.

      In general, the Regulations create conditions for conducting transactions with cryptoassets , while ensuring guarantees of compliance with consumer rights. Thanks to high requirements for trading platform (exchange platform) operators, risks for consumers are minimized.
    Let's look at some of the provisions on banks and financial institutions in the context of the Regulation. In accordance with paragraph 62, when tokens relating to one or more assets pose a serious threat to the proper functioning of payment systems, the transmission of monetary policy or monetary sovereignty, central banks should be able to apply to the competent authority to revoke the license of the issuer of such tokens related to one or more assets.

    In accordance with paragraph 45 of the Regulations, the competent authority may refuse to issue a license for objective and obvious reasons, including if the business model of a candidate for issuing tokens related to one or more assets may pose a serious threat to the integrity of the market, financial stability or proper functioning of tokens. Before granting or refusing authorization, the competent authority must consult with the EBA, ESMA, ECB and, if the issuer is established in a Member State whose official currency is not the euro or the token representing the asset(s) refers to the official currency of the state -member, other than the euro, with the central bank of that member state.

    In accordance with paragraph 82 of the Regulation, if the business model requires the holding of funds, as defined in Directive (EU) 2015/2366, in the form of banknotes, coins, cryptocurrencies or electronic money belonging to their customers, cryptoasset service providers must place these funds in a credit institution or central bank if there is an account with the central bank.

    And also in accordance with paragraph 2 of Article 24 of Chapter 1 of the Regulation, the competent authorities must also revoke the authorization of the issuer of the asset token if the ECB or, if applicable, the central bank referred to in Article 20(4) determines that the asset token poses a serious threat to the smooth operation of payment systems, the transmission of monetary policy, or monetary sovereignty.

    Thus, both the bank (state banks) and financial institutions perform control and administrative functions, controlling the issuance of licenses and determining the degree of influence of tokens/business models on the economy. If there is an objective threat, the bank may refuse to issue a license.
    Considering the rapid development of the fintech industry, the legislator seeks to introduce universal standards, the use of which will unify regulation and simplify control and supervisory functions, as well as protect consumers.

    MiCAR brings clarity to the regulation of those aspects that were not covered by existing national legislation and directives. The Regulation eliminates legal uncertainty on issues that are not covered by existing EU financial services legislation.

    As stated in the text of the Regulation, a lack of legal framework could lead to a lack of user confidence in crypto-assets , which could significantly hamper the development of the market for these and lead to missed opportunities for innovative digital services, new payment instruments or new sources of financing for EU businesses.

    Consequently, the adoption of the Regulation also makes a great contribution to the development of the economic sector.

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