July 25, 2023

The MiCA Regulation: Advancing Crypto-Asset Regulation in the European Union

At Azqira, it is really important for us to ensure we are compliant with the many rules and regulations which often differ between jurisdictions (places around the world - countries and sometimes between states). One of these is the "Markets in Crypto-assets Regulation" (MiCA), which is a groundbreaking piece of legislation that aims to establish a comprehensive framework for the regulation of crypto-assets within the European Union. While the regulation has not been officially published yet, it has been politically agreed upon and adopted by both the European Parliament and the Council of the European Union. In this blog post, we will provide an overview of the MiCA Regulation, highlighting its scope and main features.

The regulation defines crypto-assets as digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technology. This broad definition covers various types of crypto-assets and aims to bring new forms of crypto-assets within the regulation's scope.

The MiCA Regulation can be divided into three main frameworks:

1. Rules on the issuance of crypto-assets:

These rules impose requirements on issuers of different categories of crypto-assets, including the drafting of a white paper and authorisation from the competent authority. The requirements differ based on the type of crypto-asset being issued.

2. Framework for crypto-asset service providers (CASPs):

CASPs need authorisation from a competent authority and must comply with formal, prudential, and organisational requirements similar to those applicable to financial firms under MiFID II.

3. Rules to prevent market abuse:

These rules aim to prevent market manipulation and abusive practices in relation to crypto-assets and are similar to those applied to securities under the Market Abuse Regulation.

While the MiCA Regulation covers a wide range of crypto-assets, certain types are excluded from its scope. Non-fungible tokens (NFTs), financial instruments, deposits, funds, securitisation positions, and certain insurance and pension products in the form of crypto-assets fall outside the regulation's scope.

The regulation mainly focuses on two categories of crypto-assets: utility tokens and monetary tokens. Utility tokens provide access to goods or services, while monetary tokens primarily serve as a means of payment, store of value, or unit of account. Investment tokens, which allow token holders to participate in cash flows generated by underlying assets, are excluded from MiCA and regulated under existing EU financial laws.

The regulation's rules on issuance, provision of services, and market abuse differ depending on the category of the crypto-asset. Utility and monetary tokens fall under the MiCA Regulation, while investment tokens are subject to existing financial law instruments.

At Azqira, we believe the adoption of the MiCA Regulation marks a significant milestone in the regulation of crypto-assets within the EU. In summary, this new regulation aims to strike a balance between protecting investors and consumers while fostering innovation and establishing the EU as an attractive and safe hub for blockchain-based activities.