MiCA Compliance Guide: EU Crypto Regulation Deadlines

If you already operate a crypto company licensed in Europe, you must comply with the requirements set by the MiCA regulations before the end of the grandfathering rights allowed to your jurisdiction’s VASPs. Depending on the license or authorization you are operating with, the time to fill in order to comply with the status of crypto-asset service provider (CASP) may differ.

We listed below the main general points that should draw your attention when assessing the legal workload. However, we recommend that you get back to your consultant and project manager (if already a client) or get in touch with our team, in order to provide you with clear and definite guidance on the steps to take.

As a legal partner, our FinTech lawyers can fully manage compliance matters on your behalf..

Approval of the management body

The management body under MiCA involves all persons seeking admission to provide crypto-related services with asset-referenced tokens (ARTs) to clients. The management body is the most important link in the project’s ecosystem as it has the power to define the project’s direction, goals, strategies, and objectives. Hence, the management body appointed in accordance with the law must gain approval from the regulatory authorities through:

• Providing identity documents of all its members;
• Providing the proof of non-criminal record of every member;
• Proof that none of the members were involved in any questionable business practices in the past;
• Proof of the absence of sanctions in regards to any professional committees (attorney or other licensed profession), absence of a record of sanctions or penalties of civil law character (insolvency, financial sector, or commercial law);
• Passing the fit and proper check;
• Owning an adequate skill set, knowledge base, experience, and time to operate the entity and set its business directions.

In order to assess every member of the management body properly and gather the required documentation package, one might require the assistance of a legal team. LegalBison is one call away and ready to help you with this important preparatory step.

Raising the capital up to the requirements

Businesses that offer services with asset-referenced tokens (ARTs) will have to raise the minimum share capital according to the requirements set out by MiCA for each license class:

• Class 1 (minimum capital is EUR 50,000): execution of orders, transfer services, reception and transmission of orders, placing of crypto-assets on behalf of a client, providing advice on and portfolio management of crypto-assets;
• Class 2 (minimum capital is EUR 125,000): custody and administration of crypto-assets on behalf of a client, crypto-to-fiat exchange, and crypto-to-crypto exchange;
• Class 3 (minimum capital is EUR 150,000): any services under Class 2 and operation of a trading platform for crypto-assets.

The starting share capital has to be deposited in a corporate bank account open for the company either in the licensing jurisdiction or anywhere in the European Union (depending on the licensing requirements of your particular regulator).

Fully document every human, technical and financial system

Unlike the previous European regulations, MiCA is considerably more diligent and attentive to details when it comes to the overall credibility of every applicant. Consequently, the amount of compliance paperwork has increased under the new regulation. The points that are necessary to document under MiCA include but are not limited to:

• Identities and non-criminal records of every beneficiary owner and director of the company (also known as the management body);
• Proof that none of the members were involved in any questionable business practices in the past;
• Proof of the absence of sanctions in regards to any professional committees (attorney or other licensed profession), absence of a record of sanctions or penalties of civil law character (insolvency, financial sector, or commercial law);
• As part of the technical assessment: the ICT systems and security arrangements, and their description in non-technical terms;
• A segregation procedure of clients’ crypto-assets and funds;
• Custody and administration policies;
• Commercial policy and the methodology for determining the price of the crypto-assets that the applicant proposes to exchange for funds or other crypto-assets;
• Execution policy (for execution of orders for crypto-assets on behalf of clients);
• Recovery and redemption plans;
• Conflict of interest policies;
• Business continuity plan.

All these policies and procedures must be periodically reviewed by the management board (Art. 34 (3) of MiCA), henceforth it is important to approach the process with a high degree of responsibility.

The preparation of these and other documents as stipulated by MiCA can be done properly by a professional lawyer who is well-versed in the intricacies of the new regulation. LegalBison has the complete expertise to undertake the entire MiCA-related legal paperwork on behalf of your company.

Prepare the white paper for your token

An important innovation introduced by MiCA is the so-called crypto white paper as a mandatory part of the compliance procedure. The MiCA has also set out the white paper requirements for each asset class (ART, EMT, or another). In essence, the white paper must be drawn up in at least one official EU language and/or in English and contain such details as:

• General information on the person seeking admission to trading;
• Information on the project itself and the raised capital;
• Information on the crypto asset;
• Rights and obligations attached to the crypto-assets;
• Underlying technology for the project;
• Information on the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the crypto-asset;
• Related risks (only those that are foreseeable and likely to materialize.

The white paper is a new concept under MiCA which requires a meticulous drafting procedure with all legal subtleties taken into account. It is highly advisable to get in contact with a skilled lawyer who knows exactly how to draw the white paper for your particular project.

Draft a compliant programme of operations

The programme of operations is the MiCA designation for a detailed business plan. It shall entail all the specificities of the crypto-activities undertaken by the company. It should describe the mechanisms in terms of asset flows, systems (including security and safeguarding aspects), and policies (such as the ruling of monitoring and reporting of suspicious transactions according to the company’s risk matrix and compliant AML-CFT policies).

MiCA distinguishes itself from most crypto licensing frameworks by its emphasis on the proper explanation of how the operations are conducted. An important effort must be deployed in order to properly depict the systems and daily operations of the CASP to the regulatory authorities. A properly drafted programme of operations sets the stage for the MiCA authorities to assess the strategic risky aspects of your activity and guide you to higher levels of safety, according to European standards.

Assess the legality of your operations (corporate structure, token class, activity)

The assessment of legality is a crucial step in the preparatory process for MiCA. The questions that need to be answered are:

• Does my company’s structure fall into the scope of MiCA?
  • Where and how should I form a company in order for it to qualify for a license under MiCA?
  • Which parts of the corporate structure should I pay special attention to?
  • How do I properly organize the management board, technical, and financial arrangements?
• Does the token I’m planning to work with classify as an EMT, ART, or other token type under MiCA?
  • Am I accredited to provide any services with EMTs?
  • What do I need to offer trading and other services with ARTs?
  • What if my company specializes exclusively in NFTs or other token types?
• What is the exact scope of activities I am planning to provide?
  • Are these activities legal and approved under MiCA?
  • What is the license class I need to opt for?
  • What is the minimum share capital I need to raise?

LegalBison can provide you with clear and fast answers. On your first request, we will undertake the full analysis of your project, define its legality and the parts that need to be changed or improved under MiCA, and commit to the successful fulfillment of all the new requirements by your company.