Dedicated Legal Assistance for MiCA Regulation and Compliance

The main objective of MiCA is to regulate all crypto-related businesses that fall into its scope according to one clearly defined rulebook, while also interacting with existing regulatory frameworks. Understanding how MiCA’s implementation overlaps with pre-existing regulations is important for compliance.

MiCA has become fully applicable on 30 December 2024, marking the start of its enforceability across the EU. However, provisions governing asset-referenced tokens and e-money tokens applied earlier, from 30 June 2024. 

Additionally, various administrative provisions regarding delegated acts and guidelines applied as early as 29 June 2023. Member States had until the end of June 2024 to notify the European Commission about their use of transitional measures, which comprise discretionary provisions that Member States can choose to implement. 

The European Commission is currently adopting secondary legislation to clarify the technical and operational details of MiCA’s provisions. Here is what crypto business owners can expect from MiCA once it comes into force.

History of the MiCA Regulation

It is not an understatement to say that MiCA, as we know it, now roots back to the first successful regulation of crypto assets in the EU, which took place in 2017 in Estonia. The very first variant of the framework practically gave free rein to crypto companies, allowing them to operate 100% remotely as long as they complied with AML-CFT. However, it went through significant amendments in 2020 and 2022, first imposing an obligatory rule of having an economic substance in Estonia and then increasing the minimum required share capital.

At the same time, the first workings of the unified European regulation of crypto were initiated by the European Securities and Markets Authority (ESMA) in 2019, with the Estonian crypto license and the French DASP framework being the primary sources of inspiration for the future framework. 

Thus, MiCA had been in the works from 2019 through 2023, when the final version of the regulation was introduced in April. Following the support of the absolute majority in the European Parliament, MiCA entered into force in June and will be enforced gradually until full adoption in the whole Union.

The philosophy and goals of the MiCA Regulation

The purpose of MiCA is to put the European regulations of crypto assets in line with the current digital age, which would create a more streamlined and transparent procedure for registering new crypto-related companies and business models, as well as enable new employment opportunities for EU citizens. The regulation is expected to bring significant benefits to market participants, including improved efficiency and transparency.

Similar to payment institutions and EMIs, MiCAR introduced the passporting of crypto licenses, meaning that by obtaining a license in one EU country, a company can then provide services in another or all other EU countries without needing any extra licenses.

In addition, MiCA aims to protect the customers from possible risks associated with the crypto asset market, including those applications of the distributed ledger technology (DLT) and blockchain technology that have not yet been studied in full, which will allow the new and emerging business models to operate in full legality, transparency, and stability. Retail holders, as well as institutional participants, are among those who stand to benefit from the increased protections and clarity provided by MiCA.

In essence, MiCA will secure the existing and newly introduced crypto business models in such a way that will harmoniously unite innovation with legality and stability. Furthermore, MiCA’s regulatory approach could influence crypto regulation on an international scale, potentially setting a standard beyond the EU.

Calendar of enforcement of the Regulation

According to the regulation, the first preparatory block for the enforcement of MiCA was finished by 30 June 2024. On this date, the first leg of MiCA officially changed the classification of crypto assets in the EU, including the ones previously known as “stablecoins”. Since 30 June 2024, all crypto assets have been divided into three classes: asset-referenced tokens, e-money tokens, and other token types.

The established deadline on which MiCA will enter full force, replacing all the previous European regulations, is 30 December 2024. By this date, all crypto businesses and issuers of crypto assets that fall under the scope of MiCA must align their activities and compliance procedures with the new regulatory requirements.

Entities already operating under national laws (often referred to as VASPs) may benefit from a transitional period until 1 July 2026, allowing them to continue operations while they seek full CASP authorisation under MiCA, subject to Member State discretion. Legal entities previously deemed as VASPs will qualify as CASPs under MiCA starting 30 December 2024, as long as they meet this deadline.

LegalBison closely observes the timeline of MiCA implementation across the EU and assists European clients in preparing their businesses for the new regulation. With the support of certified lawyers, future CASPs and CAs will be able to meet all the requirements before the official enforcement of MiCA.

The new status of crypto asset service providers (CASPs)

The term Crypto Asset Service Provider (CASP) replaces the well-known Virtual Asset Service Provider (VASP) under MiCA. Under MiCA regulation, only legal persons – such as companies or corporate entities – can provide crypto-asset services within the EU. CASPs are defined as any legal person or undertaking whose business is the provision of one or more crypto-asset services to clients on a professional basis. 

MiCA requires that the provision of crypto-asset services can only be performed by legal persons that have been duly authorised as crypto-asset service providers. At the same time, Article 60 allows certain financial entities (like credit institutions, investment firms, and electronic money institutions) to provide crypto-asset services by notification rather than obtaining a new CASP authorisation.

All CASPs must obtain authorisation from the relevant national regulatory authorities before offering such services in the EU. All the EU licenses previously known as VASP licenses (authorisations, registrations) will be known as CASP licenses as long as they go through the authorisation process in full.

The need for new terminology was invoked by the wider scope of products and services covered by MiCA, the ones previously excluded from European regulations.

A new asset class: Asset-Referenced Tokens (ART)

Asset-Referenced Tokens (ART) are one of the three crypto asset classes as defined by the MiCA regulation, along with E-Money Tokens (EMT) and crypto assets that are neither ART nor EMT.

In short, ART are cryptocurrencies whose value derives from:

• A single value or right;
• A combination of values, rights and/or currencies;
• Two or more official currencies.

This nomenclature includes part of what was previously called ‘stablecoins’, notably algorithmic stablecoins such as MakerDAO’s DAI.

Under MiCA, art issuers and other token issuers must seek authorisation from the national competent authority of the European member state where the company is registered and regulated before offering tokens. The authorisation process is mostly similar for all crypto asset issuers (ART, EMT, or else) and for crypto asset service providers (CASP) in Europe.

While ART issuers must seek specific authorisation under MiCA, issuers of ‘other crypto-assets’ (Title II) are generally required only to notify their white paper to the competent authority rather than obtain authorisation. Issuers of E-Money Tokens (EMT) must be authorised as credit institutions or electronic money institutions.

MiCA mandates that all token issuers publish a white paper that includes detailed information about the offering, such as issuer details, the attributes of the crypto-assets, project timelines, and any associated risks. For ARTs, this white paper must be approved by the relevant national competent authority. However, for EMTs and other crypto-assets, the white paper is notified to the authority but does not generally require prior ex-ante approval.

An asset-referenced token issuance also requires a professional legal opinion stating that the crypto asset is neither an e-money token nor a crypto-asset falling outside the scope of the MiCA regulation, as per Article 18.2 (e) of the MiCA regulation. A professionally prepared whitepaper must back the legal opinion, including all the provisions listed in Article 19 and Annex II of the regulation.

To legally issue an asset-referenced token, a crypto asset issuer must fulfil the own funds and reserve assets conditions, in order to ensure that the token is safe for users to use. Article 35, for example, details the minimum own funds (company capital) required being 350,000 EUR or more, depending on the highest of three possible calculations. This number may increase to up to 20% by competent authorities, depending on the risk profile of the issuer. In summary, 350,000 EUR is the lowest, not-guaranteed sum to be deposited.

Regarding reserve assets, Article 36 details the proper custody and management of the assets backing an ART. Most importantly, they should be detained in segregated accounts from the company’s, and in an amount determined by the value of claims (1:1 backing). Note that reserve assets can be invested under certain conditions detailed in Article 38.

After successfully issuing an ART, the issuer may be obligated to report every quarter to its domestic regulatory authority regarding the number of holders, their value, and the data pertaining to transactions. This obligation is true for every ART whose market capitalisation exceeds 100 M EUR, but the MiCA regulation in Article 22.2 states that the competent authority can rightfully enforce such reporting requirements on any ART issuer. Significant ARTs – ARTs of substantial size or risk – are subject to additional regulatory oversight by the European Banking Authority under MiCA.

A new asset class: E-Money Tokens (EMT)

Electronic Money Token (EMT) is one of the three classes of crypto assets as defined by the MICA regulation. Under MiCA, only Electronic Money Institutions and credit institutions are authorised to issue EMTs. Such a license is therefore required to issue EMTs, and the operation of such a licensed entity (EMI or credit institution, as per Directive 2009/110/EC) allows them to provide crypto-asset services without a separate CASP authorisation, provided they notify the competent authority 40 working days in advance as per Article 60. Credit institutions are exempt from seeking separate authorisation for issuing EMTs and asset-referenced tokens (ARTs).

E-Money Tokens are what come to the mind of most people when we speak about stablecoins: a digital asset whose value derives from a single official currency. This is the case of Circle’s USDC and Tether’s USDT. Circle subsequently registered as an Electronic Money Institution in France, while Tether’s USDT is the object of debate in Europe.

The procedure to issue EMTs under MiCA requires fulfilling a certain number of requirements:

• Getting authorised as an EMI or credit institution within the EU, as per Article 48.1.(a);
• A complete whitepaper, compliant with Article 51 and Annex III of the Regulation;
• Notify and inform the regulatory authority at least 40 days before issuance (Article 48.6);
• Issue the EMT at par value and on the receipt of funds (Article 49.3).

The Competent Authority (such as a central bank) plays a key role in supervising and authorising the issuance of EMTs, and issuers are encouraged to consult the central bank early in the process to ensure compliance with regulatory expectations. Additionally, the EBA (European Banking Authority) acts as the supervisor for significant EMTs, as per Article 117.

Electronic Money Tokens are subject to the highest level of control and requirements from the MiCA texts. Issuing and further operating an EMT requires considerable preparation. LegalBison offers ad-hoc assessments on specific projects in order to draw a relevant path to getting to the market. We invite readers interested in launching an E-Money Token to directly contact our consulting team.

The issuers of EMT denominated in non-EU official currencies may be obligated as well to report quarterly to their competent authorities of registration, regarding the number of holders, their value, and the data pertaining to transactions. Issuers of Euro-denominated EMTs (e.g., Circle EURC) are not automatically subject to this specific quarterly reporting under MiCA unless deemed significant or requested by the authority.

Other assets not falling under the jurisdiction of ART and EMT

Simply put: if a crypto asset does not qualify as an asset-referenced token (ART) nor an e-money token (EMT), it then falls into the general category of “crypto-assets other than asset-referenced tokens or e-money tokens”.

Far from being a leftover category, emitting such a cryptocurrency also requires the drafting of a whitepaper answering to certain criteria defined by Article 6 of the Regulation, and further requirements established within the Annex I, unless specific exemptions apply, such as for offers addressed solely to qualified investors or small-scale offers below EUR 1 million.

Any token that wouldn’t otherwise be denominated as a stablecoin or derive its value from other assets falls into this category. It is then the widest of the three crypto asset classes of MiCA and the one with the largest room for innovation.

The Regulation further provides guidance on proper marketing promotion and issuance conditions of the token.

Security tokens under MiCA

Financial instruments as defined in the Directive 2014/65/EU (the revised Markets in Financial Instruments Directive, or MiFID II), no matter if they are a cryptocurrency or a token on a blockchain or otherwise, do not fall under the scope of MiCA, as per Recital 3 of the MiCA regulation. MiCA applies only to providers of crypto-asset services and issuers of crypto-assets, such as stablecoins, that are not classified as financial instruments under MiFID II.

Issuers of such crypto assets will be liable to comply with the relevant laws and regulations in the issuer’s registration country and applicable European texts.

A legal opinion is necessary to ensure the proper qualification of a crypto asset as not being a security or financial instrument. Otherwise, an unregulated security token shall expose the issuer to sanctions way beyond the scope of MiCA.

MiCA incorporates rules comparable to those governing traditional securities markets, including provisions related to market abuse, insider dealing, market manipulation, and disclosure of inside information, aligning its regulatory approach with established securities markets standards.

As the European Securities and Markets Authority (ESMA) published a statement warning domestic regulators against global firms (corporate groups with financial licenses outside of the European Union), we strongly recommend asking for legal consultation on the matter of your project, if you intend to issue financial instruments such as crypto derivatives or security tokens for your project. The corporate structure will significantly affect the legality of your project.

Exemptions under MiCA

A few business models related to crypto assets are explicitly exempted from compliance with the MiCA regulation. These business models are duly defined by the Regulation.

Additionally, certain investment firms that are already authorised under existing EU financial regulations may be exempt from some MiCA authorisation requirements when providing crypto-asset services.

The exemption shall not be assumed by the crypto asset service provider! The various levels of enforcing institutions of the MiCA regulation may have a different understanding from you and deem your project as not being exempt, therefore leading to serious consequences if you are already operating in the EU.

Notable cases of exemptions include:

• NFTs that are truly unique (excluding the collections of thousands of almost-identical pictures with very similar traits and no concrete use case);
• Loyalty coins and schemes, where the crypto asset is not transferable.

As the MiCA regulation is new, further amendments may change what qualifies or does not as an exemption.