MiCAR, the Markets in Crypto Assets Regulation, is set to become effective in the second quarter of 2022. The European Commission issued the respective proposal in Fall 2020 and, after a transition period of 18 months, will affect all European market participants issuing crypto-assets or offering crypto-asset-related services. More precisely, the regulations will apply to utility tokens, payment tokens, and stable coins, but not to security tokens governed by MiFID II.
As defined under MiCAR, crypto-assets are a digital representation of value or rights that may be transferred and stored electronically, using distributed ledger technology or similar technology. If issuers want to offer such assets in the EU, they have to comply with Article 4, Paragraph 1 of the regulation, which states that the issuer has to:
a) Be a legal entity b) Draft a white paper about the digital assets c) Notify the white paper d) Publish the white paper e) Conduct business in an honest, fair, and professional manner
Article 4, Paragraph 2 exempts certain crypto-assets from the white paper requirements (Article 4, Paragraph 1, b-d), namely where they are:
a) Offered for free
b) Created through mining
c) Unique and not fungible with other crypto-assets
d) Offered to less than 150 natural or legal persons per EU member state
e) Not exceeding, within 12 months, a total consideration of €1,000,000 (or the equivalent in another currency) in offerings to the public
f) Offered solely to qualified investors and the crypto-assets can only be held by such qualified investors
Stricter rules apply to asset-referenced tokens and electronic money tokens. MiCAR defines the former as crypto-assets that derive a stable
value from fiat currencies that are legal tender, commodities, other crypto-assets, or a combination of such assets. The latter are crypto- assets used primarily as a means of exchange, with a stable value linked to the value of fiat currency recognized as legal tender. Article 15 ff. (asset-referenced tokens) and Article 43 ff. (electronic money tokens) state further applicable rules.
Under MiCAR, market participants offering crypto-asset-related services require permission and are under constant regulatory scrutiny. Among the affected service providers are those who:
a) Offer custodial and administrative services to third parties
b) Operate crypto-asset exchanges
c) Trade crypto-assets for fiat currencies
d) Trade crypto-assets for other crypto-assets
e) Execute crypto-asset orders for third parties
f) Conduct placements of crypto-assets
g) Accept and transmit crypto orders for third parties
h) Offer consulting services on crypto-assets
As can be seen, by this extensive list, MiCAR is trying to cover virtually all services providers in the crypto-asset space. Further details on their respective duties are stated under Article 53 ff.
Just as in more established stock markets, MiCAR defines and prohibits market abuse. Issuers of crypto-assets must disclose insider information, while insider trading and market manipulation are not permitted (see Article 76 to Article 80 for details).
While the ultimate consequences of MiCAR for the German and European crypto market remain uncertain, the current proposal widely follows existing regulatory instruments for other (more traditional) financial assets. Introducing a unitary guideline for the EU will likely increase the
market entry hurdles for crypto-asset start-ups and foster cross-border business models in the EU.
The European Commission’s proposal can be accessed here.