The MiCA Regulation, which is directly applicable in all Member States of the European Union, will be fully applicable from 30 December 2024. However, the rules on asset-backed tokens (Title III) and electronic money tokens (Title IV) will apply from June 30, 2024. This article provides a summary of the basic information on the new legal framework for crypto assets.
On 9 June 2023, Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (MiCA Regulation), which is the first European Union legislation regulating the transfer of crypto assets. The MiCA Regulation, which is directly applicable in all Member States of the European Union, will be fully applicable from 30 December 2024. However, the rules on asset-backed tokens (Title III) and electronic money tokens (Title IV) will apply from June 30, 2024.
The regulation of crypto assets, and MiCA in particular, has recently attracted increased attention from both experts and the general public. MiCA is definitely a revolutionary piece of legislation worldwide for the previously almost unregulated world of crypto assets, which is based on the ideas of decentralization and differentiation from "traditional" financial systems and their regulatory framework. The MiCA Regulation covers all types of crypto assets that are not yet regulated by existing financial services legislation and introduces uniform rules for the issuance, offering and trading of crypto assets, as well as requirements for transparency, disclosure, authorisation and supervision of crypto asset service providers, which are the principles of financial regulation for many standard financial institutions and entities.
Cryptoassets in a positive and negative sense
The MiCA Regulation is based on a relatively broad definition of cryptoassets, which are any digital representation of value or right that can be transferred and stored electronically using distributed ledger technology (DLT) or similar technology.
However, MiCA does not apply to crypto assets that
- fall under existing European Union financial services legislation, in particular crypto assets that are financial instruments within the meaning of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (MiFID II),
- meet the criteria for deposits under Directive (EU) 2014/49/EU of the European Parliament and of the Council on deposit guarantee schemes, including structured deposits as defined in Directive 2014/65/EU;
- they meet the criteria for cash within the meaning of Directive (EU) 2015/2366 of the European Parliament and of the Council on payment services in the internal market, unless they are classified as electronic money tokens,
- they meet the characteristics of securitization positions within the meaning of Regulation (EU) 2017/2402 of the European Parliament and of the Council laying down a general framework for securitization and creating a specific framework for simple, transparent and standardized securitization,
- they meet the criteria for non-life insurance contracts, life insurance contracts, pension products or social security schemes.
The MiCA Regulation also does not apply to cryptoassets that are unique and not interchangeable with other cryptoassets (including digital art and digital collectibles, known as NFTs).
It is therefore clear that the broad definition of crypto assets is primarily intended to capture all existing and future assets that cannot be classified under any of the existing asset categories already regulated by European law.
In this context, it should be noted that the question of whether whether and to what extent DLT-based investment instruments (in particular security/asset tokens) can be included in the scope of transferable securities, which would make them subject to existing financial services legislation and exclude them from the scope of the MiCA Regulation. The different transposition of DLT rules into the national legislation of Member States has led to ambiguities in the interpretation of the scope of the MiCA Regulation, which may lead to an undesirable situation where the same service provided in one Member State would require authorisation under MiCA and in another under MiFID II. The transposition of DLT rules into our Securities Act is currently undergoing inter-ministerial consultation, and we will closely monitor the final wording in which it will be adopted and whether interpretative issues will remain as to whether certain specific DLT-based crypto assets will fall under MiFID II or the new MiCA Regulation.
Types of crypto assets
The MiCA Regulation distinguishes between the following types of crypto assets:
- electronic money tokens (EMT, cryptoassets whose value is stabilized in relation to a single official currency),
- asset-referenced tokens (ART, cryptoassets that aim to maintain a stable value by referring to another value or right or a combination thereof, including one or more official currencies),
- other crypto assets than asset-backed tokens or electronic money tokens, which are designed to provide access to a good or service provided by its issuer, including a wide range of crypto assets, including utility tokens.
Crypto asset services subject to authorisation
Authorisation from the competent supervisory authority will be required for the following crypto-asset services:
- custody and administration of crypto-assets on behalf of clients
- operation of a trading platform for crypto-assets
- exchange of crypto-assets for funds
- exchange of crypto-assets for other crypto-assets
- execution of orders relating to crypto-assets on behalf of clients
- placement of crypto-assets
- receipt and transmission of orders relating to crypto-assets on behalf of clients
- provision of advice on crypto-assets
- provision of crypto-asset portfolio management
- provision of crypto-asset transfer services on behalf of clients
If crypto-asset services are provided in a fully decentralized manner without any intermediary, they do not fall within the scope of the MiCA Regulation. Authorization is also not required where the provider provides its services in the EU on the basis of the client's own exclusive initiative (so-called reverse solicitation).
Any person who provides cryptoasset services on a professional basis in accordance with MiCA is considered a cryptoasset service provider.
Cryptoasset service providers
In terms of personal scope, MiCA applies to natural and legal persons and undertakings engaged in the issuance, public offering, or acceptance of crypto assets for trading or providing other crypto asset services in the EU.
A crypto-asset service provider is considered to be a legal person or other undertaking whose profession or business consists of providing one or more crypto-asset services to clients on a professional basis and which is authorized to provide crypto-asset services in accordance with MiCA.
A simplified authorisation regime is introduced for existing investment service providers. As a result of this approach, investment service providers with the relevant authorisation are entitled to provide materially equivalent crypto-asset services without the need for a specific authorisation under MiCA.
At the same time, natural or legal persons who exclusively purchase/sell crypto assets on their own account and do not provide any crypto asset services as defined by MiCA do not need authorisation from the relevant supervisory authority for crypto asset service providers.
Among other things, MiCA does not apply to persons providing cryptoasset services exclusively for their parent companies, their subsidiaries or other subsidiaries of their parent companies, to a liquidator or administrator performing its functions in insolvency proceedings, the European Central Bank, the central banks of Member States or other public authorities of Member States, the European Investment Bank (EIB) and public international organizations.
Authorization to provide crypto-asset services
The MiCA Regulation lays down requirements for the authorisation of crypto-asset service providers, asset-backed token issuers and electronic money token issuers and specifies requirements for their operation, organization and management, and supervision, as well as requirements for the protection of crypto asset holders when issuing, offering to the public, and accepting crypto assets for trading, and requirements for the protection of clients of crypto asset service providers.
Entrepreneurs authorized before December 30, 2024, to provide virtual currency exchange services or virtual currency wallet services based on a trade license under current Slovak legislation may perform these cryptoasset-related services until June 30, 2026, at the latest. After that date, only legal entities holding a license to provide cryptoasset services will be able to carry out the relevant activities in the Slovak Republic.
The power to grant authorizations to such service providers and to supervise them is conferred on the competent national supervisory authorities, which in the Slovak Republic is the National Bank of Slovakia. The license to operate as a cryptoasset service provider is granted or withdrawn by the competent authority of the Member State in which the entity is established. Crypto-asset service providers are required to have their registered office in the Member State in which they carry out at least part of their crypto-asset services. Cryptoasset service providers must also have their place of effective management (i.e., the place where key management and business decisions necessary for the conduct of business are taken) in the EU and at least one of their directors must be resident there.
Once the requirements have been met and authorisation to provide crypto-asset services has been obtained, crypto-asset service providers may provide these services in other EU Member States on the basis of passporting. Cryptoasset service providers may provide cryptoasset services throughout the Union, either through the right of establishment (including through a branch) or through the freedom to provide services. Crypto-asset service providers providing crypto-asset services on a cross-border basis are not required to have a physical presence in the territory of the host Member State.
Whitepaper
The MiCA Regulation lays down, in particular, transparency and disclosure requirements for the issuance, public offering and acceptance of crypto assets for trading on a trading platform. In order to ensure the protection of potential retail holders of crypto assets, they must be sufficiently informed about the characteristics, functions and risks of the crypto assets they intend to purchase, which is precisely the purpose of the crypto asset white paper.
The white paper contains general information about the issuer, the person offering the crypto assets or the person requesting admission to trading, the project to be implemented using the capital raised, the public offering of crypto assets or their admission to trading, the rights and obligations associated with crypto assets, the underlying technology used in such crypto assets, and the relevant foreseeable risks.
The competent supervisory authority shall not approve a white paper on crypto assets other than asset-backed tokens or electronic money tokens prior to its publication, but shall only be notified thereof. However, it shall have the power to require changes to the white paper and any marketing communications and, where necessary, to require the cryptoasset service provider to include additional information in the white paper. The white paper on asset-backed tokens shall be deemed to have been approved by the supervisory authority if the applicant issuer has been granted authorization.
The white paper on crypto assets and, where applicable, marketing communications shall be published by the entities on their website in such a way as to be publicly accessible, in a timely manner before the date of the start of the public offering of these crypto assets or the acceptance of these crypto assets for trading, and no later than that date.
Expectations and conclusion
There is no doubt that MiCA represents a significant harmonization of the legal framework for cryptoassets and will bring about significant consolidation in the market and among cryptoasset service providers, mainly due to the complexity of the authorization process compared to the current practice of operating solely on the basis of a regulated activity.
Crypto asset service providers will be required to obtain authorization and adapt their business to the requirements imposed on them by the MiCA Regulation. However, this may represent such a disproportionate regulatory burden for them that they will not be able to meet all the relatively broad conditions, which could lead to a slowdown in the intensive development of the cryptoasset market, which is mainly made up of smaller start-ups and technology companies. Conversely, for traditional financial institutions that already meet or find it easier to meet many of the conditions imposed by MiCA, this will be a significant opportunity to enter the cryptoasset market. At the same time, a smaller number of cryptoasset service providers may lead to a lack of competition in the market and the unavailability of certain cryptoassets.
On the other hand, entities that successfully obtain authorisation to provide crypto-asset services will enjoy greater credibility in the eyes of investors and traditional financial institutions, particularly banks and credit institutions, which may be more open to cooperation.
For retail clients of cryptoasset-related services, the new rules may increase the availability, quality, and comprehensibility of the services provided, as well as the level of protection for clients when using them, as they will limit market abuse in the cryptoasset market to a certain extent.
A specialist legal advisor will play a key role in the entire process of obtaining a license to provide cryptoasset services. whose primary task in the entire licensing process will be to reduce the impact of the regulatory burden on the applicant and to communicate effectively with the supervisory authority, which the NBS is inclined to do according to its statements and wants to be a partner for applicants in consultations prior to the licensing procedure itself. We can, of course, provide you with our legal expertise throughout this process, so please do not hesitate to contact us with confidence.
