The MiCA Regulation, which is directly applicable in all Member States of the European Union, will be fully applicable as of December 30, 2024. However, the rules concerning asset-backed tokens (Title III) and e-money tokens (Title IV) have been in effect since June 30, 2024. In this article, we provide a summary of the basic information regarding the new legal framework for crypto-assets.
On June 9, 2023, Regulation (EU) 2023/1114 of the European Parliament and of the Council of May 31, 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 concerning the regulation of cryptoasset transfers. The MiCA Regulation, which is directly applicable in all Member States of the European Union, has been fully applicable since December 30, 2024. However, the rules concerning asset-backed tokens (Title III) and e-money tokens (Title IV) have been in effect since June 30, 2024.
The regulation of crypto-assets, and the MiCA Regulation in particular, has recently been attracting increased attention from both experts and the general public. The MiCA Regulation undoubtedly represents a globally revolutionary legal framework for the previously largely unregulated world of crypto-assets, built on the principles of decentralization and a distinction 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, authorization, and supervision of crypto-asset service providers—principles that underpin the financial regulation of many standard financial institutions.
Crypto-Assets: A Positive and Negative Definition
The MiCA Regulation is based on a relatively broad definition of crypto-assets, namely any digital representation of value or right that can be transferred and stored electronically using distributed ledger technology (DLT) or similar technology.
However, the MiCA Regulation does not apply to crypto-assets that
- fall under existing European Union legislation on financial services, 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,
- meet the characteristics of funds within the meaning of Directive (EU) 2015/2366 of the European Parliament and of the Council on payment services in the internal market, except where they are classified as electronic money tokens,
- meet the characteristics of securitization positions within the meaning of Regulation (EU) 2017/2402 of the European Parliament and of the Council establishing a general framework for securitization and creating a specific framework for simple, transparent, and standardized securitization,
- meet the characteristics of non-life or life insurance contracts, pension products, or social security schemes.
The MiCA Regulation also does not apply to crypto-assets that are unique and not interchangeable with other crypto-assets (including digital art and digital collectibles, so-called NFTs).
It is therefore clear that the broad definition of crypto-assets is primarily aimed at capturing all assets, both existing and future, that cannot be classified under any of the existing categories of assets already regulated by European law.
In this context, it should be noted that neither at the national nor the European level has the question been sufficiently addressed as to whether and to what extent DLT-based investment instruments (particularly security/asset tokens) be included within the scope of transferable securities, thereby subjecting them to existing financial services legislation and excluding them from the scope of the MiCA Regulation. Differences in the transposition of DLT rules into the national legislation of Member States have led to ambiguities in the interpretation of the scope of the MiCA Regulation, which may result in an undesirable situation where, in one Member State, the same service would require authorization under MiCA, while in another it would require authorization under MiFID II. The transposition of DLT rules into our Securities Act is currently undergoing inter-ministerial consultation, and we will closely monitor what the final wording will be and whether interpretative issues will persist regarding whether certain specific DLT-based crypto-assets will fall under MiFID II or under the new MiCA Regulation.
Types of Crypto-Assets
The MiCA Regulation distinguishes the following types of crypto-assets:
- electronic money tokens (EMT, crypto-assets whose value is pegged to a single official currency),
- asset-referenced tokens (ART, crypto-assets that aim to maintain a stable value by referencing 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 that are intended to provide access to a good or service provided by their issuer, which includes a wide range of crypto-assets, including utility tokens.
Crypto-asset services subject to authorization
Authorization from the competent supervisory authority will be required for the following crypto-asset services:
- providing custody and management of crypto-assets on behalf of clients
- operating a trading platform for crypto-assets
- exchanging crypto-assets for funds
- exchanging crypto-assets for other crypto-assets
- executing orders relating to crypto-assets on behalf of clients
- placing crypto-assets
- receiving and transmitting orders relating to crypto-assets on behalf of clients
- providing advice on crypto-assets
- providing crypto-asset portfolio management
- providing 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. A license is also not required when a provider offers its services in the EU at the client’s own exclusive initiative (so-called reverse solicitation).
Any person who provides crypto-asset services on a professional basis in accordance with the MiCA Regulation is considered a crypto-asset service provider.
Crypto-asset service providers
With regard to personal scope, the MiCA Regulation applies to natural and legal persons and undertakings that engage in the issuance, public offering, and acceptance of crypto-assets for trading or that provide other crypto-asset-related services in the EU.
A crypto-asset service provider is defined as a legal entity or other undertaking whose profession or business consists of providing one or more crypto-asset services to clients on a professional basis and which holds an authorization to provide crypto-asset services in accordance with the MiCA Regulation.
A simplified authorization regime is being introduced for existing investment service providers. As a result of this approach, investment service providers with the appropriate authorization are entitled to provide materially equivalent crypto-asset-related services without requiring a separate authorization under MiCA for this activity.
At the same time, neither natural persons nor legal entities that exclusively buy or sell crypto-assets on their own account and do not provide any crypto-asset services as defined by the MiCA Regulation require authorization from the relevant supervisory authority for crypto-asset service providers.
Furthermore, the MiCA Regulation does not apply to persons providing crypto-asset services exclusively for their parent companies, their subsidiaries, or other subsidiaries of their parent companies; to a liquidator or estate administrator performing their duties in insolvency proceedings; nor to 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 sets out requirements for the authorization of crypto-asset service providers, issuers of asset-backed tokens, and issuers of e-money tokens, and establishes requirements for their operation, organization, management, and supervision, as well as requirements for the protection of crypto-asset holders in the issuance, public offering, and admission of crypto-assets to trading, and requirements for the protection of clients of crypto-asset service providers.
Businesses authorized before December 30, 2024, to provide virtual currency exchange services or virtual currency wallet services based on a trade license under current Slovak law may continue to provide these crypto-asset-related services until June 30, 2026, at the latest. After this date, only legal entities holding a license to provide crypto-asset services will be able to carry out such activities in the Slovak Republic.
The authority to grant licenses to such service providers and to supervise them is entrusted to the relevant national supervisory authorities; in the Slovak Republic, this is the National Bank of Slovakia. A license to operate as a crypto-asset service provider is granted or revoked by the competent authority of the Member State in which the entity has its registered office. In this regard, a crypto-asset service provider is required to have its registered office in the Member State in which it carries out at least part of its crypto-asset services activities. Crypto-asset service providers must also have a place of effective management within the EU (i.e., the exercise of key management functions and the making of business decisions necessary for the conduct of business activities) and, at the same time, the residence of at least one of the directors.
Once the requirements are met and a license to provide crypto-asset services is obtained, crypto-asset service providers may also provide these services in other EU Member States under the passporting regime. Crypto-asset service providers may provide crypto-asset 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 offering 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 sets out, in particular, transparency and disclosure requirements for the issuance, public offering, and admission of crypto-assets to trading on a trading venue. 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 whitepaper.
The whitepaper contains general information about the issuer, the person offering the crypto-assets, or the person applying for admission to trading; about the project to be implemented using the raised capital; the public offering of crypto-assets or their admission to trading, the rights and obligations associated with the crypto-assets, the underlying technology used in such crypto-assets, and the relevant foreseeable risks.
The competent supervisory authority does not approve a white paper on crypto-assets other than asset-backed tokens or e-money tokens prior to its publication; it is merely notified of it. However, it has the authority to require changes to the white paper and any marketing communications and, if necessary, to request that the crypto-asset service provider include additional information in the white paper. A white paper on asset-backed tokens is considered approved by the supervisory authority if the applicant issuer is granted a license.
Entities are required to publish the white paper on crypto-assets and, where applicable, marketing communications on their website in such a way that they are publicly accessible, in a timely manner prior to the date of the public offering of such crypto-assets or their admission to trading, and no later than that date.
Expectations and Conclusion
There is no doubt that the MiCA Regulation represents a significant harmonization of the legal framework for crypto-assets and will bring about substantial consolidation in the market as well as among crypto-asset service providers, which is primarily related to the very complexity of the authorization process compared to the current practice of conducting this activity solely on the basis of a regulated trade.
Crypto-asset service providers will be required to obtain a license and adapt their business operations to the requirements imposed on them by the MiCA Regulation. However, this may represent such a disproportionate regulatory burden for them that they will be unable to meet all the relatively broadly defined conditions, which could lead to a slowdown in the rapid development of the crypto-asset market, which is primarily driven by smaller startups and technology companies. Conversely, for traditional financial institutions that already meet many of the conditions set by the MiCA Regulation or find it easier to meet them, this will be a significant opportunity to enter the crypto-asset market. At the same time, a smaller number of crypto-asset service providers may lead to a lack of competition in the market and the unavailability of certain crypto-assets.
On the other hand, entities that successfully obtain a license to provide crypto-asset services will enjoy a more credible standing in the eyes of investors as well as traditional financial institutions, particularly banks and credit institutions, which may consequently be more open to cooperation.
For retail clients of crypto-asset-related services, the new rules may increase the availability, quality, and transparency of the services provided, as well as the level of client protection when using them, as they will, to some extent, limit the abuse of the crypto-asset market.
Throughout the process of obtaining a license to provide crypto-asset services, a specialized legal advisor will play a crucial role, whose primary role throughout the licensing process will be to mitigate the impact of the regulatory burden on the applicant and to communicate effectively with the supervisory authority, which the NBS, according to its statements, is inclined to do and wishes to serve as a partner to applicants even during consultations preceding the actual licensing process. Throughout this entire process, we can of course provide you with our legal expertise, so please do not hesitate to contact us with confidence.
