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Red Alert: Bitcoin and Ether have plummeted and are wildly fluctuating.
The MiCA regulation is intended to calm things down on the crypto market in the future
Photo: Dado Ruvic / REUTERS
What is pan-European crypto regulation all about under the so-called MiCA regulation of the European Union?
"MiCA" (sometimes also "MiCAR") is the abbreviation for "Markets in Crypto-Asset Regulation".
With this regulation, the EU wants to harmonize the previously inconsistent regulation of the business with crypto assets across the EU.
This is intended to improve investor protection in this investment niche and prevent misuse of crypto assets.
The main content of the MiCA regulation is
to bring both issuers of crypto assets and service providers in this market, such as trading platforms, under the control of financial supervisory authorities
.
To this end, the regulation contains requirements for companies with regard to the transparency and openness of their activities.
Crypto asset service providers and issuers of certain crypto values will in future be subject to a license requirement, i.e. they need the approval of a financial supervisory authority if they want to conduct their business within the EU.
In addition, the MiCA regulation contains
investor and consumer protection regulations for the issuance, trading and custody of crypto assets as well as regulations to combat market abuse on crypto trading venues
.
When does the regulation come into effect?
After almost two years of negotiations, the regulation was passed for resolution on June 30, 2022.
On 5 October, the Permanent Representatives Committee of the Member States approved the MiCA draft.
Shortly thereafter, the Economics Committee of the European Parliament also gave its approval.
Now only the vote of the European Parliament is missing, which should take place shortly.
If everything goes according to plan, the MiCA regulation will come into force in 2022
.
After a transitional period of 18 months, it will then be binding in all EU countries.
This means that
the regulation will probably take effect from 2024
.
What will the regulation change for investors?
The MiCA regulation reduces the risk for investors of losing money with crypto assets in a dubious way
.
That means: Value or price losses with Bitcoin, Ethereum or other cyber currencies are of course still possible.
However, the risk of coming across a provider of crypto assets or a trading platform that is not reputable and makes off with the money is decreasing.
Because: In the future, only companies that have approval from the financial supervisory authority of a member state may appear on the crypto market in the EU.
Crypto trading is a global business; platforms within the EU can be accessed via the Internet just as quickly as those based outside the international community. How can an investor be sure that the crypto service provider they are dealing with actually falls under the MiCA regulation?
The MiCA regulation increases the
possibility for European supervisory authorities to take action against violations by crypto providers who are based outside the EU area but operate in the EU
.
What this means in practice can already be observed in Germany, because comparatively strict regulation already exists here without the MiCA regulation.
The local financial regulator Bafin is already taking regular action against crypto providers who operate on the German market without having permission to do so.
This means that
crypto providers and platforms from all over the world will need permission in the future in order to be able to operate within the EU
.
It is important to note that these companies must at least have subsidiaries within the EU for this purpose, because only companies based within the community of states can apply for permission.
(This also serves to protect investors, as this improves access to the funds of such a company in the event of misuse).
Permission in one EU country is sufficient to operate in all other EU countries (so-called "passporting").
Alternatively, crypto platforms can place a label on their websites stating that their offer is not aimed at investors within the EU.
However, this must be credible: If, for example, a trading platform is written completely in German despite such a disclaimer, it is clear that investors in Germany, Austria and Switzerland should be addressed.
Which crypto services and which crypto assets are covered by the MiCA regulation - and which are not?
The MiCA regulation contains a catalog of crypto services that will be regulated in the future.
This includes, for example: the safekeeping and management of crypto assets for third parties, the operation of a trading platform for crypto assets, the exchange of crypto assets for legal tender and other crypto assets, the execution of customer orders for and the placement of crypto assets, the acceptance and transmission of orders for Crypto values for third parties and advice on crypto values.
In addition, it is determined what counts as crypto value within the meaning of the regulation.
In principle, investors can rest assured that
common crypto values such as Bitcoin or Ethereum are always subject to the MiCA regulation
.
For experts also the information: The regulation distinguishes between three different types of electronic assets, namely between the so-called value-referenced tokens, the e-money tokens and the utility tokens.
The area of non-fungible tokens (NFT)
, i.e. digital art and other unique digital goods, for which a lot of money is sometimes paid, is only subject to regulation in very special cases.
It is unclear which specific NFTs fall under the MiCA.
The national supervisory authorities will have to ensure clarity here.
For NFTs, there is again a threat of a national regulatory patchwork quilt, which the MiCA was actually intended to counteract.
What about the gray area of influencers promoting crypto assets on social media?
Advertising for crypto assets is not directly covered by MiCA.
Like other influencers, crypto influencers are therefore subject to the advertising labeling requirements of general competition law
.
In addition, crypto influencers must ensure that their advertising does not exceed the threshold of commercial advice on crypto assets.
In this case, influencers would be considered “providers of crypto services” under the MiCA and would need permission from the supervisory authorities accordingly.
What is changing for crypto companies based in Germany?
Due to the supervisory rules for the crypto market that already exist in this country according to other regulations, not much will change for many local companies in the industry.
The already existing permission of the Bafin only has to be adapted to the MiCA requirements, which is more likely to be a formal legal act
.
The advantage that MiCA brings, however, is the so-called "passporting": With their permit, German companies automatically receive approval for all EU member states.
All that is required for this purpose is a notification to the Bafin in which other countries a company would like to be active - the permit is already in place.
What requirements does a crypto company have to meet in order to receive a permit under the MiCA regulation?
That depends on the nature of the company's business, for example whether it is an issuer of crypto assets or a trading platform that can be used to buy and sell.
In principle, however, the requirements hardly differ from those that are already made of other financial service providers.
So there are requirements
to the organization of the company,
to the management, for example in terms of seriousness and an impeccable track record,
in terms of compliance,
to the equity base,
to IT security
and some more.
In addition, the companies must provide detailed information about their offers and disclose many things that were not previously required, similar to the prospectus obligation that already exists in securities trading.
Investor protection, avoidance of abuse and other things - the MiCA regulation pursues great goals. Will these be achieved by the forthcoming regulation, or are further steps necessary?
The MiCA regulation is generally considered to be far-reaching and received positively.
There is already talk of
MiCA being a blueprint for global crypto regulation
.
In fact, by and large, very few key regulatory issues have been left out or even forgotten.
Minor inconsistencies are likely to show up in practice, but can be dealt with by the national supervisory authorities in their administrative practice if necessary.
