Mica Regulation 5 Quick Facts You Should Know About 

Mica Regulation 5 Quick Facts You Should Know About 

The final text of the Markets in Crypto Assets regulation, also known as Mica Regulation, was adopted in April by the European Parliament. This piece of European legislation reinstates the focus of the Union on the development and promotion of transformative technologies in the financial services sector. These include the distributed ledger technology, whose main application is represented by crypto assets.    

At the same time, the new European legislation consolidates the European primacy in the establishment of a regulatory framework for these new technologies. The same primacy characterizing the introduction of AIFMD or the recent sustainable finance revolution, both pieces of regulation with ultra-territorial effects.

Get in touchhere with your contacts at Veneziano & Partners to see how we can help with Mica Regulation. 

Is Mica Regulation already in force? 

Whilst adopted by the European parliament, there is still time to go before Mica regulation will be fully implemented. This is not surprising considering that this endeavour is a world first and many of the aspects covered by it will require accordingly specification via regulatory technical standards. ESMA will lead the consultation effort and carry out its work along with the ESAs, the European Central Bank and national competent authorities across Europe. The bulk of the work required for the regulatory technical standards will be mostly on the criteria and conditions for the qualification of crypto assets as financial instruments.  

With the sustainable finance disclosure regulation, we already witnessed a recent similar experiment, where second level regulation came out post implementation of the first level rules. Whilst we cannot predict the future of MICA regulation, there is little that can surprise us at this point.  

The Role of ESMA under Mica Regulation 

In addition to the role to be played in the consultation phase for the development of the regulatory technical standards, ESMA will also have an ongoing role in the environment of the markets in crypto assets established by the new legislation. Similar to what happens already in other regulatory environments, ESMA will be in charge under MICA regulation of establishing and maintaining a register of crypto-assets white papers, issuers of asset-referenced tokens, issuers of e-money tokens as well as crypto assets service providers.  

At the same time, supervisory powers will be granted to both the European Banking Authority (EBA) and ESMA. The EBA will supervise issuers of significant asset-referenced tokens and e-money tokens whilst ESMA significant crypto-assets service providers. Both EBA and ESMA will be granted temporary intervention powers for the purposes of temporarily prohibit or restrict marketing, distribution and sale of certain crypto assets as well as other activities or practices concerning certain crypto assets when it is in the interest of investor protection to do so. National competent authorities will also have some product intervention-related powers. The combined powers assigned to EBA and ESMA as well as the national competent authorities will contribute to the stability and effectiveness of the financial system and will protect the economy of the Union as well as its participants.  

European Passport under Mica Regulation 

One of the consequences of the creation of an environment in Europe for crypto-assets and related service providers is the introduction of the concept of European passport for crypto-assets service providers authorized in Europe. The requirements introduced by the provisions relating to the authorization under MICA regulation as crypto-assets service providers include that i) a registered office exists in a member state where part of the services is performed; and ii) that effective management of these entities providing the service resides in the Union, with at least one director present there.  

We are not completely far from what we see already in other types of similar environments and, as it is tradition within the European legislation on financial services, successful models are then adopted across the board to different scenarios. Whilst the possibility to provide services on crypto assets is not entirely precluded to service providers located outside of Europe, any mechanism of reverse solicitation seems only a short-term solution in our view. The fact that this legislative initiative is world-first will drive the demand for European based solution for these services, with reverse solicitation not being a credible option, especially in this environment.  

Environmental Concerns 

Crypto detractors have always liked to use the environmental angle when attacking crypto enthusiasts. A staggering amount of energy – powered by fossil fuel hence cause of greenhouse gases and ultimately climate change – used to produce assets that do not exist as physical objects. The new legislation on the markets in crypto assets comes with the promise of environmental concern. Amongst the provisions introduced, it is noteworthy to mention that issuers of crypto assets will have to provide information on the principal adverse impact on the climate as well as other environment-related adverse impacts that are involved by the mechanism adopted to issue the crypto assets.  

What Happens in the Rest of the World 

Europe preserves its primacy as first world country with world first legislative initiatives and regulatory endeavors. It was first AIFMD, then the disclosure regime on sustainability and now the regulation on markets in crypto assets. Notwithstanding the fact that the endeavor is ambitious, it comes also with the promise of attracting significant new business to the old continent. Most of the main players in the space, the majority being based outside of Europe, have openly declared that compliance with the new European legislation is a must for the future credibility of their brands. The UK, now no longer part of the Union, will follow suit with its own rules very soon.  

For the time being, unfortunately, we see the US failing to keep pace also on this front.     

Get in touch here with your contacts at Veneziano & Partners to see how we can help with Mica Regulation. 

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