MiCA: a new VASP legislation in the European Union

16th of May

The European Parliament's Economic and Monetary Affairs Committee received the final text of the European Parliament and Council Regulation on Markets in Crypto Assets amending Directive (EU) 2019/1937 (MiCA) in October 2022. With these changes, it is now feasible to analyse the adopted regulation. 

MiCA is a new European Parliament and Council rule aimed at regulating cryptocurrency and virtual asset service providers (VASPs). It creates a pan-European framework for the regulation of crypto-assets and applies to all sorts of virtual currencies, including cryptocurrencies. The new rule is intended to protect investors, decrease risks, and combat financial fraud. It also requires service providers to adhere to particular security standards and follow laws established by European Union regulators.

Although the MiCA supervises crypto-asset service providers, it does not apply to NFTs. Despite this, it is crucial to remember that transactions involving the exchange of NFTs for crypto-assets are regulated as part of the entire framework. While NFTs are not directly subject to the MiCA, it is crucial to evaluate the potential consequences of their use in crypto-asset transactions.

According to the press release issued by the Council, the new legislation also applies to "digital assets that represent tangible objects, such as art, music, and video." While the MiCA has not yet provided a final definition of NFTs, some NFTs that do not satisfy this description may be subject to the new legislation. The following is said in the statement: 

  • Collection-based NFTs, in which each NFT is unique, cannot be regarded exempt NFTs under the MiCA definition and will be subject to its restrictions.
  • Within 18 months of the new rules going into effect, ESMA must create and publish guidelines on the conditions and criteria for certifying crypto-assets as financial instruments. This step is required to promote market transparency and stability, as well as to offer investors with clear guidelines and direction when making investment decisions.
  • While MiCA is a significant step forward in the regulation of crypto-assets in Europe, other institutions such as the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Central Bank (ECB) have their own schemes in the works.
  • Some of these projects, which are expected to be completed within a year of the MiCA's implementation, include guidance on qualifying crypto-assets as financial instruments, the development of tools to detect and prevent money laundering and terrorist financing, and strategies for digital and innovative financial services. These projects will supplement Europe's new crypto-asset regulation and assist assure security and stability in these emerging financial services industries.

MiCA crypto-asset classification

A crypto-asset is a digital representation of value or right that may be electronically transferred and stored using a distributed ledger or comparable technology. MiCA defines three types of crypto-assets, each with its own set of regulations based on the risks they pose:

The first type of token is asset-based tokens (ARTs). They are not e-money tokens; their goal is to keep their value stable by tying it to official currencies. These tokens can be backed by a basket of multiple fiat currencies, commodities, or crypto-assets, providing value stability. An asset-linked token is a sort of private crypto-asset that is linked to a real asset, such as gold, oil, or real estate. These tokens can be used to build decentralised exchanges where users can trade various assets and stable currency. Tether (USDT) is one such token that is tied to the value of the US dollar and is commonly utilised on cryptocurrency exchanges.

Electronic money tokens (EMT) are the second subcategory. These crypto-assets are stable and backed by a single official currency. EMT tokens are utilised as a more stable alternative to traditional currency such as dollars or euros. They are commonly used to trade on cryptocurrency exchanges and to make and receive digital payments. USD Coin (USDC), which is connected to the value of the US dollar and is built on the Ethereum blockchain, is one example of such a token.

Crypto-asset services provided by MiCA

Cryptocurrencies and crypto-assets have emerged as critical components of today's economy. Many businesses have formed in this area that provide various services to enable the secure and convenient use of crypto-assets. VASP is one such company that offers portfolio management and consulting services for cryptoassets, as well as traditional storage and exchange services.

VASP provides a wide range of cryptoasset-related services, including traditional wallet and exchange services. It also offers portfolio management services and advise on their utilisation. ICO and crypto-asset listing operations are subject to regulation.

The provision of any of the following services and activities related to the use of crypto-assets is referred to as a 'crypto-asset service':

  • Custody and Administration: the management and custody of cryptoassets on behalf of third parties, including, where relevant, their private crypto keys.
  • Cryptoasset trading platform. Administration of one or more multilateral systems.
  • Exchange. Selling or purchasing bitcoin in exchange for fiat currency.
  • Order fulfilment. Brokerage or middleman services, such as making agreements on behalf of a third party to sell or buy cryptoassets and committing to sell them at the time of issuance.
  • Crypto-asset placement. Buyers are marketed to on behalf of the offeror or issuer of the cryptoassets.
  • Accepting and sending orders for third-party clients. Receiving customer orders to buy or sell cryptoassets and transferring those orders to third parties for execution.
  • Portfolio management and advice. Managing investment portfolios, including crypto-assets, on behalf of clients under pre-agreed mandates.