MiCA Crypto-asset Market Regulation Manual

15th of May

What is the MiCA (Markets in Crypto Assets Regulation)?

The MiCA regulatory framework was designed by the European Commission to regulate markets for digital assets and related services that are not currently controlled by EU rules.

It has been under development since 2018 and aims to provide a universal licencing mechanism for all EU member states in order to regulate legislation governing the creation and exchange of cryptocurrencies in accordance with the European Digital Finance Strategy.

The formal name of the regulatory framework is Proposal for a EUROPEAN PARLIAMENT AND COUNCIL REGULATION on Markets in Crypto Assets and Amendments to Directive (EU) 2019/1937. It is expected to take effect in 2024.

How will the MiCA be put to use?

The MiCA will be applicable in all EU member states once it is approved. The European Commission's proposal for crypto-asset market regulation (MiCA) will establish a new legislative framework for crypto-asset market regulation in the European Union (EU). The plan, which would take effect in 2018, would control crypto-assets and service providers that are not presently covered by conventional EU legislation, allowing crypto-services to be offered across the EU.

Furthermore, the regulation would allow licenced services to be delivered across the EU without changing national legislation.

The introduction of the legislation will have an immediate impact on any business that wants to operate in the EU, even if it targets clients outside the EU. MiCA will be able to improve the security and transparency of crypto-asset markets by maintaining consistency in regulation.

What is the goal of MiCA?

MiCA was developed by the European Commission to govern crypto-assets in the EU and protect consumers from the risks associated with unregulated virtual assets. 

Although cryptocurrencies have the potential to spur innovation and cutting-edge investment products, they also pose risks to markets and investors, such as money laundering, terrorism financing, and fraudulent trading.

MiCA's development began in 2018, at a time when the price of bitcoin was rising and public interest in cryptocurrencies was at an all-time high. In light of the rising risks posed by uncontrolled virtual assets, the European Commission ordered the European Banking Authority and the European Securities and Markets Authority to investigate whether the current EU financial services regulatory framework was appropriate for crypto-assets.

According to the analysis, the bulk of crypto-assets are not regulated by EU financial services legislation and hence do not preserve market integrity or protect investors or consumers. As a result, European regulators have begun work on a new regulatory framework for crypto-assets as part of the digital finance package that has evolved into MiCA.

What are the MiCA's objectives?

The concept for 'Crypto-asset Markets' is based on four fundamental objectives:

  • To give legal certainty for cryptocurrency assets that are not currently regulated under EU financial services regulation. There is a definite demand for this right now.
  • Creating standard requirements for suppliers of crypto-asset-related services at the European Union legislative level. This would assist in avoiding inequity and instability in this sector.
  • Replacing existing national frameworks for crypto-assets not covered by current EU financial services legislation. A single regulatory strategy would aid in the prevention of fragmentation and conflicting national legislation.
  • Developing guidelines for "stabelcoins" and e-money. This will protect consumers and investors while also maintaining financial market stability.

When will MiCA go into effect?

Unlike most proposed legislation in the EU, which must be passed within a particular date, there is no timetable for the implementation of MiCA. The European Union, on the other hand, aims to adopt the new rules within the next four years.

The EU intends to build a complete framework by 2024 that would allow the use of distributed ledger technology (DLT) and crypto-assets in the financial industry while accounting for the risks associated.

How may MiCA aid the EU crypto-asset industry?

The European Commission's plan has generated concerns about crypto-assets' inability to access the European Union's internal financial services market. The lack of a clear legal definition of the regulatory system for crypto-assets, as well as a unified regulatory framework at the EU level, is the source of this issue. As a result of this predicament, crypto-firms are unable to "passport" their licence into the EU, as is available in traditional financial services.

Furthermore, the majority of EU member states do not regulate firms involving cryptoassets, pushing these countries to develop separate national legislation to govern such activity.

Due to high costs, legal complications, and regulatory ambiguity, another problem impeding the development of these enterprises and their potential to scale at the EU level is the diversity of regulations and definitions applicable to cryptocurrency assets and service providers.

This condition creates an unfair competitive environment for crypto-asset enterprises based on EU Member State, which has a negative impact on internal market efficiency. The lack of a single framework for cryptocurrency assets and their service providers at the EU level presents dangers for businesses and their clients. 

Meanwhile, the European Union intends to solve this issue through a new legislation known as MiCA.