The Banking Executive Magazine - May Issue

MICA Classification of cryptoassets in MICA framework MiCA defines a crypto-asset as “a digital representation of value or rights which may be transferred and stored electronically, using distrib- uted ledger technology or similar technology.” The Regulation draws a distinction between ‘cryptocurren- cies’ on one hand and 'tokens' on the other. MiCA also sets requirements for cryptoasset issuers and cryptoas- set service providers (CASPs). Cryp- toasset issuers must provide complete and transparent informa- tion about the cryptoassets they issue, and comply with disclosure and transparency rules. Cryptoasset service providers must be registered and implement security measures and anti-money laundering compli- ance. MiCA provides a regulatory frame- work for digital assets that use decen- tralized ledger technology (DLT). The main cryptoassets covered by MiCA are: 1) Asset-referenced tokens (ARTs): are a type of crypto-asset that pur- ports to maintain a stable value by referring to the value of several fiat currencies that are legal ten- der, one or several commodities or one or several crypto-assets, or a combination of such assets. An example of this is Digix (DGX), backed by an equivalent amount of physical gold stored in a secure vault. 2) Electronic money tokens (EMT): which maintain a stable value by referring to the value of a fiat cur- rency that is legal tender. The dif- ference between ARTs and EMTs is the configuration of the under- lying asset that supports the price. ARTs use non-cash assets or a basket of currencies, while EMTs use a single currency, which brings them closer to the concept of electronic money. 3) Cryptoassets that are not consid- ered ARTs or EMTs, such as ‘utility tokens,’ which are intended to provide digital access to a good or service, available on DLT, and are only accepted by the issuer of that token. Crypto-asset services providers and services in MiCA Framework Certain standard services, when per- formed and provided with respect to any type of crypto-asset falling into the scope of MiCA, shall be captured and regulated under MiCA. The cus- tody and administration of crypto-as- sets on behalf of third parties as well as the provision of advice on crypto- assets are part of the services quali- fying as crypto-asset services. Entities providing crypto-asset services shall qualify as crypto-asset service providers. Crypto-asset service providers shall be licensed to provide crypto-asset services. Some criteria shall be satis- fied by crypto-asset service providers applying for the authorization to ben- efit from a European passport. The Markets in Cryptoassets regula- tion should not be considered as a standalone initiative. The European Commission’s digital finance strategy not only relies on MiCA, but also on the DLT Pilot Regime and the Digital Operational Resilience Act (DORA), thus demonstrating transversal reach. Market players are likely to have to observe certain environmental, so- cial and governance (ESG) standards while engaging in digital finance. Obligations for issuers of crypto-as- sets under MiCA Issuers of crypto-assets falling into the scope of MiCA, namely those of- fering crypto-assets to third parties, may be subject to several obligations including, without limitation: • The publication of a whitepaper having some similarities with prospectuses published under the prospectus regulation • The necessity to be authorized to issue crypto-assets • Compliance with certain pruden- tial rules when marketing crypto- assets • The obligation to act honestly, fairly and professionally with crypto-asset holders, in particular in relation to conflict management and prevention or maintenance of security access protocols • The applicable regime depends on several elements considering no- tably the type of crypto-asset of- fered and the amount of the offer. The importance of MiCA MiCA will provide regulatory cer- tainty and stronger protections for consumers in the crypto market, while supporting innovation. To achieve these goals, MiCA estab- lishes mechanisms to ensure that sta- blecoins are truly stable, require enhanced transparency in the mar- ket, and prevent players from creat- ing excessive risk, while making sure that the assets under custody are gen- uinely protected. MiCA also seeks to mitigate the en- vironmental impact of cryptocurren- cies. Some cryptocurrency mining (the process of validating transac- tions and adding new units to the blockchain) requires high-powered equipment that consumes large amounts of energy that may come from fossil fuels such as coal. The in- dustry also requires a considerable volume of computer components and generates electronic waste. MiCA is designed as a building-block of a wider regulatory effort, which in- cludes initiatives such as the Digital Operational Resilience Act (DORA), the DLT Pilot Regime and the Trans- fer of Funds Regulation (TFR). Key dates Key dates of the Markets in Cryptoas- sets regulation are: - 24 September 2020 Adoption by the Commission of the proposal for a regulation on Markets in Crypto-Assets. - 19 February 2021 European Central Bank opinion. - 24 February 2021 European Economic and Social Committee opinion. the BANKING EXECUTIVE 10 ISSUE 173 MAY 2023