The Banking Executive Magazine - May Issue

MICA IMPACT ON CRYPTOASSETS MiCA is expected to have a huge im- pact on providers of crypto asset services in the European Union (EU), as well as providers based outside the EU, and financial institutions due to the opportunities it will create for banks, investment firms and insur- ance companies. Parties will have to comply with certain legal obligations and may need a license. Crypto serv- ice providers for example will be re- quired to declare information on their environmental and climate foot- print. IMPACT ON CRYPTOASSET ISSUERS MiCA requires that crypto-asset is- suers will be authorized and super- vised by national competent authorities (NCAs) in the Member States in which they are based. NCAs will be required to designate a single point of contact for CASPs and MiCA relevant issuers providing cross-bor- der business. Issuers of certain types of crypto as- sets are required to disclose all rele- vant information relating to specific crypto assets and publish this infor- mation in a white paper. IMPACT ON CRYPTO ASSETS SERVICE PORIVDERS CAPS In order to operate in the European Union EU, CASPs such as brokers, exchanges and 'custodian wallet providers' must be licensed by ob- taining an 'EU passport' issued by national competent authorities (NCAs). Although requirements may vary depending on the specific CASP, MiCA imposes prudential require- ments and governance standards on all CASPs, which are overseen by NCAs. IMPACT ON CRYPTO PAYMENT SERVICE PROVIDERS One of the biggest challenges of op- erating in the space of crypto pay- ments is navigating the complex web of regulations. That is why the recent confirmation of the Markets in Crypto-Assets (MiCA) regulation is such a significant development for the crypto and payment communi- ties. The MiCA regulation is a com- prehensive set of rules that will bring clarity and regulation to the world of cryptocurrencies in the European Union (EU). It is set to revolutionize the cryptocurrency industry, provid- ing legal clarity and investor protec- tion for digital assets, including stablecoins and utility tokens. The new regulation mandates strict compliance rules around disclosure, governance, and business conduct, promoting market integrity and in- vestor security. MiCA is the largest and most signifi- cant crypto-related legislation to come out of a major jurisdiction, promising to reshape the industry for years to come. IMPACT ON NFTS AND DEFI Non fungible tokens (NFTs), which are digital objects held by an internet user, will be exempt from MiCA. However, a reclassification for NFTs is always possible if they qualify as a financial instrument or a crypto- asset. Decentralised financing (DeFi) and crypto lending are not (yet) ad- dressed in MiCA. IMPACT ON BANKS REGULATORY FRAMEWORK MiCA closes gaps in banks regulatory framework. The European Banking Federation (EBF) supports the digital transformation of banking, position- ing and representing European banks to boost innovation while ensuring resilience. According to EBF, new and amended EU legislation targeting crypto-assets needs to deliver: • a technology-neutral and innova- tion-friendly EU financial services framework. • a fair competition in a digitally transformed market, characterized by a level playing field, with pro- portionate regulation based on same activities, same risks, same rules, same supervision” principle. • innovation balanced with proper protection of investors and con- sumers. • a resilient financial ecosystem, fol- lowing a risk-based approach while avoiding disproportionate burden on financial institutions. According to EBF, MiCA is an essen- tial first step for the financial sector in the European Union EU. It will allow the EU economy and citizens to make use of the benefits of crypto- assets in future, while offering re- quired safeguards and protection. In the global context, a proportionate MiCA, properly embedded and aligned with existing financial regu- lation, has the potential to become a benchmark for other regions. European banks welcome MiCA to close gaps of the regulatory frame- work for crypto-assets that are not considered financial instruments. The EBF welcomes MiCA and its in- tended rules in an area that is presently largely unregulated at the EU level. IMPACT ON BLOCKCHAIN REGULATION MiCA is a landmark in the history of blockchain regulation in the Euro- pean Union EU. While MiCA still raises a number of questions, the de- finitive demarcation of how tokens are to be treated is likely to provide greater legal certainty and thus trans- form Europe’s current fragmented crypto-asset legislative and regula- tory framework into possibly the world’s largest and most significant uniform regulatory framework. MiCA applies to persons engaged in the issuance of crypto-assets and to CASPs in the EU. MiCA will equally impact those persons from outside the EU. MiCA landmark achievements for blockchain regulation include: 1) providing clarity around security tokens such as “payment tokens”, ISSUE 173 MAY 2023 the BANKING EXECUTIVE 13