According to an opinion issued in January 2019 by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA),[1] while some cryptoassets may be subject to EU legislation, the application of these rules to the assets concerned was not always clear, and provisions in EU legislation may have prevented the use of distributed ledger technology (DLT). However, it was stressed that at that time most crypto-assets were not covered by EU financial services legislation and were therefore not subject to, inter alia, consumer and investor protection and market integrity provisions, although they did pose such risks.
The Union has a policy interest in developing and promoting the uptake of breakthrough technologies in the financial sector, including the spread of DLT.[2] Blockchain technology is a type of DLT, crypto-assets are a major application of DLT.[3]
While the size of the crypto-asset markets remains modest and does not currently pose a threat to financial stability, crypto-assets may become increasingly popular among retail holders.[4] It was therefore appropriate to establish a harmonised framework for crypto-asset markets at EU level and to complement EU financial services legislation with regard to crypto-assets that fall outside its scope. The framework clearly allows for the cross-border expansion of crypto-asset providers' activities and promotes financial stability and the smooth functioning of payment systems.[5]
On 16 May 2023, the Council adopted the first EU rules on the market for crypto-assets (MiCA).[6] The act is part of the digital finance package, which sets out a new digital financial services strategy for the EU financial sector[7] to ensure that the EU seizes the opportunities of the digital revolution and takes the lead through innovative European businesses.
The MiCA does not apply:
- crypto-assets that are unique and cannot be substituted by other crypto-assets, such as digital art and collectibels;
- crypto-assets issued by central banks and public authorities acting in their capacity as monetary authorities;
- digital assets that are not transferable to other holders, e.g. those that are accepted only by the issuer or the offeror and that are technically impossible to transfer directly to other holders;
- free or automatically created rewarded tools;
- utility tokens providing access to an existing good or service;
- lending and borrowing in crypto-assets.
The MiCA classifies crypto-assets into three types depending on the risks they pose. The classification is based on whether crypto-assets seek to stabilise their value by referencing to other assets: [8]
- e-money tokens: crypto-assets that aim to stabilise their value by referencing only one official currency;
- asset-referenced tokens: aim to stabilise their value by referencing another value or right, or combination thereof, including one or several official currencies;
- third type consists of crypto-assets other than asset-referenced tokens or e-money tokens, and covers a wide variety of crypto-assets, including utility tokens. Nevertheless, the provisions of the UCP Directive may remain applicable in this case.[9]
As an e-money token is referenced to an official currency, it can only be issued by a credit institution authorised under Directive 2013/36/EU of the European Parliament and of the Council or by an electronic money institution authorised under Directive 2009/110/EC.
Issuers of e-money tokens must prepare a crypto-asset white paper and send it to the competent authority.[10]
Issuers of asset-referenced tokens:
- have a registered office in the Union;
- public offerings or admission to trading of such crypto-assets may only take place if authorised by the competent authority and approved by the crypto-asset white paper;[11]
- provide complete, fair, clear and not misleading information;[12]
- they must also disclose any events that are likely to have or will have a material effect on the value of asset-referenced tokens or reserve assets;
- have a clear complaints-handling procedure;
- the members of its management body must be of sufficiently good repute and have sufficient expertise.
The competent authorities should refuse to authorise issuers of asset-referenced tokens in cases where the ECB or the central bank of a Member State delivers a negative opinion due to the risk to the smooth operation of payment systems, the monetary transmission mechanism or monetary sovereignty.[13] Subsequently, the same risks may lead to the withdrawal of the authorisation or to a limitation of the amount issued.[14]
Holders of asset-referenced tokens must have permanent redemption rights when providing crypto-asset services related to asset-referenced tokens, should not grant interest to holders of asset-referenced tokens related to the duration which such holders are holding those asset-referenced tokens.[15]
Rules applicable to offerors of crypto-assets other than asset-referenced tokens or e-money tokens or persons applying for the admission of such crypto-assets to trading, and to issuers of asset-referenced tokens and e-money tokens:
- offerors or persons seeking admission to trading should be legal persons;[16]
- prepare an information document containing information that must be disclosed;[17]
- civil liability rules should apply to offerors and persons seeking admission to trading and to the members of their management body for the information provided to the public in the crypto-asset white paper;[18]
- a right of withdrawal should be granted to holders of residential holdings until the end of the subscription period;
- communicate in a clear and non-misleading way.
Competent authorities should be able to suspend or prohibit an offer to the public of crypto-assets other than asset-referenced tokens or e-money tokens, or the admission of such crypto-assets to trading, where such an offer to the public or admission to trading does not comply with the applicable requirements of MiCA, including where the crypto-asset white paper or the marketing communications are not fair, not clear or are misleading. [19]
The first category of entities providing crypto-asset services includes: providing the operation of a trading platform for crypto-asset, exchanging crypto-assets for funds or other crypto-assets, providing custody and administration of crypto-assets on behalf of clients; the second category includes: placing of crypto-assets, reception or transmission of orders for crypto-assets on behalf of clients, execution of orders for crypto-assets on behalf of clients, providing advice on crypto-assets and providing portfolio management of crypto-assets.[20]
Crypto-asset service providers:
- provide complete, fair, clear and not misleading information;
- publish their pricing policies, establish complaints handling procedures;[21]
- the members of its management body must be of sufficiently good repute and have sufficient expertise;[22]
- they must hold their customers' money with a credit institution or central bank and can only make payments if they are an authorised payment institution;[23]
- are liable for losses due to, among other things, cyber-attacks, theft or malfunction.[24]
[1] ESMA, Advice on ‘Initial Coin Offerings and Crypto-Assets’, 2019; EBA report with advice on crypto-assets, 2019.
[2] European Parliament legislative resolution of 20 April 2023 on the proposal for a regulation of the European Parliament and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937 (COM(2020)0593 – C9-0306/2020 – 2020/0265(COD))
[3] Recital 2 MiCA
[4] Recital 5 MiCA
[5] Recital 6 MiCA
[6] https://www.consilium.europa.eu/en/press/press-releases/2023/05/16/digital-finance-council-adopts-new-rules-on-markets-in-crypto-assets-mica/
[7] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on on a Digital Finance Strategy for the EU. COM/2020/591 final. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=COM:2020:591:FIN
[8] Recital 18 MiCA
[9] Recital 29 MiCA
[10] Recital 66 MiCA
[11] Recital 44 MiCA
[12] Recital 47 MiCA
[13] Recital 45 MiCA
[14] Recital 62 MiCA
[15] Recital 58 MiCA
[16] Recital 23 MiCA
[17] Recital 24 MiCA
[18] Recital 39 MiCA
[19] Recital 36 MiCA
[20] Recital 20 MiCA
[21] Recital 79 MiCA
[22] Recital 81 MiCA
[23] Recital 82 MiCA
[24] Recital 83 MiCA
