Markets in Crypto-Assets Regulation in the EU. What is MiCA Regulation?

Regulating crypto assets is one of the longstanding grey areas of the blockchain industry. As crypto adoption grows more popular, authorities all over the world have been actively looking for ways to make the industry safer for everyone. 

Starting in 2020, the European Union began working on a new framework to regulate the cryptocurrency industry. Known as the Markets in Crypto Assets Act (MICA or MiCAR), this new law is part of a series of measures for managing cryptocurrencies in European countries. In this post, we will explore what this new regulatory framework entails, its history, and potential impacts on the crypto markets and blockchain software development. 

• The Markets in Crypto-Assets (MiCA) regulation is a comprehensive EU framework designed to unify crypto asset regulations across all 27 member states. 
• MiCA classifies crypto assets into e-money tokens (EMTs), asset-referenced tokens (ARTs), and other crypto assets, establishing licensing, transparency, and compliance requirements for issuers and crypto-assets service providers (CASPs). 
• The MiCA framework was enacted in 2023 and has come into full effect since December 2024.
• MiCA simplifies licensing for crypto firms, enhances investor protection, and sets stricter regulations for crypto asset issuance to prevent market abuse.

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

The Markets in Crypto-Assets Act is a newly established regulatory framework created to govern the crypto asset market in the European Union. This act is part of a series of measures included in the European Commission’s Digital Finance Strategy. 

MiCA is a comprehensive regulatory framework that applies to the issuance and use of crypto assets (including securities and e-tokens) that are currently not governed by traditional regulations guiding financial instruments and financial products in EU countries. 

MICA provides a harmonized regulatory framework that will guide the activities of all crypto asset service providers (CASP) that are currently serving consumers in all 27 EU member states regardless of where they are registered or established.

Overview of the MiCA Regulation

The Markets in Crypto-Assets Regulation (MiCA) creates a uniform framework for crypto assets in the European Union. Before MiCA, companies that provide crypto asset services in any of the EU countries would have had to comply with different regulations and obtain individual licenses depending on the laws in the specific country they’re serving. 

MiCA borrows some of the best practices for financial market regulations in various EU countries to create a unified regulatory and licensing structure for the crypto market in the region.  

The MiCA regulation covers all crypto assets that are not currently regulated by financial services legislation. MiCA describes a crypto asset as a digitally represented value or right that can be electronically stored and transferred using distributed ledger technology or a comparable system.

Based on this definition, a crypto asset is defined as: 

• An electronic or e-money token (EMT) – A crypto asset backed by a single fiat currency 
• An asset-referenced token (ART) – A token that represents a value, a right, or a mix of both whose value is stabilized by one or more official currencies
• Any other crypto asset token that does not fall into any of these two categories 

The MiCA act specifies the provisions for issuing and trading these crypto assets, with rules about transparency, authorization, and the supervision of transactions. MiCA also provides a unified licensing structure for custodial wallets, crypto exchanges, issuers, trading platforms,  crypto asset portfolio managers (or advisors), and other crypto-asset service providers (CASPs)

History and Development of MiCA

The Markets in Crypto-Assets Act was fully enacted as law in 2024. However, the process of creating this regulation began as far back as 2020. In September 2020, the European Commission unveiled a series of measures called the Digital Finance Strategy or Package, which indicated the commission’s plans to promote digital innovation in the financial services sector by regulating crypto assets among other strategies. 

For the next three years, the regulations of the Markets in Crypto-Assets were extensively discussed in the European Parliament, the Council of the EU, and the European Commission. Key issues in the act including the regulation of stablecoins, environmental concerns about crypto mining, and oversight of decentralized finance were thoroughly debated and negotiated. By 2023, much of the details in the new regulations had been formally agreed upon and finalized. 

In April 2023, the European Parliament finally approved the MiCA Act, officially adopting it as part of the EU’s regulatory framework. The implementation of the regulation was designed to be in phases, and the final date of enactment was set for December 30, 2024.

MiCA Implementation Timeline

MiCA entered into force in June 2023. The implementation of this regulation from this date onward has been in phases, with the enactment date set for December 2024. Below is a timeline for the implementation of this legislation, outlining the key phases for its compliance and regulatory adaptation. 

• June 2023 – Publication of the first consultation package
• October 2023- Publication of the second consultation package 
• January 2024 – Publication of the third consultation package
• 29 June 2023 – The MiCA Act enters into force 
• 30 June 2024 – The MiCA provisions on stablecoins entered into application
• 30 December 2024 – The rest of the act entered into application 18 months after entry into force
• 30 June 2026 – End of the transitional period for registered or authorized DASPS, or for services not subject to mandatory registration

MiCA Titles and Structure

The MiCA Act has nine titles in total. Seven of these titles address the topic of crypto asset regulation, authorization, and the licensing requirements for providers. It also stipulates jurisdiction responsibilities. The three classes of crypto assets recognized under these titles include e-money tokens (EMTs), asset-referenced tokens (ARTs), and crypto assets not categorized in any of the two categories. The other two titles focus on the powers of adoption and the commission’s responsibility. The details of these titles are highlighted below.

MiCA Title I 

Title I, Article 1 outlines the requirements for offering and trading publicly offered crypto-assets, as well as the obligations for entities engaged in these activities. Article 2 specifies the scope of the regulation, detailing who it applies to while Article 3 provides a comprehensive list of definitions for key terms used throughout the legislation, including distributed ledger technology, utility tokens, consensus mechanisms, crypto-asset services, and many others.

MiCA Title II

Title II defines the entities that can create and issue crypto assets to the public. Any entity that creates and issues a crypto asset in the third category highlighted in title one is expected to:

• Be a legal entity 
• Have written and published a crypto asset white paper in an official journal as well as marketing communications relating to the project
• Notify the proper authorities in their member state and submit the white paper

The title also specifies what must be included in the white paper and marketing communications that must be submitted before the crypto asset can be listed. 

MICA Title III

The third title defines the concepts of asset-referenced tokens (tokens whose value is stabilized using the value of another asset or right). These are also known as stablecoins. The title also stipulates the requirements for the issuance of this class of crypto assets. 

MICA Title IV

Title IV defines the concept of electronic money tokens (crypto assets that represent official currencies) and stipulates who can issue them. The title also discusses how this class of crypto assets may be issued and the liabilities that issues take on when they offer e-money tokens to the public. 

MiCA Title V

In Title V, the MiCA Act defines entities to be recognized as crypto asset service providers. Entities allowed to provide crypto asset services according to this title of the Act include credit institutions, central security depositories, investment firms, market operators, and so on. The act also indicates the obligations and responsibilities of such entities. Based on the provision of this title, CASPs registered under the MiCA Act are allowed to provide cross-border services to member countries as long as they have informed the authorities in the country. 

MiCA Title VI

Title VI of this legislation concerns market abuse. It defines the scope of abuses covered by this art and standard rules for investors. 

MiCA Title VII

The final title relating to crypto assets gives instructions to authorities and lays out a framework for international cooperation between member states. The title also indicates the oversight authorities such as the European Banking Authority and the European Securities and Markets Authority (ESMA).

Scope and Application

The MiCA Regulation covers the issuance and trading of crypto-assets and stablecoins with a specific framework for the licensing of activities of the entities involved in crypto-asset-related services. MiCA also seeks to prevent market abuse of crypto-assets in European Union countries. 

MiCA creates an entirely new category of regulated entities not recognized in most jurisdictions known as the crypto-asset service providers (“CASP”). These are legal persons whose business is to provide one or more crypto-asset services. The scope of crypto-asset services as defined by CASPs includes service providers offering: 

• Custody services
• Operating trading platforms
• Exchanging crypto to fiat currencies 
• Providing advice on crypto-assets
• Providing transfer services for crypto-assets on behalf of clients

MiCA lays out the licensing requirements for these entities, with the stipulation that CASPs must submit an application to the relevant national competent authorities to obtain a license. The territorial scope of this framework applies to crypto-asset service providers within the EU regardless of whether they’re registered in the EU or not.

Token Issuance and Stablecoins

A significant part of the crypto MiCA Act is dedicated to establishing a framework for the issuance, custody, and administration of crypto assets within the European Union. The specific requirements laid out in the act depend on the classification of the token in question. 

• ART issuers: The MiCA art applies to issuers of asset-referenced tokens or stable coins. Legal entities who want to issue stablecoins to the general public are required to apply for and obtain authorization from competent authorities in their home country. The only exceptions to this are credit institutions or cases where the issued token is less than an indicated threshold or not issued to the general public. The MiCA also specifies the authorization requirements such as the publication of crypto asset white papers. The MiCA regulations ban algorithmic stablecoins in the European Union. This is because they do not have explicit reserves that tie them to any traditional asset. 
• EMT issuers: According to the MiCA, only credit and electronic-money institutions are allowed to issue e-money tokens and they are required to publish a whitepaper approved by a competent authority to do this. The scope of this legislation also indicates restrictions that apply to EMT issuers. 
• Issuers of crypto-assets other than ART or EMT: MiCA also has requirements for entities that wish to issue tokens outside the ART and EMT classification. 

Enforcement and Compliance

The two main regulatory authorities in charge of MiCA enforcement at the EU level are the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA). Apart from these two, each EU country is expected to designate a national agency that will be responsible for implementing the EU law. The national bodies are in charge of issuing licenses within their jurisdictions and imposing penalties or administrative sanctions on those who violate the MiCA Act. 

Some of the responsibilities of issuers and service providers under the MiCA act include: 

• General obligations regarding incorporation and the establishment of a corporate office in an EU member state
• Obligations of good conduct include fairness, clear communications, and warning clients of the potential risks of cryptocurrency
• Compliance with requirements relating to the safekeeping of crypto-assets and clients’ funds
• Establishment of transparent procedures for the prompt, and fair handling of client complaints

As of January 17, 2025, the European Securities and Markets Authority (ESMA) has mandated that platforms delist stablecoins that do not comply with MiCA by January 31, 2025. Investors holding these assets, including Tether (USDT) and PayPal’s PYUSD, must liquidate their positions by March 31, 2025. This regulation aims to ensure that all stablecoins meet the legal reserve and transparency requirements set forth in MiCA.

MiCA Exclusions and Exceptions

The MiCA EU regulation clearly excluded certain blockchain-related assets whose definitions do not fall within the crypto assets identified by the MiCa framework. Some crypto assets excluded from the act are highlighted below: 

• Crypto assets that have been classified as financial instruments, deposits, or structured deposits by the law in various jurisdictions
• Crypto-assets that are classified as non-life or life insurance policies
• Non-fractionalized non-fungible tokens. NFTs will only be considered a crypto asset under MiCA if it has characteristics that place them in any of the crypto asset categories governed by the legislation. Examples include NFTs that are being used as utility tokens or financial instruments.
• Digital assets issued by central banks (CBDCs)
• Non-transferrable digital assets

Additionally, algorithmic stablecoins are explicitly banned under MiCA, as they do not have explicit reserves that tie them to any traditional asset. This decision follows concerns about their potential volatility and lack of regulatory oversight.

Impact on Crypto Markets and Businesses

Any piece of crypto legislation has the potential to have far-reaching impacts on the crypto ecosystem. The impact is even more notable for regional legislation that applies to the 27 EU member states. Some of the expected impacts of the MiCA on crypto markets and businesses include: 

• Fewer license requirements for crypto projects in the EU: A unified legislative regime like MiCA will effectively end the need to obtain multiple permits and licenses to launch a crypto project in the EU. The authorization system introduced by this new legislation will apply to all EU countries, permitting service providers with MiCA licenses issued by national competent authorities to provide their services in all EU member countries. 
• More obligations and disclosures for service providers: Under MiCA, crypto-asset service providers that provide services such as the custody and administration of crypto assets, order executions, exchange and so on will have to follow comprehensive rules in delivering these services. This includes rules for governance, capital requirement, fair practices, and orderly wind-down in case of failure. 
• Additional rules for issuing tokens: Businesses planning to issue tokens in the EU will be required to follow additional rules such as establishing a legal entity and publishing a white paper. One implication of these requirements is that anonymous token issuance through decentralized token events (TGEs) or Initial Exchange Offerings (IEOs) will no longer be possible.

Regulatory Protections for Crypto Asset Service Providers

The Markets in Crypto-Assets (MiCA) regulation introduces a comprehensive framework for crypto-related services in the European Union. These rules provide various forms of regulatory protections for Crypto-Asset Service Providers (CASPs) while also safeguarding investors, and preserving the integrity of the cryptocurrency market. 

The MiCA crypto regulation establishes clear rules and requirements for CASPs to operate legally within the EU. This reduces the regulatory uncertainty associated with running a crypto service business, especially in regions without clear regulations in the past. Once authorized in one EU member state, CASPs can provide their services across the entire EU, reducing barriers to market entry. For instance, a Polish CASP will have access to almost 450 million EU residents as potential customers instead of the less than 50 million people living in Poland. 

MiCA introduces measures to ensure transparency, fairness, and accountability in the issuance and management of crypto-assets. This is crucial to protecting investors and preserving the integrity of the crypto market. Token issuers are required to publish detailed whitepapers containing essential information about their project, including risks, terms, and the issuer’s identity. 

This harmonized European regulatory framework also includes provisions to prevent market abuse, such as insider trading and market manipulation, which can harm investors. The framework establishes a robust supervisory framework to ensure compliance with these regulations while addressing potential risks and pitfalls. It may also help prevent crimes like terrorist financing and has anti-money laundering measures in place.

Beyond the EU market, MiCA may also have a significant impact on the global crypto industry. If implemented successfully, this regulatory framework will serve as a model for other applicable national laws or regional regulators that are currently in the process of adapting laws to address various crypto market needs. This may eventually lead to a unified regulatory landscape for the global crypto industry. 

Next Steps for Investors

The requirements laid down in MiCA apply more directly to issuers and crypto service providers. However, crypto investors are also affected by the implication of these laws on the market and the industry at large. As an investor, it helps if you’re aware of the far-reaching MiCA rules and the different ways they can affect your investments as issuers and CASPs start implementing technical standards in the act. 

If you need help understanding aspects of this legislation, you should talk to a legal or cryptocurrency expert about it. In addition to being a crypto casino software provider, we also have in-depth knowledge of the latest trends and news in the crypto industry and their impact on the market. Contact us to learn more about this and other regulatory laws and how they impact your investment journey.