Cogs Start Turning On MiCAR Implementation

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This article was originally published by Jimmie Franklin [Vixio] with the input of Dr Justine Scerri Herrera.

EU Legislation European Securities and Markets Authority MiCAR Crypto Regulation Products And Services Crypto-Assets

MiCAR is Approaching Enforceability Next Year, as Industry Stakeholders Prepare

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In 2024, MiCA starts becoming enforceable across the EU, establishing it as a first mover in crypto legislation. The move has even garnered praise from the likes of Coinbase, in an industry that has often been wary of government intervention.

On October 17th, the EU’s financial regulator, the European Securities and Markets Authority (ESMA), sent out a letter to regulators and industry stakeholders alike, calling on them to begin preparing for this transition. “To ensure a timely and orderly transition toward MiCA, ESMA encourages market participants to make adequate preparations that will reduce the risk of disruptive business model adjustments,” the letter said. ESMA advised that these preparations should also involve early dialogue between entities currently providing crypto-asset services in the EU. In addition, the relevant competent authorities of the jurisdictions in which they operate to inform them of their transition plans.

Firms Begin Journey Towards Compliance

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“Very few firms are going to embrace regulation, but what MiCA has going for it is a high degree of legal certainty.” – Said Andrew Henderson, a partner at Goodwin.

For Henderson, this legal certainty generally should end up with more efficiency. “Once firms and would-be firms accept this then they should be able to work with it”. The timeline is now in motion, with rules for stablecoins applying as of June 30 next year and other rules applying from December 30 onwards. “We are in the early days of the process. MiCA is beginning to be considered by clients that we work with,” said Henderson. These firms, he continued, are planning to implement the compliance requirements during the course of next year. “Until then, based on our experience of similar regulations, firms will begin to grapple with the details.”

“A lot of research and analysis is happening at the moment.” Said Justine Scerri Herrera, Managing Partner at MK Fintech Partners. Scerri Herrera added that firms are slowly starting to realise they will not be able to continue business as usual after December 2024, unless they obtain a licence. “They are looking at how and where they will implement the MiCA rules,” She said. Furthermore, “[t]hey may look at moving to other jurisdictions where it is easier to get compliant, and where there are already similar licensing regimes”.

New Rules, New Challenges

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Scerri Herrera pointed out that there will be challenges, considering this is a new regulation and framework. “There will be challenges in getting to understand the regulation,” she explained. “For those member states that just have AML registration at the moment, it will be a jump having to deal with an entirely new legal framework.

However, experts insist that MiCA will do good for the industry and does provide opportunities. “It provides centralised entities in Europe with the clarity they need to establish and scale a crypto-asset business in Europe.” – Pointed out Isabella Chase, Senior Advisor at TRM Labs. Chase explained that although the industry must be realistic since MiCA requires a significant uplift in terms of compliance. This will be expensive for firms once they have the right training, tools, policies, and procedures in place. Eventually, Europe will have a very well regulated and robust crypto-asset market.

“Most clients have been quite positive about this regulation as it will allow for cross-border services, and deliver expansion opportunities,” Johannes Wirtz, a partner at Bird & Bird, told Vixio.

A Long Journey Ahead

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An ART is defined in MiCA as a type of crypto-asset that is not an electronic money token and that aims to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies. Meanwhile, an EMT is defined in MiCA as a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency. The issue that firms will face is whether to consider what they are doing as an ART, and thus something that requires authorisation via MiCA, or whether they are distributing an EMT, which needs to be authorised through the Electronic Money

Directive (EMD) or under the Capital Requirements Regulation as a credit institution. However, rules for EMTs are set out within MiCA and must be applied. As acknowledged by representatives from the National Bank of Belgium and the European Banking Authority recently, this has already been a headache for firms with regard to whether they need to apply for a MiCA-specific licence or an EMD licence.

Chase continued that the first step for firms is to select which member state they want to get authorised in. “We saw just last week that Coinbase has selected Ireland as its MiCA authorisation base.” – She said. “Then there’s all the work you need to do with your regulator to prepare the required information for internal and external purposes,” Chase continued. She also mentioned another issue worth keeping in mind: responding to MiCA consultations prepared by the EBA and the ESMA. “If firms haven’t taken a look at these I would advise them too. It’s your chance to have your say.”

An ART is defined in MiCA as a type of crypto-asset that is not an electronic money token and that aims to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies. Meanwhile, an EMT is defined in MiCA as a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency. The issue that firms will face is whether to consider what they are doing as an ART, and thus something that requires authorisation via MiCA, or whether they are distributing an EMT, which needs to be authorised through the Electronic Money Directive (EMD) or under the Capital Requirements Regulation as a credit institution. However, rules for EMTs are set out within MiCA and must be applied. As acknowledged by representatives from the National Bank of Belgium and the European Banking Authority recently, this has already been a headache for firms with regard to whether they need to apply for a MiCA-specific licence or an EMD licence. Chase continued that the first step for firms is to select which member state they want to get authorised in. "We saw just last week that Coinbase has selected Ireland as its MiCA authorisation base." she said. "Then there's all the work you need to do with your regulator to prepare the required information for internal and external purposes," Chase continued, adding that another issue worth keeping in mind is responding to MiCA consultations prepared by the European Banking Authority and the European Securities and Markets Authority. "If firms haven't taken a look at these I would advise them too. It's your chance to have to your say”.

The Countries Paving the Way

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With the introduction of the legislation, there are countries who will have a first-mover advantage within the EU. These countries will have the opportunity to sweep up crypto firm registrations, as firms look to find regulators who are both familiar with the area and flexible too.

“Malta and France have been leading the way in terms of compliance and implementation,” said Scerri Herrera. “This means more ease of transposition for service providers, as opposed to countries that just have AML registration,” she Continued. 

Malta, for example, introduced the Virtual Financial Assets Act (VFAA) in 2018. The VFAA established a regulatory framework for crypto-assets and set out the requirements for businesses involved in initial coin offerings (COs) and digital asset exchanges. Meanwhile, the French “Loi Pacte” was enacted in May 2019, and introduced a comprehensive regulatory framework for digital assets. 

“The transition will not be as difficult in German.” added Wirtz. From the outset, Wirtz explained that the German Federal Financial Supervisory Authority (BaFin) has been quite prepared, for example, by publishing guidance on MiCA and examining which tokens might be regulated and which will not. “The regulator has been regulating crypto since 2011, which means that there is now good access to experience of crypto and blockchain.” 

The German Ministry of Finance also released its draft MiCA transition law to adapt the German legislation accordingly by creating a new Crypto-Markets Supervision Act last week. And earlier this month, Lithuania’s government and regulators set out their plans for how to regulate crypto in light of the new legislation.

How Can We Help?

Need more information about the MiCAR and the Travel Rule Regulation? Do you need to know how the regulations will affect your business? We can help! Drop us a line.

Key Contact

Dr Justine Scerri Herera

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More about MK Fintech Partners Ltd.

Michael Kyprianou Fintech Partners Ltd is a Maltese licensed VFA Agent (virtual financial assets agent). It comprises a team of dedicated experts who provide services such as advisory, licensing and registrations of activities related to Fintech, Crypto, Blockchain, Investment, company incorporations and banking. and other ancillary services. MK Fintech Partners forms part of the Michael Kyprianou Group, a top tier international legal and advisory firm. It has established an enviable reputation as a broad-based legal practice over the years. Mainly by keeping at heart its principle to always exceed its clients’ expectations. MK has grown to become one of the largest law firms in Cyprus with offices in Nicosia, Limassol and Paphos. The MK Group’s international presence also includes fully-fledged offices in Greece (Athens and Thessaloniki), Malta (Birkirkara), Ukraine (Kiev), the United Arab Emirates (Dubai), United Kingdom (London), Israel (Tel Aviv), and Germany (Frankfurt).

The content of this article is valid as at the date of its first publication. It intendeds to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on a specific matter before acting on any information provided. For further information, contact us at MK Fintech Partners via email at contactmkfintech@kyprianou.com or by telephone +356 2016 1010.

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