With the proposal for the “Markets in Crypto-Assets Regulation” (“MiCAR”) a uniform, Europe-wide regulation of crypto-assets is now in sight. The European Commission presented its proposal for this regulation as part of its Digital Finance Package in September 2020. The MiCAR is intended to come into force in 2022 and then be directly applicable in all Member States after a transition period of 18 months (Art. 136 para. 2 MiCAR).
I. Scope of application of the MiCAR
The MiCAR will apply to all market participants issuing EU crypto-assets or providing services connected to crypto-assets (Art. 2 para. 1 MiCAR).
One key aspect for determining the scope of application is the definition of the term crypto-asset. The MiCAR itself defines a “crypto-asset” as “a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology” (Art. 3 para. 1 No. 2 MiCAR).
In accordance with the categorisation applied until now, the European law term of ‘crypto-asset’ will in future include utility tokens, payment tokens and stable coins. Security tokens on the other hand are not within the scope of the MiCAR. As the latter constitute financial instruments, they are subject to MiFID II (Art. 2 para. 2a MiCAR).
II. MiCAR: Whitepaper obligation for offering crypto-assets to the public
To the extent issuers intend to offer crypto-assets to the public within the EU or apply for permission to trade crypto-assets, they need to fulfil all of the following requirements (Art. 4 para. 1 MiCAR). Issuers have to:
- Be a legal entity
- Draft a whitepaper, notify such whitepaper to the competent regulator and publish the same
- Adhere to specified rules of conduct.
This does not apply if an issuer can rely on one of the exceptions contained in Art. 4 para. 2 MiCAR. Among others, one exception to these rules is if the crypto-assets that are being offered to the public are for free or if the public offer remains below certain thresholds (offered to fewer than 150 persons, volume of issuance does not exceed 1,000,000 euros).
However, there are stricter requirements for e-money tokens and asset-referenced tokens. Issuers of these tokens require an additional authorisation for public offers as well as for the admission to trading on a trading platform. They are also subject to supervision by the competent regulator (Art. 15ff. MiCAR and Art. 43ff. MiCAR).
III. MiCAR: Authorisation obligation for crypto services providers
Pursuant to Art. 53ff. MiCAR, service providers offering certain services in connection with crypto-assets require authorisation and are subject to continued supervision by the competent regulator. This includes:
- Custody and administration of crypto-assets on behalf of third parties
- Operation of a trading platform for crypto-assets
- Exchange of crypto-assets for fiat currency
- Exchange of crypto-assets for other crypto-assets
- Execution of orders for crypto-assets on behalf of third parties
- Placing of crypto-assets
- Reception and transmission of orders on behalf of third parties
- Provision of advice on crypto-assets
IV. MiCAR: Rules regarding market manipulation
Art. 76ff. MiCAR contains rules against market manipulation for crypto markets. Issuers of crypto-assets are obliged to publish insider information (Art. 77 MiCAR). Insider trading and market manipulation are prohibited (Art. 78 MiCAR and Art. 80 MiCAR).
V. Preliminary evaluation of the MiCAR
The MiCAR provides comprehensive regulation of crypto-assets. In this respect, the European legislator uses tried-and-tested regulation instruments from the regulation of financial instruments. There are certain similarities with the Prospectus Regulation (publication obligations for public offers or for admissions to trading on a trading platform), MiFID II (authorisation requirement for intermediaries offering services connected to crypto-assets) and the Market Abuse Regulation (rules on the prevention of market abuse).
What MiCAR means for the crypto market in Germany is difficult to predict. Yes, there is no doubt that the MiCAR imposes challenging hurdles that crypto service providers in particular have to overcome first of all. Quite a few start-ups are likely to already fall at the market entry hurdle. At the same time, we already have regulatory hurdles in Germany today. In light of the fact that crypto-assets are classified as financial instruments within the meaning of the German Banking Act (KWG), the sale of such crypto-assets is already extensively regulated.
The MiCAR will create a uniform legal framework for crypto-assets in Europe. Issuers can offer crypto-assets to the public Europe-wide. The envisaged passporting regime will allow service providers who are authorised in one Member State to provide their services across borders in the EU without the requirement to obtain any further authorisations. This is a key advantage compared to the current legal situation which is characterised by individual solutions in the various Member States and thereby fraught with inconsistency. This becomes particularly apparent in light of cross-border services.
Cover picture: Copyright © Adobe Stock / NicoElNino