MiCA: The Path to Compliance

Regulatory Landscape and Alignment

The Markets in Crypto Assets (MiCA) regulation is a comprehensive digital finance package developed by the EU to provide a clear regulatory framework for crypto assets. The regulation aims to attract talent and investment, foster innovation, grow the crypto asset market, and ensure consumer and investor protection, market integrity, and financial stability.

MiCA is aligned with the EU’s existing Market Abuse Regulation (MAR) and the EU Transfer of Funds Regulation, as well as the recommendations of the Financial Action Task Force (FATF). The regulation will significantly enhance the security of the crypto asset market, making it more difficult for crypto assets to be used for criminal purposes such as money laundering, terrorist financing, and fraud.

Scope of Regulation and Implementation Phases

The regulation applies to any services and activities relating to crypto assets, including custody and exchange services. Crypto-assets that are already defined as financial instruments or electronic money under the Markets in Financial Instruments Directive (MiFID) and the Electronic Money Directive (EMD) are out of the scope of MiCA. Non-fungible tokens are also excluded. However, MiCA will replace existing national frameworks for crypto-assets that are not covered by EU financial services legislation.

MiCA entered into force in June 2023 and will be implemented in three stages. The European Securities Markets Authority (ESMA), working in cooperation with the European Banking Association (EBA), is tasked with developing regulatory technical standards (RTS) and implementing technical standards (ITS) and guidelines to enable relevant market participants to comply with the regulation.

Compliance Obligations

The regulation outlines notification requirements for certain financial entities intending to offer crypto-asset services and application requirements for authorization as a Crypto Asset Service Provider (CASP). CASPs must also establish transparent procedures for handling client complaints promptly and fairly, implement robust policies to identify, prevent, manage, and disclose conflicts of interest, and comply with EU system resilience and security access standards.

MiCA's seven titles cover various aspects of crypto-asset regulation and authorization. Titles will be implemented in phases, with Titles III and IV effective in June 2024 and the remaining titles in December 2024. Compliance and market surveillance teams should prepare for regulatory changes and ensure systems readiness for market integrity and client protection.

MiCA regulation provides a clear regulatory framework for crypto assets, aiming to foster innovation, grow the crypto-asset market, and ensure consumer and investor protection, market integrity, and financial stability. The regulation will be implemented in phases, and relevant market participants will be required to comply with its standards and guidelines.

Explore further insights on MiCA and delve deeper into the consultation packages for a comprehensive understanding here.