In this interview, Björn-Gunnar Flückiger, Head Legal at SDX, discusses the significant impact of the Markets in Crypto-Assets Regulation (MiCA) on the EU’s cryptocurrency landscape. MiCA creates a comprehensive legal framework for various crypto assets, including stablecoins and different permutations of crypto tokens, with the aim of enhancing consumer protection and market integrity. Björn highlights some of the key legal obligations for token issuers and crypto asset service providers (CASPs), which now face licensing requirements to provide their services in the European Union in a compliant manner. He also compares MiCA to Switzerland’s DLT-bill, noting the differences in regulatory approaches and the implications for market participants.
Hi Björn! MiCA, the recently introduced Markets in Crypto-Assets Regulation, is set to reshape the regulatory landscape for certain crypto assets in the EU. How does it establish a legal framework for stablecoins and crypto assets, and what are the key legal obligations for issuers and service providers under this regulation?
Let’s start with some key principles of the MiCA legal framework. MiCA essentially captures a broad range of various types of crypto assets, that can conceptually be divided into several categories: The first category contains so-called asset-referenced tokens (ARTs), commonly known as stablecoins that can reference various assets. The second category includes electronic money tokens (EMTs), typically stablecoins pegged to a single legal tender currency, such as the euro. The third category encompasses a fallback category that contains a wide array of other crypto assets, that are neither ARTs nor EMTs. As the digital assets-environment is rapidly developing, it is important to note that there are already discussions about a potential MiCA II framework, which might adjust the scope of regulated crypto-assets in a few years.
Now, addressing the regulatory objectives – MiCA aims to ensure consumer and investor protection, improve market integrity by regulating previously unregulated or not consistently regulated activities, and promote competition in the European market. The regulation is being seen as an essential steppingstone for European market participants because the crypto market has been regulated inconsistently in the EU and every EU member state relied on varying and bespoke local frameworks to capture crypto asset services, leaving it potentially vulnerable to insider trading, market manipulation, and other unethical practices. By establishing a harmonized framework, MiCA seeks to create a fairer competitive landscape across the EU, which previously varied significantly between member states.
Regarding key legal obligations, it is important to distinguish between issuers, who want to issue new tokens within the EU and CASPs such as trading platforms, brokers, advisors, and custodians. Issuers and CASPs will now typically have to comply with new disclosure requirements or even require authorization or licensing, depending on their activities. These activities were previously either unlicensed altogether in the EU or, as mentioned, subject to bespoke regulations and licenses of individual EU member states.
As an example, with this new regulation, issuers must publish white papers with specified forms and levels of minimum required content, generally applying disclosure and information obligations known from established European regulations such as MiFID II. Depending on the type of token, they may be required to meet prudential capital or liquidity requirements, maintain sufficient reserves for stablecoins, and implement robust governance and safeguarding mechanisms. These measures aim to enhance consumer protection.
For CASPs, the requirements are conceptually different. They face licensing and authorization requirements and subsequent ongoing supervision by the respective national competent authorities (or NCAs for short).
These requirements include meeting minimum capital thresholds, establishing a legal entity within the EU, implementing internal controls such as anti-money laundering measures or procedures to detect and address conflicts of interest, and ensuring fair and professional conduct in the best interest of their clients. Additionally, CASPs must comply with consumer rights mechanisms, transparency, and asset protection measures, all of which are enforceable through sanctions if violated.
You mentioned that MiCA introduces new measures for consumer protection and anti-money laundering. How will these measures affect the daily operations of crypto-asset service providers?
These new measures will have a certain impact on crypto-asset service providers that already operate in the European market today, as they will need to adhere to new processes and requirements, particularly in consumer protection. First of all, they will need to ensure all communications with clients, including marketing materials and service descriptions, are fair, clear, and not misleading, meeting a higher threshold for transparency. This will likely require reviewing and updating all public-facing content to meet MiCA’s higher communication standards.
Secondly, CASPs must implement safeguarding mechanisms to segregate client funds from operational funds, ensuring clients’ assets are protected. While this should already be standard practice, MiCA makes it a sanctionable requirement. This implies that additional audits may be required to verify compliance.
Thirdly, CASPs must have efficient complaint-handling procedures, similar to those required under other EU financial regulations like MiFID II, in place.
Lastly, CASPs are also required to provide comprehensive risk disclosures specific to the crypto assets and services they offer, ensuring clients are well-informed of potential risks.
In relation to AML requirements, MiCA itself doesn’t introduce new qualitative rules but complements already existing AML standards from FATF and the EU (such as the EU Transfer of Funds Regulation). These rulesets include obligations to include know-your-customer (KYC) processes, monitor transactions for suspicious activities, avoid sanctioned addresses, maintain detailed transaction records, and report suspicious transactions to local authorities, again similar to rules existing in the traditional financial sector. These measures will add an additional layer of compliance and administrative work for CASPs.
MiCA is expected to drive the localization, institutionalization, and consolidation of the EU crypto market. Will the new obligations and requirements for crypto-asset service providers under MiCA enable this transformation?
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About SDX
SDX is licensed by Switzerland’s financial market regulator, FINMA, to operate an Exchange and a Central Securities Depository (CSD). SDX offers issuance, listing, trading, settlement, servicing, and custody of digital securities. SDX is committed to working with partners, members, and clients to promote and build out a new market structure for digital assets globally.
