On the 30th of June 2024, the Markets in Crypto-assets (MiCA) regulation came into effect, impacting stablecoins within the European Union. This booklet outlines the essential responsibilities and considerations for stablecoin issuers, holders, investors, and crypto-asset service providers (CASPs). Certain platforms have promptly adjusted their stablecoin holdings to align with MiCA standards, rendering non-compliant options inaccessible to EU customers.
Scope of MiCA Regulation
MiCA aims to provide a harmonised regulatory framework for cryptoassets across the EU. It applies specifically to the issuance, offering to the public, and trading of cryptoassets (including stablecoins) within the EU market. The regulation focused on three main types of cryptoassets:
E-money tokens (EMTs): These are cryptoassets where its value is linked to a single fiat currency. They are often used for payment purposes.
Asset-referenced tokens (ARTs): ARTs are cryptoassets that stabilise their value by referencing multiple assets, including currencies, commodities, or other cryptoassets.
Other crypto assets: This category encompasses all other types of cryptoassets, including utility tokens as well as those not covered by existing financial services legislation.
Tether, commonly referred to as USDT and headquartered in the United States, is required to register within the European Union to sustain its operations. Bitstamp has already delisted Euro Tether (EURT) due to Tether's lack of authorisation under the Markets in Crypto-Assets (MiCA) framework.
Meanwhile, Circle, a prominent global financial technology firm responsible for issuing USDC and EURC, recently achieved a significant milestone. On the 1st of July, Circle became the first global stablecoin issuer to comply with the European Union's pioneering MiCA regulatory framework.
This accomplishment was facilitated by obtaining authorisation as an electronic money institution (EMI) from the French financial regulatory body, the Autorité de Contrôle Prudentiel et de Résolution (ACPR). Consequently, USDC and EURC are now being issued in the EU, adhering to the MiCA regulatory guidelines for stablecoins and stable electronic money tokens pegged to the EUR or the USD, which came into effect on the 30th of June 2024.Â
Obligations for Issuers
Issuers of EMTs and ARTs are mandated to meet stringent criteria under MiCA for qualifying as electronic money institutions or when seeking authorisation under Article 19. By 30th of June 2024, they are obliged to:
Obtain authorisation: Issuers of EMTs must be authorised as electronic money institutions or credit institutions. ARTs require a different form of authorisation, depending on the nature of the underlying assets. Issuers must demonstrate compliance with prudential requirements, liquidity management, and governance standards.
Publication of White Paper: A comprehensive document detailing the key aspects of the token, including stabilisation mechanisms, investment policies, custody arrangements, and rights of token holders, must be approved by the National Competent Authority (NCA) of the home member state.
Governance and Risk Management: Issuers must have robust governance structures, clear organisational responsibilities, and effective risk-management processes. These include measures to handle conflicts of interest, ensure business continuity, and maintain the integrity and confidentiality of information.Â
Custody and Safeguarding of Assets: Reserve assets must be fully segregated from the issuer’s own assets and safeguarded adequately.
Transparency and Reporting: Issuers are required to maintain transparency through regular reporting to NCAs. This includes the composition, management, investment, segregation, and custody of reserve assets to meet redemption requests.
Suitability Assessments: MiCA mandates rigorous suitability assessments for members of the management body and significant shareholders of issuers, ensuring that key individuals are fit to operate within the regulatory framework.
Implications for CASPs
Cryptoasset service providers, as defined by MiCA, encompass entities offering a spectrum of services concerning cryptoassets, such as custody, trading, exchange, order execution, and advisory services. Additionally, they may act as issuers of service provisions, requiring a distinct notification and authorisation process as outlined in Article 60. The regulatory framework imposes several obligations on these providers:
Notification requirement: Prior to commencing any cryptoasset service, service providers must notify the National Competent Authority (NCA) of their home member state at least 40 working days in advance, as stipulated in Article 60.
Authorisation and Compliance: Providers must seek authorisation from the relevant NCA, demonstrating adherence to MiCA's prudential and operational standards.
Transparency and Reporting: Similar to issuers, service providers must maintain high levels of transparency through regular reporting on their activities, governance, and financial health.
Consumer Protection: Service providers must implement measures to protect consumers, including safeguarding client funds and providing clear, accurate and comprehensive information about their services.
Market Integrity: Providers are required to implement robust systems to prevent market abuse, promoting fair and transparent market practices.
ESMA Guidelines
The European Securities and Markets Authority (ESMA) has released guidelines aimed at ensuring the uniform and efficient implementation of the MiCA Regulation throughout the EU. These guidelines encompass the following key areas:
Suitability Assessment: This section outlines comprehensive criteria for evaluating the suitability of management and key shareholders in ART issuers, encompassing considerations such as reputation, expertise, experience, and financial stability.
Prudential Standards: Specific requirements pertaining to the financial robustness and operational integrity of issuers are outlined, including provisions for liquidity management and anti-money laundering measures.
Notification and Approval: Procedures are established to notify NCAs of significant changes in ownership or control, ensuring continuous adherence to regulatory standards.
Impacts on Investors and Holders
Investors and holders of stablecoins will benefit from enhanced protections under MiCA, including:
Transparency: Issuers are required to disclose detailed information through the white paper, fostering transparency about the token’s structure, underlying assets, and associated risks.
Redemption Rights: Holders of e-money tokens are entitled to redeem their tokens at any given time at their nominal value in the specified official currency.
Market Integrity: The regulations are designed to safeguard against market manipulation and ensure fair treatment of token holders by enforcing stringent operational and security protocols on issuers.
Consumer Protection: MiCA enforces stringent regulations on the promotion and sale of stablecoins to prevent deceptive practices and guarantee that investors have access to accurate and reliable information.
Regulatory Oversight: NCAs will have increased supervision, empowering them to oversee and enforce regulatory compliance. This heightened oversight promises holders and investors a more secure and regulated investment environment.
Key Considerations
As the implementation date approaches, issuers should:
Review Compliance Requirements: It is imperative for issuers to align their operations with MiCA’s requirements, including authorisation, governance, and disclosure responsibilities. They should also enhance internal compliance mechanisms to meet the new transparency and reporting requirements.
Assess Strategic Business Decisions: Investors and holders should assess how these regulations affect their portfolios and consider the stability and compliance of the tokens they are engaged with.
Monitor Regulatory Developments: Regularly monitor and review updates from ESMA, NCAs and other regulatory bodies. Stay informed about additional guidelines and technical standards that may be issued by regulatory authorities.
Obtain Necessary Authorisation: Ensure compliance with authorisation procedures and prepare for detailed supervisory reviews.
Through proactive compliance with these emerging regulations, stablecoin holders, investors, issuers, and Cryptoasset Service Providers (CASPs) can facilitate a smooth transition into the MiCA regulatory environment, fostering a more secure and transparent crypto-asset market in the EU.
In Cyprus, the Cyprus Securities and Exchange Commission (CySEC) MiCA questionnaire for financial entities considering provision of cryptoasset service under Article 60 should start their application now given the deadline of the 26th of July 2024.
Panayiotis A. Koussis
Author
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