The MiCA Regulation: A General Overview

On 24th September 2020, a new extensive Digital Finance Package was adopted by the European Commission. This package aims to improve the competitiveness of Europe’s Fintech sector while mitigating risks and ensuring the financial stability of the European economy. Contained in this package is a proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets and to amend Directive (EU) 2019/1937 (“MiCA Regulation”).

The proposed MiCA Regulation aims to help streamline distributed ledger technology (“DLT”) and virtual asset regulation within the European Union (“EU”) whilst protecting its users and investors. It is a proposal for a pilot regime on DLT market infrastructures, for digital operational resilience and to amend and clarify related EU financial services rules. The MiCA Regulation has four main objectives:

  • To achieve legal certainty and provide a sound legal framework where crypto-asset markets can develop: To this end, this Regulation also covers crypto-assets falling outside existing EU financial services legislation, as well as e-money tokens. It also regulates a relatively new subset of crypto-assets called ‘stablecoins’, even when these are categorised as e-money;
  • To support innovation and render the EU fit for the digital age: To promote the development of crypto-assets and the wider use of DLT, it is necessary to put in place a safe and proportionate framework to support innovation and fair competition. It is imperative that the EU financial services regulatory framework is innovation-friendly and that it does not pose obstacles to the application of new technologies;
  • To instill appropriate levels of consumer and investor protections through market integrity: Currently, most crypto-assets fall outside the scope of EU financial services legislation and therefore are not subject to the specific provisions protecting consumers and investors; and
  • To ensure financial stability within the EU: This Regulation includes safeguards to address potential risks to financial stability and orderly monetary policy that could arise from the newly emerging concept of stablecoins.

To whom does this Regulation apply?

It applies to persons that are engaged in the issuance of crypto-assets or provide services related to crypto-assets within the EU. However, the Regulation limits its scope by excluding crypto-assets that qualify as:

  • Financial instruments;
  • E-money (except where they qualify as electronic money tokens under the MiCA Regulation and with regard to stablecoins categorised as e-money);
  • Deposits;
  • Structured deposits; and
  • Securitisation.

The MiCA Regulation is not a standalone framework as it is part of a broader legislative body on crypto-assets and DLT. This Regulation will be accompanied by other proposals to ensure that existing legislation does not present obstacles to the implementation of new technologies, while still reaching the relevant regulatory objectives.