MiCAR: The dawn of a Regulated Digital Era on Markets in Crypto-Assets

Written by Efi Thoma* 

A new Digital Finance Strategy is being implemented at EU level through Regulation (EU) 2023/1114 of 31 May 2023 on markets in crypto-assets (MiCAR), in consistency with the European Commission’s (Commission) agenda to shape Europe’s digital future, by promoting the blockchain technology, since crypto-assets are inextricably linked to the latter.

MiCAR will be directly and uniformly applicable in all Member States of the EU, having a binding legal effect, in December 2024, except for Titles III & IV which shall be applicable earlier, i.e. in June 2023. It establishes a bespoke and harmonised legal framework for crypto-assets issuers that seek to offer them across EU, as well as for crypto-asset service providers (CASPs) wishing to apply for an authorisation to provide their services in the EU single market.

According to the recitals of MiCAR, the definition of crypto-assets is interpreted “as widely as possible to capture all types of crypto-assets which currently fall outside the scope of European Union legislation on financial services”. NFTs and central bank digital currencies fall outside the scope of MiCAR.

What is the underlying rationale of this legal act?

The Commission following up on the innovative digital finance, made it its priority to deploy a robust legal and regulatory strategy by simultaneously embracing the undeniable digital revolution and protecting European consumers and businesses from any unnecessary risks. In the lack of any ad hoc European regulatory framework for crypto-assets, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) had advised the Commission that the existing EU legislation on financial services was not covering crypto-assets in terms of consumer and investor protection and market integrity. These gaps on the EU legislation were being address by the legislators of each Member State at a national level. There was a dire need for a uniform EU approach on the subject matter in order to ensure that cryptocurrencies’ potential was being exploited to the fullest while at the same time their accompanying risks were being successfully mitigated (e.g. fraud, cyber-attacks, market manipulation).   

Under MiCAR, the EBA is entrusted with the task of supervising significant asset-referenced tokens (ARTs) and electronic money tokens (EMTs), pursuant to MiCAR’s pertinent clauses. The EBA shall implement technical standards and guidelines for the foregoing tokens falling under its supervision and shall work in collaboration with the Commission, ESMA, and the European Systemic Risk Board (ESRB). ESMA shall draw-up guidelines outlining the criteria upon which a decision shall be made on whether a crypto-asset should be considered a financial instrument under Markets in Financial Instruments Directive (MiFID) regulation versus MiCAR.

All EU Member states shall pass respective national laws to incorporate the provisions and requirements of MiCAR into national legislation. In parallel, national supervisory authorities will be mandated to exercise the discretionary powers given by MiCAR, including inter alia, the suspension or prohibition of crypto-asset offers, the prevention of unlawful activities by referring the issues for criminal investigation. The national supervisory authorities may also impose administrative sanctions to supervised entities of at least twice the amount of the profits gained or losses avoided or administrative sanctions of up to 12,5% of the total annual turnover, or even revoke their authorisation.

It is worth mentioning that the UK and the US follow a different legal path towards crypto assets. However, in the wake of the collapse of cryptocurrency exchange FTX in the US, a new bill has been introduced shifting the powers of the current regulatory authority towards a new competent supervisory authority.

* Qualified Lawyer, Member of Cyprus & Greece Bar Associations, holder of LL.B. from the Law School of Athens’ Kapodestrian University (Greece), LL.M. in Commercial Law (University of Glasgow, UK) and International Master in European Studies (Université Catholique de Louvain, Brussels)

 (photo:gettyimages.com)

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