EU's Markets in Crypto-Assets Regulation establishing regulatory framework is approved

The Markets in Crypto-Assets Regulation (MiCAR) aims to create a comprehensive regulatory framework for certain crypto-assets, namely for stablecoins (being electronic money tokens or asset referenced tokens (ART)) and other crypto-assets that are not governed by existing financial EU law, such as utility tokens and – depending on details – also specific forms of non-fungible tokens (NFTs).

The regulation seeks to provide legal certainty, adequate consumer and investor protection, and ensure market stability. This is expected to bring greater transparency and a (more) level playing field to the (EU) crypto market.

Issuers and service providers subject to range of new obligations

Issuers of crypto-assets will have to comply with important new obligations such as obtaining prior regulatory authorisation (only applicable to issuers of ART) and drafting white papers (that is, a prospectus “light”) describing, among other things, the issuer/offeror, the project, the offer, and the associated risks and notifying such white papers to national competent authorities.

The marketing materials will also have to be clearly identifiable as marketing, fair, clear and not misleading.

Issuers of stablecoins will need to maintain sufficiently liquid reserves to meet redemption requests. MiCAR also entails other obligations (and limitations) for private stablecoin initiatives, which should protect consumer interests, but which also probably pave the way (and restrict competition) for central bank digital currencies. 

Crypto-assets service providers (CASP) such as cryptocurrency exchanges, trading platforms and custodial wallet providers will also be required to obtain regulatory authorisations/licences and comply with various other obligations, including disclosure requirements and custody rules. They will also be subject to other organisational and technical requirements. Consumer wallets should thus be better protected and CASPs will become liable in case they lose investors’ crypto-assets. The European Banking Authority (EBA) will maintain a public register of non-compliant CASPs.

Certain exemptions and simplified authorisation procedures will apply.

Impact outside the EU

MiCAR also has implications outside the EU, as it may influence the global regulatory landscape for crypto-assets. The EU's regulation of crypto-assets could set a precedent for other jurisdictions and affect the competitiveness of the EU in the global crypto market. The UK, for example, has recently started another round of consultation and call for evidence in respect of crypto-assets regulation: this time, in respect of a draft Future financial services regulatory regime for cryptoassets, the consultation period of which will end on 30 April 2023. It is likely to be some time before the UK has a final set of regulatory rules in place.

Crypto businesses operating outside the EU also need to comply with MiCAR requirements when dealing with EU customers.

Sanctions

Violations of MiCAR may result in severe administrative fines and measures.

Typically, fines for natural persons can reach up to €700,000, while legal entities may face fines of up to €5 million or 3% of their annual turnover. For more severe violations, fines of up to €15 million or 15% of the annual turnover may be imposed.

Next steps

MiCAR will enter into force 18 months after it has been published in the Official Journal of the European Union. Its publication is expected by the end of June. The provisions in MiCAR with regard to the issuance of stablecoins will enter into effect after 12 months, hence, in principle by July 2024.

Crypto businesses operating in the EU will need to (further) prepare in order to be compliant with MiCAR. This may involve obtaining regulatory authorisation, implementing strict anti-money laundering measures, and complying with organisational as well as disclosure requirements and custody rules, among other things.

Crypto businesses will also need to closely monitor any further developments in relation to MiCAR to ensure ongoing compliance with the regulatory framework.

Osborne Clarke comment

The approval of MiCAR represents a significant milestone in the EU's efforts to regulate the crypto industry. With the financial services regulation (MiFID), the DLT-Pilot Regime and MiCAR, the EU will be the largest single market with a stable crypto and digital assets legal framework in the world. Companies can have access to 440 million people and have one level playing field.

While seen by some as a positive development to increase consumer and investor confidence to bolster mainstream adoption of crypto assets, others express concerns about the regulatory burdens potentially stifling innovation. As the crypto industry continues to evolve and mature, the impact of MiCAR on the EU's crypto landscape and its global implications will have to be closely monitored by crypto market stakeholders.

Osborne Clarke has an international, multidisciplinary group of legal experts who can assist you with any questions regarding MiCAR.

Please reach out to one of the below contacts in your jurisdiction.