MiCA Comes Into Full Force: What You Need To Know About EU's Stringent Crypto Rules

The European Union's Markets in Crypto-Assets Regulation (MiCA) has finally come into full force ahead of the New Year. But, despite the stringent rules coming into effect, it appears many cryptocurrency firms are already prepared for the regulation.

MiCA is the world's first most comprehensive legal framework to guide crypto and blockchain firms on how they should do business within the bloc. It is worth noting that transition periods vary in some member states, so crypto firms have a lot of time to comply with the regulations.

The framework covers crypto assets that aren't regulated by other EU financial services acts and also provides uniform rules for issuers of various cryptocurrencies.

When the framework was first unveiled to the public in mid-2023, it was met with mixed reactions ranging from disappointment over the rules' supposed negative impacts on innovation and also support from crypto firms who have long been asking for clear rules of the road specific to digital assets.

EU Distinguishes Crypto Assets

Under the MiCA framework, crypto is distinguished into three categories:

• E-money Tokens (EMTs): crypto assets that maintain a stable value by tracking the price of one currency (e.g. Tether's USDT and Circle's USDC)
• Asset-referenced Tokens (ARTs): cryptocurrencies that maintain a stable value by referring to the prices of other assets or a group of assets (e.g. Facebook's unissued Libra coin)
• Other Crypto Assets (OCAs) or Utility Tokens: just about any other cryptocurrency that isn't an EMT or ART (e.g. Bitcoin, ETH, SOL, other governance tokens and even memecoins)

Key Aspects of MiCA

The framework is very comprehensive and provides an in-depth explanation so businesses and aspiring entrants into the EU crypto space will know exactly what the member states demand.

MiCA has established the following rules for "offerors" of OCAs:

• Individuals or entities who want to issue crypto other than EMTs and ARTs should publish a white paper and provide marketing communication on their websites
• Communicate clearly and use non-misleading language when dealing with existing or potential asset holders
• Identify potential conflicts of interest, if any, and prevent as necessary
• Issuers will be liable for damages if they provide incorrect information on the white paper
• Issuers must ensure crypto holders they are servicing have a right to withdrawal
• Offerors are expected to act honestly, professionally and fairly at all times

Issuers of ARTs or those who want to have ARTs traded on crypto platforms have been placed under more stringent rules, but here are the key highlights:

• Have a legal status in the EU
• Be authorized from their home EU member state to operate
• Produce and publish a white paper and be liable for false information on the white paper
• Maintain "at all times" a reserve that covers liabilities toward asset holders
• Have funds at least equal to €350,000 (approximately $364,000) or 2% of the average amount of the issuer's reserve assets, or a quarter of the issuer's fixed overheads in the preceding year
• Have a recovery and redemption plan for asset holders should the issuer fail to meet its obligations

EMT issuers are required to:

• Receive authorization as a credit or e-money institution
• Publish a white paper and be liable for false information provided in website communications or white paper
• Make sure that tokens are issued at par value on receipt of funds
• Ensure token holders can redeem their assets at any moment
• Invest funds in low-risk and highly-secure assets in the same currency – a separate account in a credit firm is necessary for this specific requirement
• Set up redemption or recovery plans

The MiCA has many other provisions to guide crypto asset companies, including a rule that states all crypto providers, including offerors of OCAs, should clearly state on their website information about their product or service's climate and environmental impact.

The bloc's MiCA framework went into full force Monday. Among the latest companies to have confirmed MiCA-compliance is MoonPay, which allows for cross-border crypto payments across the European Union.

Meanwhile, at center of the crypto industry's talks regarding the MiCA is Tether, the issuer of USDT, the world's largest stablecoin by market value. Under the regulation, USDT is an EMT and thus should follow the bloc's transparency requirements.