On May 16, the European Union unanimously passed the Markets in Crypto Assets (MiCA) regulation, which contains rules pertaining to market manipulation and the structure of crypto-issuing organizations. The proposal for MiCA first came out in 2020 and was approved by members of the European Parliament in April 2023. This regulation does not apply to the European Central Bank and national central banks of the Member States (when acting as a monetary authority), the European Investment Bank, and insurance undertakings, to name a few.
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Key points of the MiCA regulation:
- Crypto issuer requirements: Crypto asset issuers should be legal entities and need to publish a crypto-asset white paper. This doesn’t apply to crypto assets being distributed for free. The asset is not to be considered free if buyers are required to provide personal data to the issuer in exchange for it. The requirements also don’t apply to assets generated through crypto mining or to assets that are unique and not fungible with other crypto assets.
- Structure of the white paper: The white paper should include a detailed description of the issuer, the key participants in the project, and an explanation of the underlying technology and standards applied by the issuer of the crypto-assets allowing for the holding, storing, and transfer of those crypto-assets. It should also include the type of crypto asset being offered, its characteristics (number of tokens to be issued, issue price, etc.), the reason for offering, and the rights and obligations attached to the asset. Issuers will modify the white paper in case of any changes that are likely to affect the purchase decision of any potential purchaser of the asset.
- Grant or refusal of approval for an issuer: Competent authorities shall give the issuer a fully reasoned decision granting or refusing authorization within five working days. Where an applicant issuer is authorised, its crypto-asset white paper shall be deemed to be approved. Authorisation can be refused if the management body of the issuer proves to be a threat if the issuer fails to meet or is unlikely to meet the requirements set in this regulation, and if the issuer’s business model is a threat to financial stability.
- Right of withdrawal: Crypto asset purchasers will have a right to withdraw from a purchase made directly from the issuer or a crypto-asset service provider within 14 days from when they agree to make the purchase. The consumer withdrawing will be returned all payments they made not later than 14 days from the day on which they withdrew from the agreement of purchase. The right of withdrawal will not apply where the assets are admitted to trading on a trading platform for crypto-assets.
- Reserve of assets: Issuers of asset-referenced tokens (tokens that maintain a stable value by referencing fiat currencies) shall maintain a reserve of assets at all times. If more than one asset-referenced token is being issued, then the reserve of each of them must be maintained. The issuers must ensure that a corresponding increase or decrease matches the creation and destruction of asset-referenced tokens in the reserve of assets. Issuers of asset-referenced tokens shall describe the type of assets and the precise allocation of assets included in the reserve of assets. This reserve of assets shall only be invested in highly liquid financial instruments with minimal market and credit risk.
- Custody of reserve assets: The reserve must be separated from the issuer’s assets. The issuer must have prompt access to these reserves to meet any request for recovery from the holders of asset-referenced tokens. Issuers of asset-referenced tokens shall ensure that the credit institutions and crypto-asset service providers appointed as custodians of the reserve assets have the necessary expertise and market reputation to act as custodians.
- Market manipulation: The bill classifies market manipulation as a practice of securing a dominant position over the supply and demand of a crypto asset, which directly or indirectly has the effect of fixing the purchase or sale prices and creates unfair trading conditions. It prohibits the dissemination of information that gives or is likely to give false or misleading signals as to the supply of, demand for, or price of a crypto asset. It also prohibits entry into transactions that affect the price of one or more crypto assets while employing some form of deception.
Why it matters:
Before this regulation was passed, the EU had no rules for services related to crypto assets. This included the operation of trading platforms for crypto assets and the service of exchanging crypto-assets against fiat currency or other crypto assets, or the custody of crypto-assets. Having a set of rules in place would help holders of crypto assets seek consumer protection in case of fraudulent practices like pump-and-dump schemes. Just like the EU’s General Data Protection Regulation (GDPR) has been an inspiration for data protection laws in other countries, MiCA could also act as a framework for other governments to set up their own crypto regulations.
You can read the full scope of these rules here.
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