CRYPTOASSETS

We analyze the new EU Regulation 2023/1114, known as the "MiCA Regulation" (Markets in Crypto Assets), and the licenses and other obligations required for virtual asset service providers in Europe.

Recently, we have seen recognized virtual asset service providers progress and obtain their licenses to operate as such in Spain. During the last week of September, the cases of Coinbase and Kraken made headlines, as reported in the following news:

It is important to consider the context in which these events occur, taking into account the recent adoption in Europe of the multi jurisdictional regulatory framework for cryptoassets. This framework follows the principles established by the Financial Action Task Force (FATF), and goes further in a comprehensive and innovative manner, through the approval of Regulation (EU) 2023/1114 of the European Parliament and of the Council of May 31, 2023, known as the "MiCA Regulation" (Markets in Crypto-Assets), which was published in the Official Journal of the European Union on June 9, 2023.

As indicated in its text, the purpose of the regulation is to establish uniform requirements for the public offering and admission as trading platforms for cryptoassets, as well as requirements for Crypto-Asset Service Providers (CASPs), incorporating and regulating, among others:

Information and transparency requirements.
Authorization and supervision requirements for CASPs, as well as for their operation, organization, and governance.
Requirements for the protection of cryptoasset holders and CASP clients.
Measures to prevent insider trading, unlawful disclosure, and manipulation of cryptoasset markets to ensure their integrity.
Measures for preventing money laundering.

The Regulation generally applies to any natural or legal person and certain entities involved in the issuance, public offering, and admission to trading of cryptoassets or providing services related to cryptoassets in the European Union. However, it establishes certain exclusions and important definitions to properly understand what falls within and outside the scope of the Regulation.

MiCA applies to cryptoassets defined as a digital representation of value or rights that can be transferred and stored electronically, using a distributed ledger or similar technology such as blockchain.

MiCA also applies to various specific subcategories of cryptoassets, including:

Asset-Referenced Tokens / Stablecoins: Tokens backed by a number of assets, goods, or rights, intended to stabilize their value, commonly known as stablecoins.
Electronic Money Tokens (E-MONEY tokens): A special type of token referenced to assets that are specifically backed by fiat money.
Utility Tokens: Tokens that provide digital access to a good or service, available on a Distributed Ledger Technology (DLT) platform, and accepted only by the issuer of that token.

The Regulation aims to regulate these cryptoassets by controlling the activities of intermediaries facilitating their operations, namely Crypto-Asset Service Providers (CASPs), defined as any legal person or other entity whose activity or business involves the professional provision of one or more cryptoasset services to clients and who is authorized for that purpose. Cryptoasset services are defined as any of the following services and activities related to cryptoassets:

Custody and administration of cryptoassets on behalf of clients.
Operation of a cryptoasset trading platform.
Exchange of cryptoassets for funds.
Exchange of cryptoassets for other cryptoassets.
Execution of orders related to cryptoassets on behalf of clients.
Placing of cryptoassets.
Reception and transmission of orders related to cryptoassets on behalf of clients.
Advice on cryptoassets.
Management of cryptoasset portfolios.
Provision of cryptoasset transfer services on behalf of clients.

The following virtual assets are not within the scope of the MiCA Regulation:

DeFi (Decentralized Finance).
Non-Fungible Tokens (NFTs).
Central Bank Digital Currencies (CBDCs).

This is because they either have their own regulation in line with their nature or their particularities require additional legislative analysis to configure the most appropriate regulatory framework for the risks they pose, thus leaving them outside the scope of MiCA for now.

It is essential to bear in mind the unified requirements for obtaining the license required by MiCA for CASPs to operate in any EU country. This license must be applied for prior to commencing operations in an EU country, complying with high levels of transparency and user protection requirements for information and documentation. These requirements generally include the following aspects:

Details and background of legal and corporate structure, partners, directors, governance bodies, their suitability, and criminal, commercial, and AML/CTF histories.
Detailed information on services, business model, risk assessments, and policies and procedures (P&P) on AML/CTF.
Financial stability and solidity: This implies having adequate measures to manage the financial risks to which they may be exposed, including liquidity, credit, and market risks.
Safeguarding users' funds: This could involve keeping users' funds in segregated accounts or holding sufficient liquid assets to cover CASP liabilities.
Prudential standards: Aimed at ensuring that a financial institution has sufficient capital and is managing its risks adequately.
Controls to prevent proprietary trading and conflicts of interest.
Defense against market abuse and manipulation.

Due to its scope, objectives, and features, MiCA includes an attractive concept of significant utility for ecosystem players seeking to operate at a European level, embracing the concept of the "European passport" system used in other financial sectors. This allows CASPs registered and compliant with MiCA regulation in one EU member state to offer their services in all other member states without the need to obtain new approvals and authorizations to operate in each EU jurisdiction.

Implementation Timeline

We are currently in a transition period until full implementation on December 30, 2024:

By June 30, 2024, the regime for stablecoins and e-MONEY tokens will be applicable.
By December 30, 2024, the rest of the regulation will apply, particularly:
- The requirement for "White Papers" for any issuance of cryptoassets falling under this regulation.
- The requirement for a license (European passport) for the provision of cryptoasset services.

At Summons Abogados, we have a team of specialists ready to assist you in the structuring and necessary implementation processes to develop your activities in accordance with regulatory requirements.