Why should EU and non-EU firms operating in crypto assets get ready for the MiCA bill?

Because being compliant with MiCA will require significant effort and time is running out.

The era of crypto regulation is here, and if you wish to stay one step ahead of the curve, read on to find out how to become compliant with the MiCA bill. 

What Is The MiCA Bill, and Who Will It Apply To?

In recent years, cryptocurrency has seen a boom. More and more people are using it, and there has been far too much money invested in cryptocurrencies for it to be ignored. It was time to set up some rules in place, so the European Commission pushed the Markets in Crypto Asset (MiCA) bill.

Not yet passed into law, the bill only applies to those who issue crypto-assets (such as stablecoins) to third parties, or identify themselves as crypto-asset service providers (CASPs).

It will not apply to non-fungible tokens (NFTs) and there is no definition of it in the bill. The MiCA bill also does not apply to electronic money, deposits, financial instruments, or to security tokens regulated by the Markets in Financial Instruments Directive (MiFID).

What Classifies As A Crypto Asset?

Article 3 of the MiCA bill defines crypto assets in the following words: ‘“crypto-asset” means a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology’.

Essentially, this definition includes crypto assets such as tokens (utility tokens, e-money tokens, asset-referenced tokens, security tokens not regulated by MiFID) and cryptocurrencies (Stablecoins, Bitcoins, Ethereum, etc.).

Get Prior Authorisation

For CASPs to legally function, they will need to register for authorisation from a member state of the MiCA bill. However, because the MiCA bill will come into effect by 2024, there’s still information missing on how exactly to get authorisation.

But, once you do get it, this authorisation will then be applicable to all EU nations. Companies that already have a licence to operate from their nation will also need to apply for a MiCA CASP licence. This section of the MiCA bill applies to all companies and individuals that operate with more than €50,000 in capital.

As per reports, the application for authorisation is scheduled to have a 90-day window for acceptance.

Start Creating Whitepapers

Since crypto now operates like a pseudo-financial system (i.e., you can now use cryptocurrencies as a substitution for real money), CASPs will need to comply with laws in a similar way to traditional financial institutions.

While already a staple in the crypto world, CASPs will in future be required to submit whitepapers to inform the authorities about their technologies and plan (just as financial institutions have to issue prospectus when it comes to bonds).

These white papers need to be created in a language that is spoken in the EU, and need to be submitted for review at least 20 days before they can be published. 

There are certain exemptions. No whitepapers are required if the offering targets only qualified investors or fewer than 150 investors per EU member state, for example, or if the offering does not exceed €1m over 12 months.

Prudential Safeguarding

Perhaps the most important requirement is that the MiCA bill also states that you need to safeguard an amount that is equal to or more than:

A quarter of the fixed overheads in the previous year; or
The minimum capital requirement

According to the bill, the amount can either come out of the pockets of CASPs, an insurance policy, or a similar guarantee. The amount mentioned in the previous year is meant to be reviewed annually.

Other Requirements

Some other points worth thinking about:

CASPs have to operate fairly, professionally, and honestly.
Management of CASPs should have the required experience and skills to fulfil their duties.
CASPs should have internal policies for compliance.
Operations of CASPs should be consistent, and they should have risk management and disaster recovery plans in place.
Any change in management is to be notified.
CASPs cannot use clients’ assets for their own use.
CASPs should also publicly disclose how they plan to prevent risks and reduce conflicts of interest.

Act now

The MiCA bill is still new to the market, and there are many changes that one can expect in the near future. If you want to operate safely and legally within the EU member states, you’ll need to stay updated on all changes.

Moreover, once you have all this information at hand, you’ll need to know what steps to take next to comply with all rules set forth.

It can be daunting to get everything in order at once, which is why we can help you identify gaps and create a strategy to comply with the MiCA bill.

So, if you want to stay one step ahead of your competitors, and wish to learn how to adapt to the MiCA bill, then reach out to me to hear my insights on how to make it happen.