The financial services sector is an ever-evolving field which will continue to grow and advance. This is understood by the European Union (“the EU”) and in 2020, the European Commission issued the Proposal for a Regulation on Markets in Crypto-Assets (“MiCA”). In this series of articles, we aim to dissect and explain the MiCA proposal. This article will look at the scope and reason behind the MiCA proposal and what it shall affect.
The main intention of this proposal is to bring crypto assets within the realm of EU legislation, as already explained in our introductory article. The proposal itself refers to the reasons and the objectives which the EU Commission has that warrant this proposal. The first is to provide legal certainty in a grey area. While the traditional financial services are firmly embedded within the legislation of the EU, crypto assets are kept in somewhat of a limbo state, with some jurisdictions within the EU having their own legislation (ex. Malta), while others do not. Through the harmonisation granted by an EU Regulation, companies would be able to expand their operations throughout the EU and not just limiting themselves to one Member State.
The second reason for this proposal is that the EU wishes to support innovation, and by creating a stable legal framework, the European crypto-asset sector would be able to thrive. While growth is important, it should never be at the expense of the consumer, or investor. As such, as a third reason, the EU Commission has listed consumer protection. While the first reason looks at legal certainty, the final reason given is that of ensuring financial stability.
Article 2 of the proposed MiCA provides the scope of the regulation. It states that the regulation is applicable to those persons who are engaged in the issuance of crypto-assets or provide services related to crypto-assets. The same article goes on to define crypto assets as those instruments which fall outside the scope of any of the EU legislation on financial services.
Furthermore, the proposal gives a list of entities to which the regulation does not apply. These include certain EU entities such as the European Central Bank and Member States’ central banks, the European Investment Bank, and certain public international organisations.
These are joined with insurance undertakings or other undertakings carrying out reinsurance and retrocession activities. Liquidators and administrators acting during an insolvency procedure, are also not subject to the proposed regulation, unless they are issuers of asset-references tokens as referred to in Article 42 of the same regulation. Persons who provide crypto-assets exclusively for their parent-companies or subsidiaries or other subsidiaries within the same group of companies, shall also be exempt from this regulation.
Investments firms are also not entirely subject to the proposed regulation. However, there are some articles which do apply and relate to the following:
- the register of crypto-asset service providers;
- the provision of crypto assets in more than one Member State;
- prudential requirements of the company; and
- organisational requirements.
The MiCA proposal is subject to change as it is still to be officially promulgated by the EU.
We invite you to contact us for further information on the MiCA proposal.