The EU launched the crypto industry MiCA regulatory framework full analysis

原文标题：《 7500 字长文：欧盟推出的加密行业 MiCA 监管框架全解析 - 加密大一统时代的开篇 》

原文作者：  Patrick Hansen,Circle欧盟战略与政策总监

原文来源： LegalDAOCN

To NFT, DeFi, ICO - the crypto world is full of acronyms. The latest to enter mainstream cryptocurrency parlance is MiCA. MiCA representativeMarkets in Crypto-Assets Regulation, is the EU's forthcoming encryption rulebook.

It is the most comprehensive crypto asset framework in the world today, which is why, in addition to raising concerns that it could ban mining and bitcoin trading in Europe, it has caught the attention of the global crypto community.

After years of intense negotiations and a political agreement reached some 10 months ago, MiCA was finally officially voted through at the plenary session of the European Parliament today (April 20).

But since there is still a great deal of confusion about what MiCA's introduction means for the crypto business in Europe and elsewhere, this article will clarify MiCA'sOrigin, objectives, main regulatory categoriesAnd requirements, and its possible impact on the crypto industry.

Screenshot from Binance founder /CEO Zhao Changpeng's tweet after the MiCA vote

The Origins of MiCA - Why has the EU Decided to lead the World?

To be sure, Europe is not home to the biggest crypto business today. Most of the value creation and acquisition takes place in the United States and Asia. No EU country ranks among the top 20 in the 2022 Global Encryption Adoption Index. This raises the question of why the EU decided to press ahead with such a comprehensive, regionally binding set of regulations in the first place.

Four reasons stand out:

1. In 2018, the European Commission directed EU financial regulators to review the applicability of EU financial law to cryptoassets such as Bitcoin. In early 2019, the European Banking Authority (EBA) published a report with clear recommendations:As crypto assets are largely exempt from EU law and pose significant consumer protection and money laundering risks, the Commission shouldTake action

2. In early 2020, the EU's fifth Anti-money Laundering Directive led to a complex jigsaw puzzle of national cryptocurrency registration and licensing. Some countries such as Germany, Austria, Malta, Lithuania, or France have introduced dedicated cryptocurrency licensing regimes, while others such as Ireland have created simple AML (Anti-Money Laundering) registries, while others have done nothing. Operating a cryptocurrency business across the EU has become very bureaucratic and burdensome, requiring knocking on the doors of every national regulator.Calls for regulatory harmonisation from industry, regulators and policymakers are growing - in part to prevent regulatory arbitrage.  

3.  In June 2019, it was decided that the famous Diem (formerly Libra) project would be launched from Geneva, in the heart of Europe (but not the EU). The announcement of Libra/Diem raises the stakes for EU and national government policymakers as they compete with each other to be the biggest public opponent of the concept of a global private Internet currency. The highest levels of German government, including current Chancellor (and former finance minister) Olaf Schrotz, have called for an outright ban on Diem, and pressure has been mounting for the EU to close any regulatory loopholes. The focus of Diem and Stablecoin projects can be seen in the form and content of the final MiCA legislation,The legislation created two token classes -- Asset reference Tokens (ART) and Electronic Money Tokens (EMTs),These two classes of tokens correspond to the first and second iterations of the Diem Stablecoin token concept.

4. Cryptocurrency regulation must be placed in the context of the EU's broader ambitions for global leadership in tech regulation. Recent political initiatives, like GDPR, the Digital Marketplace Act or the Digital Services Act, aimed at setting global technology standards,And cryptocurrency, a nascent and promising industry, is just one more building block in executing this aggressive strategy.As a result, ahead of the release of MiCA's first proposal, Valdis Dombroskis, Executive Vice President for Financial Services at the European Commission, said: "I am confident that Europe is capable of leading the world in cryptocurrency regulation."

Lack of applicable EU legislation, increasing regulatory fragmentation, imminent momentum for the adoption of cryptocurrencies such as Diem, and the drive to take a leading position in regulatory technologyThe EU has been forced to act -- and act decisively.

MiCA's goal - What is the EU trying to achieve?

From these driving forces, the EU's main objectives for MiCA were and continue to be:

1. Protect consumers who buy cryptocurrencies or participate in crypto asset services to prevent the serious problems that occurred during the 2017/18 ICO boom (and more recently in 2022)

2. Establish regulatory harmonisation, eliminate regulatory arbitrage loopholes and allow companies to operate across the EU without 27 different licences and regulators

3. Create legal certainty for companies and institutions to enter the field, develop clear rulebooks for different services (token offerings, trading, escrow, etc.) and promote fair competition and innovation

4. Play a leading role in regulating cryptocurrencies globally, doubling down on its ambition to influence technological and economic innovation through an early and comprehensive policy framework

At present, the unclear regulation of the crypto industry in the United States has been criticized by the market, and Gary Gensler, the current chairman of the SEC, has become one of the controversial figures

Rules of MiCA - How does MiCA affect encryption services?

Perhaps the easiest way is to first state what MiCA does not cover.

The MiCA does not apply to the European Central Bank (ECB), national central banks, the European Investment Bank, the European Financial Stability Facility, the European Stability Mechanism and public international organizations.

It does not address the detailed Anti-Money Laundering rules for cryptocurrency operations discussed in the current AMLR (Anti-Money Laundering EU Regulation), nor does it cover the anti-money laundering rules already completed by TFR (Transfer of Funds Regulation Funds Transfer Regulation). (FATF, Financial Action Task Force, EU implementation of travel rules officially approved by the EU Parliament today) Remember the discussion about "ownless wallets" actually being "banned"? That's TFR, not MiCA.

In addition, MiCA does not cover crypto assets (or crypto asset services) that have been identified as securities to prevent framework duplication. These services around tokenized securities are covered by MiFID. For those who want to experiment with securities trading and settlement on blockchain, the EU has adopted the "DLT pilot mechanism" (which allows market infrastructure operators to test distributed ledger technology in the issuance, trading and settlement of tokenized financial instruments). Officially launched in March 2023. Finally, MiCA does not cover deposits as defined under the EU Deposit Guarantee Scheme Directive.

In other words,MiCA covers basically all forms of token offerings, stablecoin offerings, crypto asset services (such as trading and custody), and new market "abuse regulations" for the entire space(Article 12 of the Rule defines and prohibits all forms of market manipulation). Unlike the United States, which negotiated separate Stablecoin bills and centralized market operators bills, the EU decided to bring these concepts under the same regulatory umbrella.

Or, to paraphrase Tolkien: "A rule may rule them, a rule may find them; a rule may bring them, and bind them in the dark."

MiC puts forward the classification system of assets and services and lists the corresponding requirements

Classification of assets

crypto-assetIs "a digital representation of value or entitlement that can be transmitted and stored electronically using a distributed ledger or similar technology". Most crypto assets should fall into this "catch-all" category, including Bitcoin and ether

Utility TokensIs a sub-type of crypto asset that is "used only to provide access to goods or services provided by its issuer". The requirements for issuing utility tokens are relaxed, but I don't expect many people to fall into that category

ART, Asset-referenced Tokens (ART, asset-referenced Tokens)Is a token designed to stabilize its value by referencing/clustering a basket of currencies, commodities, crypto assets, or other single non-fiat currency assets. This category was created on the basis of the original Libra 1.0 coin, which pegged its value to the IMF's Special Drawing Rights type basket of fiat currencies.

E-money Token (EMT E-Money Token)Aims to stabilize its value by referring to the value of a single legal tender, such as the USDC, USDT, BUSD, or EUROC. The concept and most of its requirements stem from the existing concept of electronic money regulation in the European Union

For ARTs and EMTs, MiCA introduced the concept of "importance". "Significant" ARTs & EMTs are tokens that meet certain acceptance thresholds and must meet higher prudential, governance, and liquidity requirements. ARTs and EMTs are considered "significant" if the following three criteria (further defined by EU regulators) are met:

More than 10 million holders

More than 5 billion euros in market value

Whether the number and value of daily transactions exceed 2.5 million and 500 million euros, respectively

Whether the issuer is designated as a "gatekeeper" under the Digital Market Act

It is important that the issuer is considered internationally, including the use of tokens for payment and remittance

The degree to which tokens are connected to the financial system

Whether the issuer provides additional ART, EMT, or crypto asset services

NFTs

Unfortunately,The classification of NFT in MiCA legislation is not 100% clear. Art. 2(3) of MiCA, and related Recital 10 suggest that NFT should remain outside the scope of MiCA; But Recital 11 points out that if NFTS are issued as "large series or collections," they may be considered not actually "non-homogeneous," meaning that their distribution and other services built on such NFTS (such as the NFT marketplace) may be subject to MiCA's requirements.

The most important question for all NFT enthusiasts, of course, is whether the standard 10k high volume NFT photo series will be considered a "large series or collection" by regulators. It seems reasonable to assume that,This means that most of the projects in the current NFT market will actually come under MiCA's purview.

NFT issuers will be required to comply with the disclosure and compliance requirements that apply to issuers of financial instruments (outlined below). The same fate may befall the builders, custodians or aggregators of the NFT market, who may be considered MiCA crypto asset service providers.

Interesting technical neutrality issues arise, for example, when a collection of NFT representing an audio file from a concert ticket or an album can be considered a regulated financial instrument of MiCA in token form, but not in its analog and existing digital versions.

Looking ahead, future guidelines from EU regulators may provide more legal clarity for NFT issuers and businesses around Recital 11, but I fear that different interpretations by national regulators will create legal uncertainty for many NFT creators and companies in the near future. While the goal of establishing regulatory clarity can be achieved in most areas of the crypto industry, the handling of NFT may not be one of them.

Requirements for crypto asset issuers

Crypto asset Issuer (" Issuer ")A detailed white paper (except for utility tokens and small-scale crypto assets) must be drawn up, including information about the project, the issuer, the risks involved, the technology used, the economic design of the token, and the environmental impact of the token consensus mechanism(This last part is a compromise on the amendment banning full trading of work-proof PoW tokens, which was rejected by a narrow majority in the European Parliament's ECON committee).

Crypto asset issuers need to notify their respective national authorities (e.g. BaFin in Germany) at least 20 days in advance of the publication of their white paper. MiCA does not require its explicit approval. However, the relevant authorities may prohibit the issuance of such cryptoassets. In addition to standard obligations to behave honestly, fairly, and professionally, to disclose conflicts of interest, or to make marketing clearly identifiable,MiCA also offers an interesting clause that gives retail holders participating in the token offering the right to withdraw within 14 days (without paying a fee). It will be interesting to see how this will be managed in practice.

Disclosure details and the use of the white paper template will be determined by EU regulators over the next 12 months.

Overall, these disclosure requirements, primarily for crypto asset issuers, seem reasonable and measurable, and do not pose insurmountable challenges for most projects.If regulatory uncertainty in the US continues, particularly regarding the applicability of token and securities laws, it is conceivable that many teams will release their tokens from the EU under this new framework.

1. Requirements for asset reference Token (ART) issuers

Unlike "standard" crypto assets, publishing an ART white paper requires the explicit prior approval of a national authority.Entities issuing ART are required to be registered in the EU, meet certain prudential "own capital" requirements (2% of ART supply), meet reserve management (regarding segregation, custody, investment, etc.) criteria, and develop risk clean-up and resolution solutions.

As mentioned earlier, "significant" ART issuers will be held to higher standards (e.g., 3% of own capital, and additional interoperability, liquidity, and governance requirements). Moreover, the European Banking Authority (EBA), rather than national financial authorities, would be responsible for supervising these entities.

2. Requirements for issuers of electronic Money Tokens (EMTs)

Only certified e-money institutions (EMI) or credit institutions can issue e-money tokens in the EU. Unlike the ART issuer, the competent authority is only required to notify about the EMT white paper. E-money tokens have strict redemption obligations, are prohibited from offering interest to EMT holders (as are existing EMIs), and generally have similar "own money" (2% of supply) and reserve management requirements to ART issuers (e.g., only high quality liquid assets are allowed to be invested).

Similarly, significant EMT issuers are supervised by European Banks and must meet higher equity (3%), interoperability, liquidity, solutions and governance requirements.

MiCA's chapter on ARTs and EMTs takes up a large part of MiCA, and that's no coincidence. These rules are designed with a clear political mandate in mind, making the MiCA legislation Libra/Diem's most far-reaching legacy in the crypto space. After the demise of Libra/Diem, there are very few notable tokens that can fall into the ART category, and I wouldn't be surprised if we end up in a weird situation,That there is no regulated EU for the foreseeable future..

3. A final note on ART and EMT  

First, there is no exemption for decentralized or algorithmic stablecoins. It will be interesting to see how the projects behind decentralized or algorithmic stablecoin try to navigate the future EU regulatory landscape.

Second, a very political and controversial provision regarding ART and non-euro EMTs was unfortunately included in the final version:When an ART or non-euro EMT is "used as a transaction", the issuer must stop issuing the token if the number and value of linked transactions per day are above €1m and €200m, respectively, in the euro area.

Eu policymakers are primarily motivated by concerns about EU monetary sovereignty, it has since become clear that the thresholds are limited to physical payments, not investment or trading activities, which will be further defined by EU regulators. The actual consequences of such protectionist measures (how they are monitored, etc.) will depend largely on how strictly European banks decide to enforce abstract language.

Requirements for Crypto-asset Service Providers (CASPs)

The different categories of regulated crypto asset services established by MiCA, and the corresponding requirements, are greatly influenced by the EU's MiFID (Markets in Financial Instruments Directive), which targets investment firms, brokers or wealth managers, among others. Thus, a MiFID regulated firm providing services to a traditional asset class (for example, a securities broker) does not need another MiCA license to provide a similar crypto service (crypto broker). These companies will need to notify the competent authorities and prove their technical competence.

Other companies seeking to offer one of the following crypto asset services will need to obtain a CASP (Crypto-Asset service provider) licence from the competent EU national authorities.

- Custody and management of crypto assets

- Crypto asset trading platform operation

- Exchange of cryptoassets with fiat currencies or other cryptoassets

- Placement of crypto assets

- Receive and transmit cryptoasset orders

- Crypto asset advice and portfolio management

All of these CASPs are subject to minimum requirements regarding their governance, custody of assets, complaint handling, outsourcing, wind-down plans, disclosure and, most importantly, prudential requirements -- CasPs are required to maintain a permanent minimum capital (" own funds ") :  

- The trading platform is required to maintain a minimum permanent capital (" own capital ") of €150,000

- EUR 125,000 for custodians and exchanges (brokers)

- All other CASPs require €50,000

Most importantly, each CASP feature has certain regulatory requirements to meet, such as:  

- Custodians are required to establish custody policies, regularly communicate the status of customer assets, or assume responsibility for customer assets lost due to cyber attacks or failures

- Trading platforms need to implement market abuse detection (i.e., market manipulation detection) and reporting systems or disclose current bid and sell prices and trading depths

- Exchanges and brokers need to have non-discriminatory policies and execute orders with the best possible results and displayed prices

- Advisors and portfolio managers need to assess the suitability of crypto investments for their clients based on risk tolerance and knowledge

Note: Crypto assets with inherent anonymity (" privacy money "such as Monero, Zcash, etc.) can only be allowed on trading platforms if CASP or the relevant regulatory authority can identify token holders and their transaction history. Since this is practically impossible to implement,I expect regulated cryptocurrency exchanges in the European Union to remove privacy Money from their exchanges.

Casps that are already licensed under the national framework will benefit from an accelerated and simplified MiCA authorization process. They will also receive their final MiCA license within a maximum of 18 months of entering the application (meaning the second quarter of 2026 if the application date is Q4 of 2024).

Regulated custodians of cryptocurrencies in Germany, for example, are likely to benefit from these simplified procedures and transitional measures. However,Only CASPs licensed by MiCA can benefit greatly by offering their services throughout the European Union (the world's largest single market) through what is known as an EU licence. This is why I expect most crypto companies to apply for MiCA licensing as soon as possible.

A final comment on regulation: CASPs are typically regulated by the national financial regulator of the jurisdiction in which they are located. However,For the largest CASPs, which have more than 15 million active users, national regulators must inform the EU securities regulator, ESMA, which will have a say in key decisions and developments from then on. Based on ECB data on the ownership of crypto assets in the EU, it can be assumed that the world's largest exchanges are not far from this threshold.

DeFi

MiCA applies to natural and legal persons "and certain other operators". Other "operators" may include entities that are not legally incorporated, but the EU has clarified that decentralized DAOs and protocols are not the goal of this recent addition. Clause 22 of MiCA's specification clarifies:"If crypto asset services are provided in a fully decentralized manner (..) Without any intermediary, then they should not fall within the scope of this Regulation". This central statement is backed up by multiple public statements from key EU officials in the Commission and Parliament.

But, as usual, the devil is in the details. The same preface says,MiCA is even suitable for "situations where certain activities or services are performed in a decentralized manner."

How much decentralization (technology, governance, law, etc.) is needed to avoid the regulatory reach of MiCA? It's hard to say at the moment,But to close any possible regulatory loopholes, the bar would be high. I expect there will be a number of enforcement and litigation cases involving this issue. The EU is generally not as keen to enforce its laws across borders as the US, but in particular EU DeFi projects whose legal entities benefit financially from the agreement, or exhibit spurious decentralization of governance, or have central technical backdoors in the agreement will have difficulty justifying why they should not be included under MiCA.

If the DeFi project wants to go off-range, it has two options

- Demonstrate complete decentralization (high standard)

- Operate according to reverse consultation principles (not for EU clients)

The bar will be very high in both cases, as they can cause significant shock and impact to MiCA.Projects that operate outside the EU, have an EU legal entity or offer a euro reference Stablecoin may be particularly difficult.

In general, the EU should be commended,Because it officially excludes true DeFi projects from the regulatory framework for centralized financial firms. If some part of MiCA becomes a global regulatory standard, hopefully this will be one of them.

Market abuse rules

In addition to rules for crypto asset issuers and service providers, MiCA has introduced rules against market manipulation and insider trading.Using inside information to profit from trading activities will be illegal, as will any activity that gives false or misleading signals about the supply, demand or price of crypto assets.

For example, publishing opinions about crypto assets in the media (social media or otherwise) without disclosing to the public the positions and conflicts of interest of the owners, and subsequently profiting from the impact of those opinions on the price of crypto assets, would be considered market manipulation. Crypto KOL beware!

MiCA's impact on the crypto industry in the EU and beyond

MiCA's impact on the EU crypto Industry - Harmonisation, competitiveness, institutionalisation and market share gains for regulated firms.

For the EU crypto industry, MiCA represents a true game changer. Until now, cryptocurrency companies in the European Union had to knock on the door of each national regulator if they wanted to serve the entire EU market.

Some countries such as Germany, Austria or France already have dedicated encryption licensing regimes, others such as Ireland have simple anti-money laundering registration obligations, and others do not have any regulatory framework for encryption operations. Navigating a complex regulatory jigsaw puzzle of 27 different rulebooks becomes a very expensive and onerous undertaking.

There is no doubt that this limits the growth of EU start-ups and limits their competitiveness against their US or Asian counterparts.Under MiCA, the same binding EU requirements will apply to all 27 member states.Once a company has obtained a MiCA licence in a country, it will be able to "pass" it and offer licensing services across the EU single market.

With MiCA in effect,Offshore unregulated companies will no longer be able to proactively target EU consumers. Not only as a result of the recent FTX debacle, reserve solicitation rules -- autonomous actions by foreign firms on how to recruit EU customers -- can be expected to be stricter than other financial services providers in traditional markets. This will result in a significant increase in the share of the EU market gained by MicA-regulated cryptocurrency businesses from their offshore non-regulated competitors.

In addition, MiCA is likely to be accepted by more institutions and become active in the EU cryptocurrency market. According to Bloomberg,Only 4% of institutional funds in Europe hold crypto assets.Regulatory uncertainty is one of, if not the main concerns holding back institutions from entering the field. I expect major European banks to launch crypto asset services in the next 48 months, whether it's custody, trading, or issuing electronic money tokens or asset reference tokens, colloquially known as stablecoins.  

In summary, I hope that MiCA can improve the coordination, competitiveness and market share of regulated enterprises, as well as increase the number of active institutions in the market and providing corresponding services.

Establishing regulatory clarity against a backdrop of global uncertainty can be a great way to attract capital, talent and companies from other parts of the world, especially those looking to issue tokens.At best, encryption as an industry could be a huge opportunity for the EU's economic and technological Renaissance.

However, much of the actual success of MiCA comes down to the implementation standards and enforcement practices that EU regulators will develop over the next 12-18 months.

Some MiCA provisions run the risk of imposing burdens on industry participants whose full impact will become apparent only when the technical implementation standards provide practical operational guidance.

The worst-case scenario is that only a handful of EU cryptocurrency startups manage to absorb substantial legal and compliance costs during a sustained bear market, stablecoin issuers go a long way around the EU, and exchanges face overly onerous disclosure requirements and responsibilities that benefit consumers and make their products uncompetitive with their overseas counterparts. Eu consumers will either be cut off from innovation or continue to use (and be exposed to) the largest pool of overseas liquidity and utility.

In addition,Regulators need to take into account that most NFT and DeFi projects actually fall under the category of MiCA and need to comply with relevant regulations - a door that is still not clearly defined in the current MiCA retelling.This will inevitably lead to teams and resources being moved away from the EU.

MiCA can provide a positive boost to EU crypto companies as well as the EU economy as a whole, but its success will largely depend on the effectiveness and development of the forthcoming practice implementation standards.

MiCA's Global Impact - Will MiCA set global standards?

MiCA has the potential to become the GDPR of the crypto world that today stands for privacy, the almost universally adopted regulatory standard globally, which is certainly possible, but far from a done deal.

Admittedly, MiCA will play a huge role in how other jurisdictions, especially those without much experience with financial regulation, think about their own crypto asset frameworks. Examining the recent FSB recommendations on crypto providers and the so-called "global Stablecoin Facility",You can see how many MiCA concepts have entered global standards setting bodies.

The EU market is the world's largest single internal market, with 450 million relatively affluent consumers. With its huge market size,MiCA will convince many companies around the world to adopt MiCA operating standards, and possibly even on an international scale, in order to maintain globally integrated operations and products."The global impact of EU regulatory standards has been observed in many industries, from the chemical industry to agriculture or technology," Anu Bradford, a professor at Columbia Law School, calls it the "Brussels effect."

It's no coincidence that current CFTC Commissioner Carolyn Palm warned that "as the United States struggles to provide regulatory clarity for the domestic crypto industry, a global regulatory framework like MiCA can fill the gap."

The longer the regulatory vacuum for crypto assets in the US continues, the more global impact I expect the MiCA standard to have.

Ultimately, however, only the actual success of MiCA matters, and much of the actual implementation work is still ahead of us. If MiCA proves applicable to the industry, consumers and regulators alike, it will have a global impact. Otherwise, many jurisdictions will decide to choose an entirely different policy path.

Only time and the market will tell.

Since industry players can have a lot of influence in making MiCA a success by responding to the upcoming implementation standards, I encourage all crypto projects and companies to work closely with EU regulators, primarily the European Banking Authority and the European Securities Markets Authority, over the next 12-18 months.

After the complete collapse of FTX, even the most fervent crypto extremists seem to accept that some sort of sensible regulation is needed to boost space and prevent the worst evils of fraud and fraudsters.

So far,MiCA is undoubtedly the most comprehensive regulatory framework for crypto assets that we have seen globally.This is an opportunity that the industry should seize and build upon.

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