The Markets in Crypto-Assets (MiCA) is a regulatory framework set up by the European Commission targeted at making long-term changes in the crypto market.
The agreement was formed in June 2023, and it will be finally implemented in December 2024.
This article will give an overview of MiCA, the historical factors that led to its formation, and other relevant information to make you familiar with the framework.
Markets in Crypto-Assets (MiCA)
The MiCA regulation aims to streamline the crypto assets of the European Union countries. The first form of the MiCA regulation was drafted in September 2020 by the European Commission.
The regulations are in tune with the Commission’s Digital Finance Package; the digital finance strategy to be adopted in the future and the proposed legislation about crypto-assets are part of this package.
The four major priority areas into which the MiCA sheds light are given below.
- Removing Fragmentation in the Digital Single Market
- Adapting EU law to facilitate digital innovation
- Promoting virtual finance
- Addressing the inbuilt risks associated with technological developments in the decentralized finance sector.
History of MiCA
In 2017, the Bitcoin’s value rose to a significant high. This event fuelled many further debates about the prospects of the decentralized marketplace.
This made the European Commission devise a masterplan for the financial sector to research the possibilities of the current financial regulations accommodating crypto assets too.
A subsequent study by the European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) revealed the inadequacy of the existing system in incorporating the regulation of crypto-assets.
The MiCA regulations are important in the wake of the use of cryptocurrencies for various illegal transactions such as consumer fraud, cyber security, money laundering, and terrorist funding risks.
Implementation of MiCA
The timeline for the development and implementation of MiCA rules is given below.
- June 2023: The first news about MiCA was published in the OJEU journal.
- July 2023: The first Consultation Package of MiCA was officially launched.
- October 2023: The second Consultation Package of MiCA was officially launched.
- Q1 of 2024: The third Consultation Package of MiCA was introduced.
- June 2024: Entry into Application Title III and Title IV.
- December 2024: Entry into Application Titles I, II, V, VI, and VII.
The Different Titles Under the MiCA Act in Detail
In this section, we will discuss in detail the different titles of the MiCA regulation.
- There are three articles in the title I.
- Article 1: Article 1 talks about offering and trading platform requirements for publicly offered crypto-assets and related entities.
- Article 2: Article 2 defines the entities and persons to whom the regulations are applicable.
- Article 3: It defines distributed ledger technology, utility tokens, consensus mechanisms, crypto-asset services, and dozens of other terms used in the framework.
- Title II defines the persons who are eligible to be the creators of crypto-assets.
- The person should be a legal person as per the definition.
- The person should have a crypto-assets whitepaper and a marketing communications document written and published.
- Title III denotes the asset-referenced tokens that try to gain stability by linking themselves with other asset classes. Stablecoins are an example of such assets.
- Title IV defines the criteria for operating as an e-money token operator. The title stipulates that e-money issuers should be credit or e-money institutions that are authorized by the government.
- According to Title V, the following groups and entities can provide crypto-assets services.
- Credit institutions
- Central securities depositories
- Investment firms
- Market operators
- Electronic money institutions
- UCITS management companies
- Approved Alternative investment fund managers.
- Title VI addresses market abuse and the activities that come under its purview and other rules such as disclosure of inside information, insider trading, and market manipulation.
- Title VII provides instructions and frameworks about cooperation between different jurisdictions. The EU member nations should report to the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA).
What are the Assets Excluded as per MiCA Rules?
Not all asset classes are entitled to crypto-assets under the MiCA guidelines. The exceptions under this rule are as follows.
- Financial instruments
- Deposits or structured deposits
- Funds
- Securitization positions
- Non-life or life insurance policies
- Pension product and social security schemes
- Non-fractionalized non-fungible tokens
- Transactions between certain public entities and groups
- Central Bank Digital Assets
- Non-transferrable digital assets
- Financial instruments that come under the purview of other directives
Conclusion
The MiCA regulations are the largest and the most important in the history of decentralized finance. This comprehensive framework once implemented governs a major population and will guide future jurisdiction in this field.
