Political agreement reached on the EU's Markets in Crypto Assets Regulation
Published on 15th Jul 2022
New regulatory framework for crypto expected to come into force in 2024 – with implications for issuers and service providers alike
On 30 June 2022, the EU Council presidency and the European Parliament negotiators reached a political agreement on the first major regulatory framework for the crypto/Web3 industry, namely the Markets in Crypto Assets Regulation (MiCAR).
Through this new legal framework, the EU wants to take the lead in the regulation of crypto assets and set the (regulatory) standard in the global crypto market. MiCAR aims to provide adequate consumer and investor protection, and ensure financial stability.
Obligations for issuers
Issuers of crypto assets will become subject to various requirements, such as the obligation to publish a white paper (that is, a prospectus "light") describing the project, the offer, and the associated risks. The white paper must be notified to the competent supervisory authority and must comply with the provisions of the regulation. There will be certain derogations depending on the amounts raised, the number of people to whom the issuance is offered (among others).
Issuers of stablecoins will need to maintain sufficiently liquid reserves to meet redemption requests. MiCAR also entails other obligations (and limitations) for private stablecoin initiatives, which should protect consumer interests, but which also probably pave the way (and restrict competition) for Central Bank Digital Currencies (CBDCs). All of this is particularly sensitive in light of the recent events on the crypto markets (such as the collapse of Terra Luna's UST stablecoin).
Obligations for service providers
Crypto Asset Service Providers (CASPs) such as crypto exchanges, trading platforms or wallet providers, will have to comply with strict operational and organisational requirements depending on the type of crypto asset service provided.
CASPs will be obliged to communicate with fair, clear, and non-misleading information. Consumer wallets will be better protected and CASPs will become liable in case they lose investors’ crypto-assets. The European Banking Authority (EBA) will maintain a public register of non-compliant CASPs.
MiCAR will also cover market abuse related to any type of transaction or service, notably for market manipulation and insider dealing.
One of the most contentious points during the negotiations related to the Proof of Work (PoW) mechanisms, as currently used by Bitcoin. Some negotiators wanted to include a ban on PoW-mechanisms which would in practice lead to a "Bitcoin ban". A PoW-ban has not made the final stages of the negotiations. However, CASPs will be obliged to provide information on their environmental footprint.
Non-fungible tokens (NFTs) will be excluded from MiCAR's scope, unless they fall under one of the crypto asset categories defined in MiCAR.
Sanctions for breach
Infringements will be subject to administrative fines and measures.
Fines can generally go up to EUR 700,000 for natural persons, and up to EUR 5 million or 3% of the annual turnover for legal persons. For some infringements, fines up to EUR 15 million or 15% of the annual turnover are possible.
Entry into force
The existing drafts are still subject to approval by the Council and the European Parliament before going through the formal adoption procedure.
Once MiCAR has been formally adopted and published in the Official Journal of the EU, expected to take place in Q4 2022, it will enter into effect. The majority of its provisions will become applicable 18 months later (that is, in 2024).
Osborne Clarke comment
MiCAR is intended to provide legal certainty, but also support innovation in the Web3 space. Whether it will achieve these objectives in practice remains to be seen.
If you need more information about MiCAR, please do not hesitate to contact one of our experts mentioned below or your usual contact at Osborne Clarke.