The Markets in Crypto-Assets Regulation (“MiCA”) represents a significant legislative development by the European Union, aimed at establishing a cohesive regulatory framework for crypto-assets across all EU member states. Passed by the European Parliament in April 2023, MiCA seeks to bring much-needed clarity and consistency to the burgeoning crypto-asset market within the EU.
While the core regulation has been adopted, the specific provisions regarding the licensing requirements for crypto-asset service providers (“CASPs”) are anticipated to be finalized by Q4, 2024. MiCA’s enforcement for crypto exchanges is set to commence in December 2024, with the possibility of license application submissions expected to open on January 1st, 2025.
Notably, the regulation allows EU Member States the discretion to grant currently licensed Virtual Asset Service Providers (“VASPs”) a ‘transition period’ of an additional 18 months. This “grandfathering clause” allows VASPs to continue operating without a MiCA license until as late as July 1, 2026, while the exact timing will depend on how each Member State chooses to implement these transitional measures in accordance with Article 143(3) of MiCA.
The MiCA licensing process requires CASPs to submit an application to the relevant regulatory authority, which in turn, has 25 business days to determine whether the application is complete. If additional information is needed, the regulator will set a deadline to complete the submission. Following this, the regulator has up to three months to assess whether the CASP license applicant meets the required standards and to provide a reasoned decision and finally, the applicant will be notified of the decision within three business days.
Although the indicative timelines mentions a licensing duration of approximately four months, past experience with similar processes, such as EU crowdfunding and EMI licenses, suggest that the actual process may take twice as long.
Main mandatory requirements
- Capitalization:
MiCA introduces heightened capital requirements, with thresholds reaching up to €150,000, aimed at ensuring financial stability, protecting consumer rights, and setting a robust entry barrier for market participants. We can assist with the necessary capital injection procedures and provide advisory services for setting up a bank account with an EU credit institution.
- AML Compliance and Internal Policies:
MiCA mandates a comprehensive set of internal policies, including those for internal control mechanisms, risk assessment, confidentiality, and the safeguarding of funds. Our team of specialized lawyers is well-equipped to assist with the preparation and review of all required legal documentation and corporate policies to ensure full compliance.
- Local Substance:
MiCA requires that CASPs establish a physical office where, at least part of their activities will be conducted (as opposed to having a ‘registered address’), with management based in the EU and at least one director residing in the EU. Additionally, senior-level local AML compliance specialists, such as a Chief Compliance Officer (CCO) and Money Laundering Reporting Officer (MLRO), must be in place. Expectations around these requirements vary by jurisdiction, and we can offer tailored placement and local management solutions to meet these needs.
CASP Classes
MiCA introduces differentiation between CASP Licence classes based on the different activities provided by that CASP:
- Class 1: Capital requirement of €50,000 for services such as the reception and transmission of orders on behalf of third parties, providing advice on crypto-assets, executing orders on behalf of third parties, and placing crypto-assets.
- Class 2: Capital requirement of €125,000, permits all services under Class 1, as well as the exchange of crypto-assets to fiat currency, the exchange of crypto-assets to other crypto-assets, and the operation of a trading platform for crypto-assets.
- Class 3: The highest capital requirement of €150,000 permits all services under Class 2, in addition to the custody and administration of crypto-assets on behalf of third parties.
We strongly recommend that VASPs consider increasing their capital reserves now to meet these requirements, thereby avoiding administrative bottlenecks later in the process.
MiCA restricts access to the EU market to MiCA-licensed companies only, Non-MiCA licensed VASPs, local or “Offshore VASPs”, cannot actively market or offer services within the EU. While EU citizens can still potentially use these non-compliant services, they are limited, subject to stricter regulations, requirements, and reporting obligations and potentially face consequences of EU enforcement actions.
In conclusion, as the MiCA regulatory framework takes shape, it is imperative for VASPs and CASPs to stay ahead of the curve by preparing for the forthcoming changes. Our firm stands ready to assist with navigating this complex regulatory landscape and ensuring compliance with the new EU-wide standards.
Current situation in EU countries
Poland:
At the moment, Poland is considering a draft law to implement the provisions of MiCA. According to this draft law, a transitional period until 31 December 2025 will apply to existing VASPs (i.e. those that will be authorized before the end of December 2024). During this period, existing VASPs can operate under the previous regime.
This means that there is still time to obtain authorization in Poland and your Polish VASP will be able to operate under the previous regime until the end of 2025.
Lithuania:
In alignment with Mica, the Lithuanian government has recently passed the Law on Cryptocurrency Markets which also proposes amendments to existing financial legislation. The law represents a significant step towards harmonizing national regulations with EU standards in the crypto-assets sector.
- Under the Law, the Bank of Lithuania will serve as the designated supervisory authority for cryptocurrency service providers (CASPs).
- Starting January 1, 2025, Lithuanian companies engaging in crypto-asset activities must obtain a cryptocurrency license under the MiCA Regulation and no new VASP can be registered.
- Entities registered in the current VASP Register will be permitted to continue their crypto-asset business operations until June 1, 2025.
Lithuania’s proactive steps to align its national regulations with EU standards make it an attractive jurisdiction for crypto-assets businesses, even amidst regulatory changes.
The transitional period until June 1, 2025, provides current VASPs with valuable time to adjust to the new regulatory landscape. The government’s commitment to legal clarity and smooth transition further enhances Lithuania’s appeal as a destination for crypto-asset companies in the run-up to MiCA.
Bulgaria:
On August 20, 2024, the Bulgarian Council of Ministers introduced a draft law to implement Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA) and Regulation (EU) 2023/1113 on the transfer of funds (TFR). This legislation is expected to come into force on December 30, 2024, marking a significant step toward a transparent and robust regulatory framework for crypto-assets, their issuers, and service providers.
The Bulgarian draft law designates two national competent authorities (NCAs) for licensing under MiCA. The Financial Supervision Commission (FSC) will oversee licensing for crypto-asset service providers (CASPs) and issuers of asset-referenced tokens and other non-e-money tokens, and the Bulgarian National Bank will handle the licensing of e-money token issuers.
The draft law expands about the documentation required for MiCA licensing, emphasizing the governance of CASPs, including their management, shareholders, and ultimate beneficial owners. Many of these documents align with those previously required for VASPs, allowing registered VASPs to potentially avoid re-submitting some of the documents under Article 62(4) MiCA. Applications to the FSC will open on December 31, 2024, but preparatory work may begin earlier.
The draft law shortens the grandfathering period for VASPs to 12 months, expiring on December 31, 2025, in line with ESMA’s recommendations.
The draft law outlines FSC licensing fees as follows:
– Class 1 CASPs: EUR 2,500
– Class 2 CASPs: EUR 5,000
– Class 3 CASPs: EUR 15,000
The current VASP register will be closed on 30 December 2024 and transferred to the FSC, requiring any changes to be promptly reported.
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