Since December 30th, 2024, the European crypto asset market has been operating under a radically different set of rules thanks to the new MiCA (Market in Crypto-assets) regulation. Aimed at enhancing transparency, investor protection, and market integrity, this regulatory framework imposes strict new obligations on crypto asset service providers (CASPs). Let’s take a closer look at what this means for the industry.
Harmonizing National Frameworks: MiCA’s European Revolution
Prior to MiCA, each EU member state applied its own regulatory framework to crypto assets, ranging from permissive to restrictive. This regulatory fragmentation made it challenging for market participants to expand cross-border within the EU. MiCA establishes a uniform regulatory foundation, eliminating national differences.
The previous CASP regime in France under AMF supervision will be progressively phased out. CASPs registered or licensed in France before December 30th, 2024 will benefit from an 18-month transition period to comply with the new EU rules while continuing their activities. After this period, full compliance with the MiCA regulation will be the sole way to continue operating within the EU.
While demanding, this standardization opens new opportunities. MiCA-compliant firms will gain access to the European passport, allowing them to conduct business across all 27 EU member states under a single authorization. This common framework not only improves legal certainty but also boosts companies’ competitiveness in the single market.
New Requirements for Crypto Asset Service Providers
Under MiCA, CASPs face new obligations designed to enhance transparency and security. They must now obtain a European authorization that involves implementing a number of procedures.
CASPs will be required to publicly disclose detailed information about their fees, trading volumes, and transactions to ensure transparency. To safeguard against losses, MiCA mandates strict segregation between clients’ funds and providers’ own funds for crypto asset custody.
While imposing constraints, these obligations strengthen security and confidence in the market while giving compliant participants a competitive edge in a harmonized European environment.
Increased Focus on Cybersecurity and Risk Management
With MiCA, cybersecurity takes center stage in crypto asset regulation. CASPs will be required to implement an Information Security Management System (ISMS) in line with recognized standards like ISO 27001. This tool aims to ensure tight management of data security risks and digital assets, a major challenge for building user trust.
Contracts with partners will also need to be reviewed to include stringent security and incident management clauses, in accordance with the Digital Operational Resilience Act (DORA). These requirements aim to prevent vulnerabilities and strengthen the operational robustness of market participants in the face of growing threats.
Preparing for audits is also crucial to ensure compliance. Even if MiCA does not mandate certain audits like the PASSI (qualified information systems security audit providers) audit in France, conducting them is highly recommended to identify gaps and avoid costly non-compliance. These procedures, despite their complexity and high cost, help reinforce providers’ credibility with regulators and investors.
These newly imposed obligations represent a major challenge for businesses, especially smaller ones. However, they also provide an opportunity for players to stand out in an environment where security and transparency are becoming essential trust criteria.
Treatment of Asset-referenced Tokens and E-money Tokens
MiCA sets strict standards for issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs) to increase transparency and security. Issuers will be required to submit detailed balance sheets regarding the composition and amount of their reserve assets, thus ensuring the tokens’ value and minimizing risks of decoupling or liquidity shortages. Close monitoring will also be conducted for transactions related to these tokens, with requirements to report the number and value of payments made.
Tokens deemed “significant” will face tighter oversight, orchestrated by colleges led by the European Banking Authority (EBA). These actions aim to bolster investor safety while preventing systemic risks in the markets. Though this requires significant investments in reporting systems for issuers, these requirements contribute to enhancing their credibility while ensuring the confidence of regulators and users.
Impact on Cross-border Services
MiCA makes a significant contribution by simplifying cross-border operations for CASPs through the introduction of the European passport. This system will allow companies certified in one member state to offer their services across the EU without needing to obtain various local approvals. This reduces costs and facilitates companies’ expansion in the single market.
However, this standardization comes with strict conditions. To benefit from the passport, companies will need to fully comply with MiCA’s requirements. Entities still operating under national regimes, like French providers registered as CASPs, will need to complete their transition before the end of the 18-month transition period to continue offering their services beyond their home country.
Additionally, MiCA imposes limitations on entities benefiting from the so-called “grandfather clause”. These entities, temporarily operating under the former national regime, will not be able to conduct cross-border operations until obtaining their MiCA authorization. Moreover, member states retain some flexibility to restrict or remove this transition period, which could hinder companies’ planning.
These rules aim to ensure high security and compliance standards across the EU while preventing the circumvention of rules via less stringent jurisdictions. For CASPs, it’s an exceptional opportunity to establish themselves firmly in the unified European market, provided they promptly adapt to the new standards. This transition will require significant compliance investments while offering increased expansion opportunities for companies ready to embrace this challenge.
Advice for a Successful Transition to MiCA
Compliance with the MiCA regulation represents a major challenge for crypto asset market participants, but proper preparation can turn this constraint into an opportunity. Crypto asset service providers should therefore anticipate the regulation’s requirements and adapt their internal procedures to ensure a smooth compliance process.
- Start the process as soon as possible – With only an 18-month transition period for participants registered before December 2024, any delay could potentially jeopardize obtaining MiCA authorization.
- Involve all relevant teams – Compliance should not be limited to legal departments: technical, operational, and security teams must also be aligned to meet complex requirements, especially in cybersecurity and reporting.
- Train employees – Regulators will scrutinize staff knowledge of new procedures.
- Maintain a pragmatic approach – MiCA applies a proportionality principle, allowing smaller entities to adopt measures scaled to their size and operations. The idea is not to aim for full compliance from the start, but to progress methodically to avoid costly penalties or delays.
By anticipating demands, engaging teams, and adjusting action plans as needed, providers have the ability to not only meet regulatory requirements but also enhance their presence in the harmonized European market. Though challenging, this transition is crucial for strengthening our credibility and opening up to a broader market.
Key Takeaways
- MiCA harmonizes previously fragmented national crypto regulations in the EU
- New transparency, security, and reporting requirements for crypto asset service providers
- Strict oversight of asset-referenced tokens and e-money tokens
- European passport system simplifies cross-border crypto services
- Transition requires significant compliance efforts but opens up EU market opportunities
