By Alma Angotti
On May 16, 2023, the Council of the European Union (EU) adopted the regulation on Markets in Crypto-Assets (MiCA) Regulation1, marking a significant milestone as the world’s first regulatory framework and governance benchmark for crypto assets. MiCA was published in the EU’s official journal on June 9, 2023, and entered into force on June 29, 2023. It is anticipated that the majority of MiCA’s provisions will come into effect in December 2024, provided that some provisions on asset-referenced tokens and electronic money tokens will be effective in June 2024.
MiCA sets forth uniform requirements regarding the offer, issuance, and provision of crypto-asset related services for three classifications of crypto assets: electronic money tokens (EMTs), asset-referenced tokens (ARTs), and other crypto assets, such as utility tokens, that are not covered by existing EU regulations. In the wake of high-profile scandals concerning fraud and abuse in the crypto industry, the regulation also provides for new consumer protection rules for Crypto Asset Service Providers (CASPs), like trading venues and crypto wallets. MiCA aims to address anti-money laundering (AML) and counter-terrorism financing (CTF) requiring CASPs to comply with anti-money laundering rules and secure approval to operate in the EU. The overarching goal of the regulation is to strike a balance between protecting investors and fostering innovation in crypto markets.
AML Obligations for Crypto Asset Service Provider — MiCA addresses AML and financial crime concerns in crypto markets by introducing a regulatory framework that requires all CASPs operating within the EU to maintain robust AML and CTF measures. The regulation achieves this by implementing a new authorization process that requires CASPs to submit an application to their home Member State that includes a description of the applicant CASP’s internal control mechanisms, policies, and procedures to identify, assess, and manage risks, including money laundering and terrorist financing risks2. The regulation also charges the European Bank Authority (EBA) with establishing a publicly available register of non-compliant CASPs3. These provisions should make it easier for authorities to track violations of AML rules. For CASPs that fail to comply with MiCA, the regulation directs Member States to empower authorities to take administrative penalties and impose fines4.
Customer Due Diligence — MiCA mandates that all CASPs operating on a trading platform conduct customer due diligence to verify the identity of their customers before admitting crypto assets to the trading platform.5
Monitoring and Reporting – Preventing Market Abuse —The regulation requires CASPs to establish effective transaction monitoring systems to detect suspicious activities6 If any suspicious transactions are identified, CASPs are obligated to report them to the relevant authorities of their home Member State.
Record-Keeping — MiCA requires that CASPs maintain comprehensive records of all transactions and customer data7.This record-keeping requirement is essential for ensuring transparency and facilitating audits and investigations by authorities.
The implementation of MiCA will create a single regulatory framework across the EU, thereby reducing the regulatory differences that exist across EU Member States. This will likely provide clarity to businesses from a compliance, risk, and operational standpoint. The global and cross-border nature of crypto markets means that cooperation and the enactment of similar regulations from other major economies is necessary for MiCA to have its intended impact on investor protection.
MiCA’s reach is, however, limited by excluding those crypto assets that are already covered by some other legislation or regulation. Additionally, MiCA does not apply to “crypto assets that are unique and not fungible with other crypto assets” including NFTs, digital art, or collectibles. Another limitation is that it does not apply to crypto assets “representing services or physical assets that are unique and non-fungible, such as product guarantees or real estate8.” Certain intragroup transactions and public entities, including the International Monetary Fund and the Bank for International Settlements, are excluded from regulation9. Further, central bank-issued digital assets or crypto assets, including money in digital form, are not subject to MiCA.10
Guidehouse professionals can help entities assess their compliance programs and develop and implement the necessary systems, controls, policies, and procedures to address MiCA requirements. Guidehouse has been engaged by banks, non-bank financial institutions, initial coin issuers and administrators, trading platforms, virtual commodity associations, digital asset exchanges, and money service agents.
This article is authored by Alma Angotti, Eugene Bolton, Janelle Bridson and Michael Schulien.
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