Key takeaways as MiCA reaches the finishing line

This article, first published on 18 May 2023, has been updated following MiCA’s publication in the Official Journal on 9 June 2023.

Well over two years after the Markets in Cryptoassets Regulation (MiCA) was first proposed, it has finally received the green light. MiCA will enter into force on 29 June 2023, with some provisions applying a year later on 30 June 2024, and the rest from 30 December 2024. MiCA has been welcomed in some crypto quarters – while meeting certain of its requirements will be challenging, crypto businesses value clarity and consistency in regulation and recognise the importance of investor protection measures in a sector still reeling from recent high profile collapses.

We discussed MiCA in our previous blog post here after the EU co-legislators reached political agreement last summer. This post focuses on the key takeaways from MiCA and its impact on crypto-markets.

Key takeaways

1. Timing

MiCA enters into force on 29 June 2023.

  • Provisions relating to asset reference tokens (ARTs) and e-money tokens (EMTs) will apply 12 months later, on 30 June 2024.
  • Other provisions will apply 18 months after entry into force, on 30 December 2024.
  • Transitional and grandfathering arrangements will be available in some circumstances e.g unless a Member State chooses not to apply the transitional regime or chooses to reduce its duration, crypto-asset service providers (CASPs) providing services before MiCA becomes applicable should be able to continue to do so for a further 18 months after MiCA starts to apply or until they become authorised. Transitional measures are also available to operators of trading platforms and issuers of ARTs.

For entities which are already authorised to provide cryptoassets services under a Member State’s national law at the time of application of MiCA, Member States may choose to apply a simplified authorisation procedure for an 18 month period.

2. What will MiCA mean for crypto businesses?

MiCA’s impact on businesses which are not currently authorised will be significant, although the onerousness of the obligations under MiCA will depend on the types of cryptoasset being issued and activities being carried on.  Although grandfathering and transitional regimes will be available, firms must not underestimate the time it will take to implement MiCA, from assessing MiCA’s scope, to applying for authorisation and implementing MiCA requirements into their systems and processes. Here are some issues which businesses should consider:

Authorisation and notification: The first thing businesses will need to do is consider whether their existing activities fall within the scope of MiCA. If so, they will be required to either notify the relevant national regulator or seek authorisation depending on whether they are already authorised financial institutions.

Compliance framework: Some of MiCA’s requirements for CASPs and issuers have been likened to those applicable to firms within the scope of MiFID, for example around conflicts of interest, ensuring that communications (including whitepapers) are fair, clear and not misleading, as well as other organisational, conduct and prudential rules. There are also change in control provisions, as well as a market abuse regime for cryptoassets. Firms will need to set up a compliance framework to meet these ‘mini-MiFID’ requirements.

Repapering: Repapering in some areas may also be necessary e.g:

  • Written agreements: Existing agreements will need to comply with MiCA which requires certain agreements with third parties to be in writing (e.g CASPs which outsource to third parties must enter into written outsourcing contracts; and issuers of ARTs must enter into written agreements which regulate the flow of information with custodians of reserve assets).
  • Client terms: Client terms and conditions and agreements will need to be amended to take account of mandatory contractual and client consent requirements within MiCA.
  • White papers: Issuers of EMTs and ARTs will need prior approval of their white paper, which must contain certain mandatory disclosures, from a competent authority before being able to issue, offer or market their tokens; while issuers and offerors of other tokens need only notify the regulator and provide a copy of their white paper before doing so. ART white papers will need to be supported by a legal opinion as to why the ART is neither an EMT nor a token excluded from MiCA’s scope.

Sustainability: Although the call for a ban on proof-of-work crypto mining ultimately did not receive sufficient support amongst co-legislators, ESMA will, as part of its work to develop technical standards on sustainability indicators, review and consider the various types of consensus mechanisms used to validate cryptoassets transactions, their incentive structures and the use of energy, the production of waste and greenhouse gas emission.

Liability: Crypto businesses must consider the liability attached to their activities and services under MiCA. For example, CASPs providing custody and administration services would be liable to their clients for the loss of any cryptoassets or of the means of access to the cryptoassets as a result of an incident that is attributable to the provision of the relevant service or the operation of the CASP. The CASP’s liability will be capped at the market value of the cryptoasset that was lost at the time the loss occurred. So, a CASP would effectively be held liable for any damages resulting from an ICT-related incident, including an incident resulting from a cyber-attack, theft or any malfunctions. However, the CASP would not be liable where it is able to demonstrate that the incident occurred independently of the provision of the relevant service or the event occurred independently of the operations of the CASP e.g where the problem is inherent in the operation of the distributed ledger that the CASP does not control.

3. Non-EU businesses

MICA applies to those engaged in the issuance, offer to the public and admission to trading of cryptoassets or that provide services related to cryptoassets “in the Union”. Non-EU businesses wishing to carry on cryptoassets activities within the EU or with EU customers should consider how the territorial scope of MiCA will impact on their current and future business models. Should they seek authorisation under MiCA? Will promotions or advertisements available to customers in the EU be treated as providing services and carrying on crypto activities in the Union? Will businesses be able to rely on MiCA’s reverse solicitation provisions?

Businesses considering setting up in the EU should note that, under MiCA, CASPs and ART issuers must have a registered office in the EU.

Similar to certain existing financial services legislation, such as MiFID, MiCA contains “reverse solicitation” rules, where an EU client may, at its own exclusive initiative, initiate the provision of crypto services by unauthorised non-EU firms. Firms should note that the EU is already wary of the reliance on reverse solicitation by third country firms in other areas of financial service and this is an area which the EU is keeping a close eye on. MiCA provides that ESMA will, by 30 December 2024, develop guidelines to specify when a third country firm is deemed to solicit clients established or situated in the Union and guidelines on supervisory practices to detect and prevent circumventions of MiCA reverse solicitation rules.

4. What might MiCA mean for EU crypto-markets in practice?

Only time will tell. It will be interesting to see how EU crypto-markets develop in light of MiCA and whether some of the issues raised during negotiations materialise, for example:

  • How hard will it be in practice for stablecoins to meet MiCA’s white paper requirements – will the stablecoins offering in EU reduce as some find they cannot meet these requirements?
  • MiCA caps the issuance of ARTs which are widely used as a means of exchange when the average number and average aggregate value of transactions per day associated as means of exchange within a single currency area is higher than 1 million transactions and EUR 200 million per day. This cap also applies to EMTs denominated in a non-EU currency and there are fears that the language in MiCA around the concept of ‘means of exchange’, which includes the use for settlement of transactions in other cryptoassets, could restrict the use of foreign currency-referencing stablecoins, such as USD-referencing EMTs, in the EU from 2025.
  • Will the ban on CASPs and issuers paying interest on EMTs or ARTs result in these cryptoassets appearing less attractive as a result?
5. Will all requirements be found in MiCA once it is finalised?

MiCA sets out the framework for the regulation of cryptoassets in the EU but certain details will be settled in technical standards and delegated acts. For example, in relation to sustainability of cryptoassets, a topic which was much debated by EU co-legislators during the legislative process, ESMA will be developing technical standards on the content, methodology and presentation of information related to principal adverse environmental and climate-related impact.

ESMA will also clarify certain issues in the form of guidance, notably including:

  • criteria and conditions for cryptoassets (including, NFTs) to be considered financial instruments (rather than MiCA cryptoassets);
  • systems and security protocols to be used (or related standards to be met); and
  • when services involving the transfer of EMTs are considered payment services subject to regulation outside of the MiCA regime.

Related anti-money laundering legislation, the first piece of EU legislation for tracing transfers of cryptoassets and blocking suspicious transactions, received the green light at the same time as MiCA. Under the ‘Travel Rule’, information on the source of the asset and its beneficiary will have to travel with the transaction and be stored on both sides of the transfer.

6. MiCA 2.0?

Although MiCA 1.0 has not yet entered into force, MiCA 2.0 has already been called for in some circles. The European Central Bank has called for MiCA 2.0 to cover cryptoassets staking and lending, DeFi and assets without an identifiable issuer, such as Bitcoin.

MiCA itself already incorporates review mechanisms: The Commission will publish an interim report on the application of MiCA within two years of MiCA’s entry into force (by mid-2025) and the final report will be due within 4 years of MiCA entering into force (by mid-2027). Legislative proposals may accompany both the interim and final reports.

MiCA also sets out potential areas for future regulation. The Commission will report on the latest developments on cryptoassets and, if appropriate, propose legislation, by 30 December 2024). The report will include the treatment of services associated with the transfer of EMTs, as well as an assessment of the necessity and feasibility of regulating:

  • DeFi;
  • lending and borrowing of cryptoassets; and
  • ‘unique and non-fungible cryptoassets’ (ie NFTs), as well as offerors of, and providers of services related to NFTs.

Watch this space – although MiCA 1.0 is not yet in force, MiCA 2.0 is unlikely to be far off and will likely have a much broader scope and reach than MiCA 1.0.

7. What about the UK?

HM Treasury is currently consulting on the future financial services regulatory regime for cryptoassets. Read our briefing on the consultation here. The House of Commons Treasury Select Committee published a report on 17 May where it controversially recommends that the government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service. It would be surprising if the UK government decides to move away from the proposals set out in its February consultation on the future regulatory regime for cryptoassets because of the report recommendations. Yet a future administration with different leadership might.  Much will depend on the speed at which the government proceeds with its plans to regulate cryptoassets. Read our briefing on the report here.


Clive Cunningham
Clive Cunningham
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Marina Reason
Marina Reason
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Kelesi Blundell
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Patricia Horton
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Crypto: is it gambling or a financial service?

This article first appeared in The Banker and is re-published here with its permission.

A recent UK Treasury Committee report on crypto assets regulation has reignited the debate over crypto.

Contrary to government proposals in February to regulate the crypto industry as a financial service, the cross-party group controversially recommended regulating retail trading and investment activity in unbacked crypto assets as gambling.

In their view, the characteristics of unbacked crypto assets – price volatility, lack of intrinsic value or social purpose – more closely resemble gambling than financial services.

It is true that the line between gambling and certain types of financial services is not always clear-cut; for example, the Gambling Commission and the Financial Conduct Authority (FCA) recognise that there are areas where their remits overlap.

A memorandum of understanding between them provides a framework for consultation on areas of mutual interest, such as the promotion of contracts for differences (CFDs) and other high-risk retail derivatives.

Let us also remember that binary options were regulated by the Gambling Commission before they came to be regulated as CFDs by the FCA. And spread betting is taxed as if it were gambling, but it is also regulated by the FCA. The line is thinly drawn indeed.

So long as consumers are appropriately protected, whether that protection originates from financial services rules or from gambling rules should arguably be irrelevant. Yet there are good reasons why regulating crypto within the financial services framework could provide a better fit and why the government is unlikely to move away from its February proposals.

Existing financial services framework

The UK government has been vocal about its ambitions to make Britain a global hub for crypto assets technology and investment. One of the policy objectives behind the UK government seeking to establish a regulatory framework for crypto assets in the UK, as set out in HM Treasury’s February consultation, is to encourage growth, innovation and competition in the UK.

Categorising crypto assets as gambling is unlikely to further either of these goals and may instead alienate an industry it is hoping to woo. To do so would also be swimming against the tide of international regulation, and the UK’s place in international regulatory circles has generally been that of flag-bearer rather than outlier.

Indeed, the International Organization of Securities Commissions is currently consulting on standards for global crypto regulation which consider crypto to be part of financial services, as is the EU’s Markets in Cryptoassets Regulation (MiCA), which is expected to apply from next summer.

The approach proposed by the government on regulating stablecoins and unbacked crypto would fold these into the existing financial services regulatory framework. This has established and broad requirements applicable to firms which need specific authorisation and have to comply with conduct and organisational requirements. Financial services offers perhaps a broader and more encompassing framework than would be the case after a gambling designation.

More importantly, the government is unlikely to change its mind for philosophical reasons.

HM Treasury has been reported already to have disagreed with the report’s recommendation to apply gambling regulation to crypto assets on the basis that risks posed by crypto assets were typical of those that exist in traditional financial services. Financial services regulation, rather than gambling regulation, has the track record in mitigating those risks.

The Crypto and Digital Assets All Party Parliamentary Group (APPG) published its report this week, which also supports this stance. The APPG’s view is that regulation of crypto and digital assets within financial services is vital to addressing consumer risks while harnessing the sector’s potential and contribution towards economic growth.

Experience of the regulator also matters. The FCA has been looking into crypto-related consumer protection issues for some years. And as the regulator of crypto firms for anti-money laundering purposes, it already has a foot in the door to the crypto world. The lessons learnt from this experience are important.

The FCA has also been looking at the crypto asset industry through a marketing lens. New rules on financial promotions of crypto are being brought in by the government and the FCA is weaving these into its rulebook with a policy statement expected to come out this week.

On the other hand, the FCA registration process has been criticised as being overly lengthy and burdensome, with the difficulty in gaining a UK licence given as a reason for some firms discounting setting up in the UK. There is a question on how hospitable the industry might perceive the FCA to be in its new future guise as the UK ‘crypto regulator’. This remains to be seen.

One thing is perhaps clear: if crypto regulation in the UK is not in place before the next election, there is arguably a chance that a future administration with different leadership could be persuaded to change course, especially if more damning evidence of consumer detriment comes to light in the meantime.

This risk, however small, may serve as an incentive for the current government to speed up the process of regulation.


Marina Reason
Marina Reason
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Patricia Horton
Patricia Horton
Professional Support Lawyer
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Key takeaways as MiCA reaches the finishing line

Following the publication of MiCA in the Official Journal on 9 June 2023, an updated version of this article has been published, here.

Well over two years after the Markets in Cryptoassets Regulation (MiCA) was first proposed, the European Parliament gave it the green light on 20 April 2023 and MiCA was adopted by the Council on 16 May 2023. MiCA is likely to enter into force in July 2023 following publication in the Official Journal, with some provisions applying a year later and the rest from January 2025. Continue reading

MiCA – EU legislators agree rules to tame crypto “Wild West”

The European Parliament and Council reached a preliminary political agreement on the Regulation on Markets in Crypto-assets (MiCA) on 6 June 2022. With:

  • political agreement having already been reached in other pieces of legislation in the digital space (including the Funds Transfer Regulation (FTR) on 29 June 2022, the Digital Operational Resilience Act (DORA) earlier in March and crypto-related amendments to the Markets in Financial Instruments Directive (MiFID) and other product legislation in May);
  • the planned expansion of scope of anti-money laundering (AML) requirements to align the Fifth Money Laundering Directive (MLD5) with MiCA and capture additional crypto-assets; and
  • with the DLT Pilot Regulation having already come into force in June;

the EU’s push for first mover advantage and becoming a “standard setter” for crypto regulation is coming together.

This note summarises our understanding of where MiCA has landed following political agreement. As the agreed text of MiCA is not yet publicly available, some of the detail of the agreement may not be reflected below.

“We are the first continent to have a crypto-asset regulation. In the Wild West of the crypto-world, MiCA will be a global standard setter.”
Stefan Berger MEP

When will MiCA apply?

Following political agreement on MiCA, the final text will now be worked on by technical experts before it is put before the European Parliament and Council for approval. MiCA will enter into force following approval and publication in the Official Journal, expected to be towards the end of 2022. The majority of provisions will become applicable 18 months later, in mid-2024, except for the requirements related to stablecoins (referred to in MiCA as “asset referenced tokens” (ARTs)) which are expected to apply within 12 months of MiCA entering into force, likely to be end 2023/early 2024. Technical standards and delegated acts specifying certain elements of MiCA will need to be adopted before MiCA becomes applicable.

Grandfathering and transitional arrangements will be available e.g. crypto-asset service providers (CASPs) providing services before MiCA becomes applicable should be able to continue to do so for a further 18 months after MiCA starts to apply (potentially end 2025/early 2026) or until they become authorised.

MiCA overview

By way of a quick recap, MiCA introduces a sweeping set of rules that will regulate issuers and intermediaries of certain crypto-assets.

Crypto-assets in scope

The assets in scope are:

  • Tokens which are not stablecoins or e-money – this will capture utility tokens, crypto-currency, exchange tokens etc. Importantly this also now captures certain types of non-fungible tokens (NFTs) (see below)
  • Stablecoins – referred to in MiCA as ARTs. These are effectively crypto-assets whose value is pegged to one or more fiat currency or other value/rights. This includes algorithmic stablecoins that aim to maintain a stable value in relation to an official currency of a country or to one or several assets, via protocols, that provide for the increase or decrease of the supply of such crypto-assets in response to changes in demand
  • E-money tokens – crypto-assets that purport to maintain a stable value by referencing to the value of one official currency

MiCA excludes any crypto-assets which look like more traditional financial products and are caught by other regimes such as MiFID, the Second Electronic Money Directive, Capital Requirements Directive (deposits), securitisation regulation, Pan-European Personal Pension Product (PEPP) Regulation, etc.

Digital assets that cannot be transferred to other holders (e.g. those only accepted by the issuer or the offeror and are technically impossible therefore to transfer to other holders – e.g. loyalty schemes) and crypto-asset services provided in a fully decentralised manner without any intermediary, are not caught. Other exemptions apply to tokens which are not stablecoins or e-money. Conversely, more onerous obligations apply to stablecoins or e-money tokens which are deemed “significant” by the EBA.

Issuers and CASPs

MiCA applies to crypto-asset issuers and intermediaries, referred to in MiCA as crypto-asset service providers (CASPs). CASPs provide to third parties, on a professional basis, services in relation to crypto-assets (such as custody and administration (crypto wallet providers), operating crypto-asset trading platforms, exchange of crypto-assets for fiat currency, execution of orders, reception and transmission of orders, providing advice on crypto-assets, etc).

The requirements in MiCA apply in a tiered fashion to issuers and CASPs depending on the product (e.g. as noted above, significant ARTs and e-money tokens are subject to more onerous requirements; in addition there is also a concept of significant CASP) and the activity. Broadly:

  • Authorisation: Issuers of ARTs must have a registered office in the EU and will require authorisation under MiCA. CASPs are required to be authorised under MiCA unless they are already authorised under existing financial services legislation (e.g. banks, investment firms and payment institutions). Crypto-asset services can only be provided in the EU by an authorised CASP that has its registered office in the EU. Similar to MiFID, a CASP authorised in one EU member state may operate across the EU under a passport.
  • Other requirements: These include requirements relating to transparency and disclosure for the issuance and admission to trading of crypto-assets (for example, issuers will be required to publish an information document known as a “white paper”), organisational, conduct and prudential rules for CASPs and certain issuers, change in control and supervision arrangements. MiCA also establishes a market abuse regime for crypto-assets that are admitted to trading on a trading platform for crypto-assets, introducing requirements prohibiting certain behaviours that are likely to undermine users’ confidence in crypto-asset markets and the integrity of crypto-asset markets, including insider dealing, unlawful disclosure of inside information and market manipulation related to crypto-assets.

Areas of controversy

There were a number of points discussed during trialogues which were politically charged and caused much debate in the industry and the legislators including:

  • NFTs – This was a hotly debated topic with the co-legislators taking different stances on whether or not to include NFTs within the scope of MiCA. The latest position appears to be that NFTs which are non-fungible and unique will be excluded from the scope of MiCA. If they are fungible in any way or are not fully unique, they will be captured by MICA or other applicable product regime (depending on the nature of the token). The definition of NFTs will be clarified in the finalised text. Within 18 months, the European Commission will assess the position and, if necessary, publish a legislative proposal to create a separate regime for NFTs. In the meantime, individual member states would be free to regulate them at a national level.
  • ESG – How the high carbon footprint of crypto-currencies should be reduced proved to be contentious amongst the EU co-legislators. Following a call for a ban earlier this year on proof-of-work crypto mining (which would have effectively meant a ban on crypto-currencies such as Bitcoin which rely on proof-of-work consensus mechanism), this ultimately did not receive sufficient support in the co-legislators. A framework compromise has been agreed but the precise details remain to be confirmed. It is likely that the white paper will be required to include: (i) an independent assessment of the likely energy consumption of the crypto-asset where the proof-of-work model is used; and (ii) information on sustainability indicators including in accordance with the EU Sustainable Finance Taxonomy. CASPs are likely to have to publish this information on their website for every crypto-asset in relation to which they provide services. The European Securities and Markets Authority (ESMA) has been tasked with developing draft technical standards on the content, methodology and presentation of information related to principal adverse environmental and climate-related impact. The European Commission will, within two years, report on the environmental impact of crypto-assets and consider the introduction of mandatory minimum sustainability standards for consensus mechanisms, including the proof-of-work. The EU Sustainable Finance Taxonomy will likely be changed in due course (by Jan 2025) to include crypto-asset mining in the economic activities that contribute substantially to climate change mitigation.
  • Supervision of significant CASPs and stablecoins – there has been some debate between the co-legislators as to the supervision of significant CASPs (the threshold for a CASP to be significant has now been set at 15 million users) and in particular whether that would be by national competent authorities (NCAs) in the relevant Member State or if it would be by ESMA. Supervision is set to remain with NCAs although ESMA will have powers to intervene in order to prohibit or restrict the provision of crypto-asset services by CASPs if there are threats to market integrity, investor protection or financial stability. Stablecoins will be supervised by the European Banking Authority (EBA) and stablecoin issuers must be located in the EU.

What MiCA means for firms now

Once the final text becomes available, crypto-asset issuers and CASPs should waste no time in assessing what MiCA will mean for their businesses. At a high-level:

  • Existing financial institutions will be permitted to provide crypto-asset services without authorisation as CASPs if they notify NCAs before providing those services for the first time. These firms will need to understand the perimeter of MiCA and the MiCA obligations they will be subject to, and adapt their existing systems and processes accordingly.
  • The impact on businesses which are not currently authorised will be significant, although the onerousness of the obligations under MiCA will depend on the types of crypto-asset being issued and activities being carried on.  These businesses will need to consider whether their existing activities fall within the scope of MiCA and, if necessary, seek authorisation as a CASP or an issuer of ARTs. Grandfathering arrangements should apply. A simplified authorisation process may apply to crypto businesses which are already authorised under national law to provide crypto-asset services. These firms must not underestimate the time it will take to apply MiCA to their businesses, from assessing the extent to which MiCA applies to them, to applying for authorisation and implementing MiCA requirements into their systems and processes, from scratch.
  • Non-EU businesses should consider how the territorial scope of MiCA will impact on its current and future business models. Will they be able to continue operating without being based in the EU e.g. rely on reverse solicitation?



Marina Reason
Marina Reason
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Patricia Horton
Patricia Horton
Professional Support Lawyer
+44 20 7466 2789

EU Digital Finance Strategy – EC agreed position on MiCA and DORA and EC/EP reached political agreement on DLT Pilot Scheme on 24 November 2021

Just over a year ago, the European Commission published its Digital Finance Package which included the proposed Regulation on markets in cryptoassets (MiCA), Regulation on digital operational resilience (DORA) and the Regulation on DLT-based market infrastructures (DLT pilot regime). Continue reading