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M. Paraschou Law

Markets in Crypto-Assets Changes

Up to now, no uniform regulatory framework has been adopted at EU Level to regulate Crypto-Assets, Crypto-Asset Issuers, and Crypto-Asset Service Providers.

This is bound to change as, on June 30th, 2022, the European Parliament and the Council Presidency reached a provisional agreement on the Proposed Markets in Crypto-Assets Regulation (“MiCA Regulation”), in an attempt to fulfill the European Commission’s Digital Finance Strategy. The proposed regulation is aimed to introduce legal and regulatory certainty for Crypto-Asset operators, by clearly defining the regulatory treatment of crypto-assets that are not covered by existing financial services legislation.

The MiCA Regulation aims to promote growth and innovation by regulating the issuance of, and the provision of services related to, Crypto-Assets.

Proposals

Although the exact text of the MiCA Regulation that has been provisionally agreed upon has not been released to the public yet, information as to its content has been made available via a range of news outlets. Some of the areas to be covered by this new legal framework are the following:

  • Authorisation and Supervision

Crypto-Asset Service Providers (“CASPs”) will need to obtain authorization to operate within the EU, while authorized CASPs will have the right to passport their license to the additional Member States.

Competent authorities at the Member State level will be responsible to supervise CASPs and take measures to ensure the enforcement of the MiCA Regulation provisions. Measures will be implemented to prevent market manipulation and insider dealing in relation to crypto-assets. The national competent authorities will be required to regularly provide information on the largest authorized CASPs to the European Securities and Markets Authority (“ESMA”).

  • Strong Requirements for Consumer Protection

Strong requirements are expected to be set in place to protect consumers, rendering CASPs liable for any damages or losses caused to investors due to hacks or operational failures that the CASPs could have prevented.

Further, stablecoin issuers will be required to build liquid reserves (such as deposits) on a 1:1 ratio, to cover all claims and provide permanent redemption rights to holders. Such reserves will be fully protected in the event of insolvency.

  • Blacklisting of CASPs

ESMA will maintain a list with the CASPs who do not comply with the MiCA Regulation requirements. Investors will have the opportunity to examine this list and be warned of any non-complying CASPs.

  • Environmental Footprint

CASPs and Crypto-Asset Issuers will need to ensure that the technology employed is climate-friendly and will be required to provide information on their Environmental Footprint. ESMA will produce a guidebook, outlining the standards methodologies and assess the impact of crypto-assets on the environment.

  • Regulation of Asset-Referenced Tokens (ARTs)

The use of Asset-Referenced Tokens (ARTs) based on a non-European currency will be regulated, to preserve and protect the EU’s monetary sovereignty. The issuers of ARTs will be required to be located within the EU to enable the supervision and control of the use of such Tokens.

  • Non-Fungible Tokens (NFTs) Excluded from the Scope of Regulation

Non-Fungible Tokens (NFTs) have been excluded from the scope of this proposed regulation. Instead, the European Commission is expected to assess NFT-related matters and prepare a proposal for the regulation of NFTs, if this is found to be necessary.

The exact text of the anticipated regulation may be amended before the final text is released to the public.

Adoption of the proposed MiCA Regulation

Before the proposed MiCA Regulation can be formally adopted and implemented, it will need to be approved by the Council of the EU and the European Parliament. Further updates on the matter are expected to be released within the following months, while this new legal framework is expected to be implemented by 2024.

Should you wish to find out more, contact our team at info@paraschou.com.cy.

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