First part of MiCA enters into force and sets the level 2 work of the EU au­thor­it­ies in motion

Background and timeline of the MiCA regulation

In the first part of the MiCA regulation, we take a closer look at the regulation that many associate with Bitcoin but, in reality, also has implications for other types of values or rights that are based on “distributed ledger technology” or ”DLT”.

This is the first time that the area, which the Danish Financial Supervisory Authority has previously called the “the Wild West’’ and “Eldorado for fraudsters’’, is being firmly regulated, and it is therefore extremely interesting to follow how the regulation can redress the uncertainties and ensure law and orderliness in trading with non-fungible tokens (“NFTs’’), tokens, cryptocurrency, etc.

The EU Commission first introduced the MiCA regulation as a bill back in 2020. After serval years of negotiations, the final wording of MiCA is now ready.

MiCA will enter into force in three stages – the first provisions came into force on 29 June 2023 and the other parts of MiCA will come into force on 30 June 2024 and 30 December 2024. The provisions that came into force entail various rights for EU authorities to prepare what we call in technical terms ‘’level II legal acts’’ including regulatory technical standards (“RTS”).

The fact that the EU authorities now have the legal authority to begin this work must be seen as a final phase of the preparations for the upcoming round of implementations where MiCA really begins to have legal consequences for the actors in this area. We have created a comprehensive overview of the legal acts that ESMA, EBA, and ECB now must draft based on the powers in MiCA which entered into force on 29 June 2023. See the overview here.

Application of the MiCA regulation: The various asset classifications

In order to understand which rules will apply to issuers, trading platforms, holders, and other relevant actors subject to MiCA, we must differentiate between the asset classifications in MiCA.

The asset classifications are based on the risk level which the assets entail and whether the assets aim to stabilize their values by using a reference value to another asset. Such a reference value will typically be determined by a charge.

In the latter category, assets that make use of a reference value are e-money tokens and asset-based tokens while a third and – in relation to the reference-based assets – collecting category is simply called “crypto-assets”. The distinction between e-money tokens and asset-based tokens depends on which asset category is referenced. For e-money tokens, it will typically be by means of payment, including currency, while asset-based tokens can reference almost anything.

A closer look at asset-based tokens

The asset-based tokens make up the broad asset category within reference-based assets. These tokens can widely vary in value in line with their underlying asset. The real purpose of asset-based tokens is to act as a medium of exchange rather than a means of storage or investment – as is the case with crypto-assets. Therefore, clear guidelines are needed to separate asset-based tokens from crypto-assets.

The purpose of asset-based tokens is to maintain a stable value and act as a reliable means of exchange. Therefore, there are strict requirements for issuers of asset-based tokens. These requirements include the creation and maintenance of a reserve that serves to support the asset-based token and ensure its continued stable value.

We expect ESMA to issue guidelines on the distinction between asset-based tokens and crypto assets under MiCA and MiFID II. The distinction is important as issuers and crypto-asset service providers will be subject to certain predeterminations regarding speculation when holding asset-based tokens.

Companies issuing asset-based tokens are required to obtain a license in accordance with the MiCA regulation and must be based within the area of the EU. Therefore, non-EU companies currently offering asset-based tokens in the EU should consider establishing a legal entity within the EU to meet the regulatory requirements.

For companies that have already established a base within the EU, it is essential to make a careful legal assessment of their activities to determine whether they meet MiCA’s requirements. This will determine whether they need to prepare to apply for a license under the MiCA regulation before the remaining parts of the regulation come into force.

Upcoming legal acts that the EU will introduce

The following chart is an overview of the upcoming legal acts that the EU authorities intend to introduce.

Please note that this overview is not exhaustive. It includes only the most relevant level II legislation that we expect to be introduced under the current and future provisions of MiCA. The number of legal acts demonstrates the extent of the regulation that actors can expect to be met with and must comply with.

See the overview of the legal acts here.

Lund Elmer Sandager comments

MiCA is the cornerstone of a comprehensive regulation that will place high demands on actors in the crypto field. Everyone in the crypto field (crypto-asset service providers and crypto-asset providers as well as providers of e-money tokens and asset-based tokens) should already start working on identifying the policies, assessments, indicators, etc. that they will be required to comply with after the remaining of the MiCA enters into force.

Whether you are already active in the market or considering starting a business in crypto-assets or other types of assets based on DLT, such as e-money tokens or asset-based tokens, our specialists can help you navigate the rules and provide you with competent legal advice on the MiCA regulation.

If the MiCA regulation is relevant to you, we can help you understand and comply with all the rules. We offer guidance on which rules under MiCA apply to your company’s activities and help you apply for permits, prepare necessary documents, develop procedures, and much more. Contact Partner Kim Høibye or Attorney Jakub Zakrzewski to hear more about how we can help you.