EU MiCA Regulation: Key Insights Every Crypto Business Needs to Know

The Markets in Crypto-Assets Regulation (MiCA) fully entered into force on December 30, 2024, and now applies to the majority of the crypto businesses working with the European Union (EU) market.

MiCA is a groundbreaking framework that aims to bring clarity and consistency to the regulation of crypto assets across the European Union (EU).

In this article, associate partner at Aurum, Illia Shenheliia, breaks down the key points of the MiCA that crypto businesses need to know. While this article provides an overview of its key provisions, it is not a comprehensive analysis of the regulation.

This article marks the beginning of an anticipated series exploring the MiCA and its implications for the crypto industry. Through this series, we aim to provide clear and practical insights into the key aspects of MiCA, helping businesses and individuals understand this evolving regulatory landscape with confidence. Stay tuned for more in-depth analyses and guidance in the articles to follow.

Scope of the MiCA Regulation

MiCA regulates various aspects of the crypto industry, including:

• Crypto assets such as utility tokens, stablecoins, and other digital assets that do not qualify as financial instruments under existing EU laws, such as security tokens. Financial instruments are governed by the relevant financial regulations notwithstanding the use of blockchain technology.
• Activities related to the offering of crypto assets to the public.
• Activities that may be considered market abuse.
• Businesses acting as crypto asset service providers (CASPs), including exchanges, wallet providers, and other intermediaries.

Timeline of Application

As of the date of this article, MiCA has entered into force EU-wide in the following stages:

• On 30 June 2024, provisions concerning asset-referenced tokens (ARTs) and e-money tokens (EMTs) became applicable. These rules set requirements for issuers of these specific types of stablecoins.
• Starting from 30 December 2024, the remaining provisions of MiCA came into effect. This includes regulations for issuers of other crypto-assets, crypto-asset service providers (CASPs), and measures to prevent market abuse.
• Registered Virtual Asset Service Providers (VASPs), i.e. companies who had valid VASP licenses issued in the EU before 30 December 2024, will have up to 18 months, depending on the EU member state, to continue their operations before obtaining a CASP license. For example, the transitional period is 5 months in Lithuania and 18 months in Malta.

Offering Crypto Assets Under MiCA

If you plan to offer crypto assets in the EU, the following requirements under MiCA may apply:

• Registration as a legal entity.
• Development and publication of a detailed white paper for public offerings.
• Submission of the whitepaper to the authorities.
• Clear communication of risks associated with the crypto assets.

However, not all offerings are subject to MiCA. For example, the following offerings are exempt:

• Offerings limited to professional (qualified) investors.
• Offerings under certain thresholds as to the raise amount or solicited persons.
• Rewards for decentralised ledger maintenance or transaction validation.
• Free offerings, such as airdrops; this explicitly excludes cases where a recipient of the crypto asset must give personal data, pay fees or commissions, or provide any other benefit in order to get the crypto asset.

Licensing for Crypto-Asset Services in the EU

Providing crypto-asset services in the EU will require a CASP license. Key points to note:

• A license obtained in one EU member state will be valid across all other EU member states and European Economic Area (EEA) countries. This is groundbreaking because, prior to MiCA, businesses had to comply with multiple, disparate regulations across different countries and establish various local entities to serve local customers. Now, therefore, projects are able to choose the country of incorporation and operation based on their preference, such as costs, ease of doing business, language, etc.
• Licensing requirements include establishing a local company in the chosen EU member state, demonstrating sufficient substance (local presence) there, and fulfilling regulatory obligations, such as maintaining minimum statutory capital and complying with the AML regulations.

The exhaustive list of crypto-asset services which require obtaining a CASP license under MiCA include:

• Custody and Administration of Crypto-Assets: This involves the safekeeping or control of crypto-assets or the means of accessing them, such as private keys.
• Operation of a Trading Platform for Crypto-Assets: This includes running a centralised cryptocurrency exchange where users can trade with one another.
• Exchange of Crypto-Assets for Funds or Other Crypto-Assets: Facilitating the conversion of crypto-assets to fiat currencies or other digital assets.
• Execution of Orders for Crypto-Assets on Behalf of Clients: Typically performed by brokers or other intermediaries who act on behalf of their clients.
• Placing of Crypto-Assets: Involves introducing crypto-assets to the market for the benefit of third parties, such as through launchpads or Initial Exchange Offerings (IEOs). Offering on your own behalf should not fall within the definition of the placing.
• Reception and Transmission of Orders for Crypto-Assets on Behalf of Clients: Includes activities carried out by brokers and investment platforms.
• Providing Advice on Crypto-Assets: Personalised and specific recommendations given to a client, regardless of who initiated the advisory process.
• Portfolio Management of Crypto-Assets: Offering services to manage a client’s crypto-asset portfolio.
• Transfer Services for Crypto-Assets on Behalf of Clients: Facilitating the transfer of crypto-assets from one address or account to another.

Crypto-asset services generally exclude decentralised and non-custodial services, such as decentralised financial protocols, blockchains, or non-custodial wallets. However, this exemption applies only if the service operates fully in a decentralised manner without any intermediaries. If any part of the service is centralised or involves an intermediary, the regulation may still apply.

Practical Tips for MiCA Compliance

• Uninterrupted Operations: Consider operating through a local entity with a VASP license (authorisation) granted before MiCA entered into force to ensure uninterrupted operations while applying for a CASP license under MiCA. Otherwise, you will not be able to operate within the EEA market before you obtain the relevant CASP license.
• Choose the Right Jurisdiction: Evaluate jurisdictions for your operations based on various complex factors like ease of doing business, the regulator’s experience, and the market’s openness (local language, currency, etc). In this context, international teams and global businesses should consider jurisdictions that: (a) are open to new international businesses, (b) have experienced and adequately staffed regulators, (c) accept documentation in English or other widely used languages, and (d) use the Euro as the national currency.
• Demonstrate Substance: To apply for a CASP license, you will need a local company and employees in the chosen jurisdiction. Be prepared to justify your choice of member state to the local regulator. It is advisable to prioritise jurisdictions where your project already has a local presence or other close connections, such as local nationality, partners, counterparties, clients, or similar ties.
• Plan Ahead: Preparing for a license application typically takes around three months, depending on the readiness and responsiveness of the project, with the overall licensing process lasting around 6 months. The application process and compliance with MiCA may require a significant investment of time, money, and effort from the team. Make sure your project timelines and resources account for these demands to ensure a smooth process.

Choice of Jurisdiction for MiCA Compliance

In our opinion, one of the most viable choices include Lithuania, Estonia, Poland, Malta, and Spain. Our thoughts are based on various considerations, including:

• Cost of establishment and maintenance of local presence.
• Experience and openness of the regulator.
• Business-friendliness and regulatory clarity.
• Reputation and trustworthiness in the crypto sector.
• Openness to innovation and readiness to support crypto businesses.

If necessary, we could explore and consider other options, depending on your specific requirements and parameters.

How We Can Help

The Aurum team is here to guide you through understanding and complying with the requirements of MiCA. We provide comprehensive legal support tailored to any kind of crypto business, including project token promoters and crypto-asset service providers such as exchanges, wallets, acquirers, investment managers and brokers.

If you plan to offer crypto assets in the EU, we can assist in identifying the applicable requirements and exploring ways to ensure compliance, or discussing potential legal workarounds where necessary.

For those needing a CASP license, we offer support throughout the entire process, from applying to securing the license. Leveraging our network of local partners, we provide end-to-end assistance, including setting up local entities, navigating the licensing process, and developing robust compliance strategies. Where necessary, we could assist with recruiting and hiring the competent local employees, as well as address other concerns related to the establishment and maintenance of the local substance.

Contact us to discuss how MiCA may impact your business.

The information provided in this article is for general informational purposes only and does not constitute legal or regulatory advice. For specific legal guidance tailored to your business needs, we recommend consulting with a qualified legal professional.