As of June 30th 2024 the MiCA EU Regulation 2023/1114 has entered in force in the matter of stablecoins (ARTs and EMTs) governed by its Title III and Title IV (Articles from 16 to 47 and from 48 to 58, respectively).
The MiCA Regulation adds the third category as well – “Other cryptoassets”, that are the final, miscellaneous category, where we find all the crypto-assets that don’t fit into the other two categories, such as Bitcoin, Ethereum and all cryptocurrencies whose value depends on nothing other than their own market price. Their regulation is yet to enter in force.
MiCA does not cover certain areas such as NFTs (except where they meet the criteria of financial instruments), DeFi services or more recent instruments such as the borrowing/lending of crypto-assets or staking¹. The European Commission has been mandated to study these issues and publish a report by December 2024, accompanied, if necessary, by a legislative proposal for an extension of the Regulation in accordance with its article 142.
The present article will assess the uneven base regime imposed by the MiCA regulation on stablecoins (I) and the additional requirements burdening the ARTs and EMTs, with an additional focus on “significant” crypto-assets (II), as well as introduce the base regime imposed on service providers that will enter in force by the end of the year 2024 (III).
Base regime imposed by MiCA
The MiCA Regulation creates a base regulatory regime mandatory for all issuers of the crypto-assets of any type. The main dispositions are yet to enter in force, however they are already fully applicable to the stablecoin issuers.
The primary obligation is to be incorporated as a legal entity in the publish a White Paper document on the issued crypto-assets and notify on its publication the competent regulatory authority. The Paper in question must describe the following:
– The company’s crypto-project and its main participants ;
– The blockchain mechanism used (proof of wok or proof of stake);
– The terms of the public offering;
– The key risks associated with the project and the crypto-assets;
– The rights and obligations attached to the crypto-assets.
The White Paper for obvious reasons is subjected to the transparency obligations, to non-compliance with which the issuer will be held liable in addition with other civil liabilities that exist under the national legislation. The authority may require to amend the White Paper, but there is no requirement of approval of the White Paper prior to the issue of the crypto-asset.
Issuers of ARTs and EMTs could not grant interest in any relation to the tokens, nor for providing related services, nor any renumerations or benefits related to the holding time of the ARTs or EMTs, including the services of receiving and transmitting orders on behalf of clients as well as the execution of orders on behalf of clients.
Finally, due to the transitory period imposed on the MiCA Regulation till 2026, the issuers must also consider other European (like Regulation DORA and national regulatory frameworks.
Regarding French regulatory framework, the AMF authority has issued a publication in 12th June 2023, confirmed on the 21st of June 2024, stating that the current national framework will be replaced on the 30th of December 2024 (for stablecoins on the 30th June 2024) regarding:
– Public offering and authorisation of cryptocurrencies trading and issue;
– Provision of the crypto-asset services by the service provides;
– Prevention of market abuse by the crypto-asset services.
Starting from 30th December, the European PSANs, under reserve of the transitory period established until 2026, won’t be able to exercise their services without an AMF approval, which will consequently become mandatory. To be covered by the transitory period, the PSAN must, by the 30th of December 2024, receive simple registration (“enregistrement simple”), reinforced one (“enregistrement renforcé”), or an optional AMF approval.
For the PSAN under the scope of the transitory period, such obligation will become mandatory on the 30th of June 2026, but their services during the transitory period must be restricted solely to the French public. Afterwards, the companies must receive an official MiCA approval to continue offering their services, even solely to the French public.*
Additional requirements on stablecoins imposed by MiCA
In line with the Considerations 8 and 9, the MiCA provides definitions for Electronic Money Tokens² (EMT) and Asset-referenced Tokens ³ (ART), so-called “stablecoins”.
EMTs are officially recognized as electronic money, the offering of which must be notified 40 days prior to the date of offering and could be redeemed at any moment on its monetary value.
It is important to underline that, under MiCA’s regulatory framework, the terms “stablecoin” and “Asset-backed Token (ABT)” will have no legal meaning in the EU as they fall under different regulatory frameworks.
The MiCA Regulation imposes additional requirements for the stablecoin issuers willing to exercise their commercial activity in the EU.
EMTs are issued at their face value (e.g.: 1 EMT = 1 EUR), in exchange for cash. What’s more, since EMTs are treated as electronic money, they represent a claim on the issuer, and can be redeemed free of charge for euros.
The Regulation has adopted a significantly more cautious approach towards the ART in comparison with EMT due to ART’s more volatile nature.
A. On the issuers of the ARTs
White paper:
White paper must contain the following information:
(a) issuer of the ART;
(b) the nature of the ART, associated rights and obligations, underlying technology;
(c) the contents of the public offering or its admission to trading;
(d) the associated risks and potential adverse impacts on “the climate and other environmental-related impacts of the mechanism used to the issuer of the e-money token,
(e) on the reserve of assets.
The White paper must also contain a statement from the issuer on its compliance with the MiCA Regulation, even though it is yet to fully enter into force, and a summary. The White paper must also include following statements addressed to the public:
1. The token may lose its value in part or in full;
2. The token may not always be transferable;
3. The token may not be liquid;
4. The token is not covered by investor compensation scheme under Directive 97/9/EC;
5. The token is not covered by deposit guarantee scheme under Directive 2014/49/EU.
Reserve of assets:
The issuers of the ARTs are legally obligated to constitute and maintain a certain reserve of assets distinct from issuer’s estate and from the other reserves constituted for other tokens.
The reserve must be proportional with the issuance and redemption of the tokens and must entail a stabilization mechanism for the ARTs, as well as a recovery plan.
The reserve asset could still be invested, but only in highly liquid financial instruments, or be held as a deposit with credit institutions.
The MiCA Regulation implies creation of the custody policy for the reserve of assets.
Own funds requirement is imposed on all issuers of the ARTs equal to at least the highest of the following options:
– -350 000 EUR, or
– 2% of the average (by end of calendar year) amount of the reserve assets, or
– Quarter of the fixed overheads of the preceding year.
Location and licensing:
To offer ARTs to the public in the EU or be admitted to trading on a crypto-platform, an issuer of ARTs must be established and authorized (licensed) in the European Union.
Reporting obligation:
Apart from significant tokens, for each ART with an issue value higher than 100 000 000 EUR, the issuer must report on a quarterly basis:
– Number of holders;
– Value of the ART and the size of the reserve;
– Average number of daily transactions⁴ and their average aggregate value during the quarter;
– The estimate of the average number of daily transactions and their average aggregate value associated with its usage in a single currency area.
The reporting obligation could be extended for the tokens below the stated value.
Complaint-handling procedures must be stablished by the issuer to cater the complaints of the holders, free of charge and in timely manner
Exemptions:
The regulatory regime on the ARTs provides certain partial exemptions depending on the type of offer (e.g., to qualified investors) or if the issuer is already regulated (e.g., as an EU credit institution).
In case of the offer to qualified investors there’s no necessary authorization to make a public offering, nor any restrictions imposed on the personality of the issuer under the Article 16 of the Regulation.
In case of an EU credit institution, it is automatically considered as competent, hence no authorization is required, but all the notification obligations still apply (issue of White Paper, notification within 90 days before the issue instead of 40).
Restriction on the issuance:
The issuer must stop issuing his ART if: the ART’s estimated quarterly average number is higher than a million transactions and daily average aggregate value of the transactions as a means of exchange within a single currency area is higher than 200 000 000 EUR.
Alternatively, the issuer must propose a plan to ensure that those markers are kept below the imposed limits, that could be modified by a competent authority.
If there are several issuers for the same ART, their market data is cumulative. The issue could be resumed only if the competent authority is presented with the evidence that the markers are kept below the imposed limits.
Transitory period and existing companies:
Finally, it is important to mention that the issuers of ARTs other than credit institutions that issued them in accordance with applicable law before 30th June 2024, may continue to do so until they are granted or refused an authorization pursuant to Article 21 of the MiCA Regulation, if they have applied for authorization before 30 July 2024.
Credit institutions that issued ARTs in accordance with applicable law before 30th June 2024, may continue to do so until their White Paper has been approved or has failed to be approved pursuant to Article 17 of the MiCA Regulation if they have notified their competent authority before 30th July 2024.
B. On the issuers of the EMTs
White paper:
White paper must contain the following information:
(a) issuer of the e-money token;
(b) the nature of the e-money token, associated rights and obligations, underlying technology;
(c) the contents of the public offering;
(d) the associated risks and potential adverse impacts on “the climate and other environmental-related impacts of the mechanism used to the issuer of the e-money token.
The White paper must also include two clear warnings addressed to the public:
1. The token is not covered by investor compensation scheme under Directive 97/9/EC;
2. The token is not covered by deposit guarantee scheme under Directive 2014/49/EU.
The White paper must also contain a statement from the issuer on its compliance with the MiCA Regulation, even though it is yet to fully enter into force, and a summary.
Permitted issuers:
The issuance of EMTs is only permitted for EU credit institutions and for e-money issuers already recognized as such and authorised to do so.
Token and investment requirements:
As stated before, the EMTs must amount to a claim on the issuer and be redeemable at par. In addition, the funds received by issuers of EMTs in exchange for EMTs, should they be invested, are restricted in the investement only to the assets denominated in the same currency as that referenced by the EMT.
C. On the criteria of “siginificance” and additional restrictions
MiCA regulation imposes additional restrictions and obligations on the issuers of the ARTs and the EMTs deemed as “significant”.
To be classified as significant, an ART or EMT of any kind must meet at least three of these requirements, as stated in the Article 43 of the Regulation:
Have more than 10 million holders;
– Market capitalization or size of reserve assets higher than 5 000 000 000 EUR;
– Average number of transactions per day for a defined period is higher than 2.5 million and their average aggregate value is higher than 500 000 000 EUR;
– Issuer is a provider of core platform services designated as a gatekeeper in accordance with the Digital Markets Regulation (EU Regulation 2022/195);
– Significance of activities of the issuer on an international scale, including use of the ART or EMT for payments and remittances;
– Interconnectedness of the ART or EMT or its issuer with the financial system;
– The same issuer issues at least one additional ART or EMT and provides at least one crypto-asset service.
The classification is to be annually assessed by the EBA based on described reporting. Any issuer may also voluntarily request that their ART or EMT will be classified as significant if he considers that the criteria are met.
The additional obligations are imposed in the matters of liquidity maintenance, recovery and redemption planning :
– Obligation to adopt remuneration policies for risk managment;
– Obligation to ensure that the ART and EMT could be held in custody by different crypto-asset providers authorised to do so on behalf of clients;
– Obligation to monitor the liquidity needs to meet redemption requests by establishing a relevant policy to ensure resilience of liquidity, even under stress;
– Obligation to conduct liquidy stress testing on all the proposed tokens.
The respect of the obligations in question must be ensured in accordance with the technical standards and guidelines issued by the EBA, ESMA and ECB, with first package issued on the 13th of June 2024 on the own funds, liquidity requirements, and recovery plans⁶, and the second one on the 4th of July 2024 on resilience, public disclosure and documentary drafting standards⁷.
Competent authorities will also be granted MiFID-like product intervention powers and a separate empowerment to require an issuer of an ART widely used as a medium of exchange, or of an EMT denominated in a non-EU currency, to introduce a minimum denomination or to limit the amount issued in order to decrease the use of such tokens.
In anticipation of CASP status
Under the MiCA Regulation, the crypto-asset service provider (CASP) is defined as a “legal person or other undertaking whose occupation or business is the provision of one or more crypto-asset services to clients on a professional basis, and that is allowed to provide crypto-asset services in accordance with Article 59”.
The Article 59 of the MiCAR treats the matter of authorization by defining to two closed categories of the CASPs :
1. A legal person or other undertaking that has been specifically authorized as CASP by fulfilling the criteria of Articles 62 and 63 of the MiCAR;
2. A credit institution, central central securities depository, investment firm, market operator, electronic money institution, UCITS management company, or an alternative investment fund manager that is allowed to provide crypto-asset services in accordance with the Article 60 (on prior notification for the related activity).
The Article 62 defines the criteria and the application process to obtain the CASP authorization, most notably stating as requirements:
– Prudential monetary safeguards ;
– Proof of competence and good reputation for members of the management (notably an absence of criminal records and penalties related to anti-money laundering, counter-terrorist financing, fraud and professional liabilities);
– Description of reserve assets mechanisms and complaint-handling;
– Operating rules;
Etc.
Like the PSAN regime in France, this new status will establish a coherent mechanism for licensing and monitoring crypto-asset service providers within the European Union. Thus, the provision of the services listed in §2 of Article 62 of MiCA is conditional on obtaining compulsory CASP approval from the competent authority, which in France is the AMF.
CASP status authorizes service providers to offer their services within the European Union, in return for regulatory obligations.
The CASP status will enter in force with the remaining non-active provisions of the MiCA Regulation by the 30th of December 2024 If an entity legally providing crypto-asset services before 30th of December 2024 has not been authorised as a CASP by the end of the transition period applicable in the relevant Member State (including AMF in France), they must cease providing crypto-asset services before an authorisation as a CASP is issued under MiCA.
Therefore, an entity that has already been providing crypto-asset services before 30th of December 2024 and wishing to continue to do so under MiCA should apply for authorisation as a CASP as early as possible in order to ensure that the competent authorities have the time to assess their applications without disrupting their services.
staking¹ – process by which holders of certain cryptocurrencies immobilize a specific amount of their funds as a “pledge” in a wallet to participate in the operation of a blockchain network.
Electronic Money Tokens²– type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency (Paragraphe 1(7) of the Article 3 of Regulation 2023/1114);
Asset-referenced Tokens³– type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies (Paragraphe 1(6) of the Article 3 of Regulation 2023/1114)
Transactions⁴ (here) – any change of the natural or legal person entitled to the asset-referenced token as a result of the transfer of the asset-referenced token from one distributed ledger address or account to another;
The qualified investors⁵ (here) : 1) Entities which are required to be authorised or regulated to operate in the financial markets, such as credit institutions, investment funds, insurance companies, etc.; 2) National and regional governments and other bodies managing public debt, international institutions ; 3) other instituional investors, etc.
Cabinet Nicolas BRAHIN
Advokatfirma i NICE, Lawyers in NICE
Nicolas Brahin
Avocat
1, Rue Louis Gassin – 06300 NICE (FRANCE)
Tel : +33 493 830 876 / Fax : +33 493 181 437
Nicolas.brahin@brahin-avocats.com
www.brahin-avocats.com
