EU’s Proposed Legislation Regulating Cryptoassets, MiCA, Heralds New Era of Regulatory Scrutiny

The European Commission proposed the ‘Markets in Crypto-assets regulation’ (MiCA) in 2020 to create a harmonised legal framework addressing crypto activities across the European Union. MiCA is only one of the several legislative measures developed by the Commission under its ‘Digital Finance Strategy’, which aims to ensure the resilience of the EU's financial services legislation in the digital age.

In a recent post, we argue that MiCA is likely to become a model for lawmakers in other jurisdictions seeking to develop their own regulatory frameworks for the crypto-industry, especially in light of recent turmoil in the sector.

Whilst MiCA will undoubtedly provide a degree of regulatory clarity for the crypto industry, its scope remains uncertain in key respects, including in relation to decentralised finance institutions (De-Fi), decentralised autonomous organisations (DAOs) and non-fungible tokens (NFTs, especially where these are capable of being fractionalised).

Although far from comprehensive, MiCA sets out a regime which regulates:

1. the licencing and supervision of crypto-asset service providers (CASPs), such as the providers of custodial services or the operators of crypto-asset trading platforms;
2. the classification, issuance, offering and admission to trading of crypto-assets (including stablecoins);
3. the enhanced regulatory treatment of stablecoins qualifying as ‘significant’ under MiCA (either due to their size, nature or volume); and
4. market conduct and behaviour relating to the trading of crypto assets (including provisions on market manipulation and insider dealing).

MiCA will also introduce environmental requirements, although these will largely be limited to disclosure obligations.

MiCA's finalised draft text has been preliminarily approved by the Council of the European Union, but the European Parliament is yet to cast a final vote on MiCA in plenary sitting, which is expected to occur in 2023. Given the 18-month transitional period provided for in MiCA, these regulations are likely to take effect no earlier than mid-2024.

Azad Ali is Of Counsel in the London office of Skadden, Arps, Slate, Meagher & Flom LLP.

Pietro Piazzi is a Trainee Solicitor in the London office of Skadden, Arps, Slate, Meagher & Flom LLP.