European crypto regulation on the brink of adoption | Orrick – On the Chain

The EU’s Markets in Crypto-Assets (MiCA) regulations are now almost final and could enter into force this year. MiCA will provide a new regulatory framework, including licensing and disclosure obligations, for participants in the cryptocurrency ecosystem, including token issuers, financial intermediaries (exchanges, brokers, etc.) and custodians.

What happened

The European Parliament’s Economic and Monetary Committee gave its approval to MiCA on 10 October 2022, the latest step in a process that has lasted more than two years.

What will be next

This paves the way for the larger European Parliament plenary to approve the regulations, a step that is often only procedural. Once the plenary approves the MiCA, it will come into effect and mark the beginning of 18 months in which companies must comply, with the regulations coming into full effect in the second or third quarter of 2024.

While the text of MiCA helps to provide regulatory certainty for cryptoasset businesses and consumers in the EU, additional practical guidelines for implementation will also be drawn up to further deepen MiCA.

MiCA’s goals

MiCA’s main objective is to provide a level of regulatory and financial harmonization to cryptoasset businesses and consumers across Europe. Guiding principles for MiCA include:

• To provide legal certainty through clear definitions of crypto-assets and activities in relation to the crypto-assets that are within the scope;
• Ensuring consumer protection and market integrity alongside financial stability for crypto-asset businesses; and
• Encourage innovation and fair competition in the European crypto-asset markets and avoid regulatory arbitrage between member states.

Businesses engaged in activities that are within the scope of MiCA will, as a minimum, be required to register with the competent supervisory authorities and produce a detailed white paper for their business, in a form and content specified by MiCA.

MiCA will not apply in the UK or Switzerland, as they are not member states of the EU. While similar regulatory principles may apply in these two jurisdictions, separate analysis is needed to understand what cryptoasset businesses must do to achieve compliance with local regulation.

What MiCA missed

The final text of MiCA omits treatment of non-fungible tokens, decentralized finance, decentralized autonomous organizations and proof-of-work consensus mechanisms. However, European regulators are expected to treat fractionalized NFTs as utility tokens governed by MiCA.

How will MiCA affect the US market?

MiCA reflects the EU’s recognition that digital assets are an ongoing part of a modern financial system. Whether the EU’s move to define and regulate digital assets will affect US regulators remains to be seen.

The Biden administration’s March 2022 executive order to ensure the responsible development of digital assets remains the most comprehensive US policy statement on the subject. Although there are many proposed legislative measures in the US Congress, the US has yet to produce comprehensive legislation or regulatory guidance. Instead, regulators have relied on enforcement efforts and individual agencies to inform market participants. We expect the US regulatory regime to continue, at least in the near term, to take coordinated but separate actions consistent with the Executive Order’s primary goal of protecting consumers and investors.