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New Wave In Crypto-Assets Legislation

New Wave In Crypto-Assets Legislation

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The legislation concerning crypto-assets has always been fragmented between different states in the EU. Having a crypto exchange license in one EU country did not mean that it would be automatically legal to operate in another EU state as well. Whereas some countries like Estonia were the pioneers of crypto legislation, many others have been lacking behind and have further exacerbated this fragmented state.

The above is about to change. There will be a new EU regulation covering crypto-assets law in all EU Member States. The regulation is titled “MiCA” –­ Markets in Crypto-Assets Regulation.

The regulation aims to create a uniform European legal framework for cryptocurrency services, including virtual currency service providers. MiCA will apply directly and uniformly in all Member States and will have a significant impact on the crypto market, dealing with licensing, the environmental impact of the crypto industry and the issuance of crypto-assets.

What about the Estonian market?

For the Estonian crypto market, MiCA may be the bearer of bad but also good news. On the one hand, the licenses issued so far will lose their validity, and a new so-called MiCA license must be applied for to continue business. On the other hand, the new license is passportable, i.e., based on the MiCA license issued in Estonia, it is easy to provide services in other member states.

Also, as Estonia has made its crypto regulation significantly stricter in recent years, the transition due to MiCA will most probably go smoothly. The current regulation in Estonia (which will expire with MiCA) is so strict that the “new” MiCA requirements are largely already met, if not exceeded, by Estonian license holders.

Nevertheless, the new framework and another re-tuning may initially cause headaches for crypto companies. However, from the perspective of market stability and transparency the MiCA

Regulation is the best thing that has happened to this field in recent years. A harmonized crypto market across the European Union is safer, more stable, more attractive and significantly promotes the development of the crypto industry. The MiCA Regulation gives a clear message to the world – the European Union understands that crypto-assets are here to stay and, as an important part of the economy, their market must be transparently and uniformly regulated.

So, what will actually change?

The main changes that MiCA brings to the Estonian crypto market are as follows:

  • Existing licenses will lose validity, and a new “MiCA license” needs to be applied for;
  • In Estonia, the issuing of licenses and supervision moves from the Financial Intelligence Unit (FIU) to the competence of the Financial Supervision Authority (FSA) – the latter also deals with other financial market participants like payment service providers, banks, etc.;
  • New types of services related to crypto-assets will be added, such as advisory and portfolio management service – such business activities will also require a license, and each type of service will be subject to its own special provisions in the regulation;
  • Crypto-assets are divided into four: asset-referenced tokens, e-money tokens, utility tokens and other crypto-assets. Issuers of asset-referenced tokens and e-money tokens are subject to stricter requirements than other crypto-assets;
  • Issuers of crypto-assets must prepare, coordinate and publish their crypto-asset whitepaper. Providing false information in the whitepaper can be a basis for a claim for compensation for damage;
  • Issuers of crypto-assets must enable a 14-day right of withdrawal for consumers;
  • A public register managed by the European Securities and Markets Authority (ESMA) will be created, where the whitepapers of issued crypto-assets and licensed crypto service providers will be entered;
  • There will be GDPR-like administrative fines, which can be domestically replaced by criminal punishments;The content of the own funds requirement changes partially;
  • Anti-Money Laundering Directives (AMLD) remain in force.

When do I have to comply?

The proposal text of MiCA was already published in October 2022 – this can be found here.

MiCA is expected to enter force in Q2 of 2023 and will be implemented 18 months later. This means that service providers can presumably start applying for new business licenses in the fall of 2024. All service providers must meet the requirements of MiCA no later than spring of 2026.

By Rauno Kinkar, Partner, Henri Ratnik, Attorney at Law and Dan-Erik Roosve, Attorney, Lextal