In an era marked by rapid advancements in the cryptocurrency industry, regulatory frameworks play a pivotal role in ensuring market integrity, investor protection, and compliance. With the recent approval of the Transfer of Funds Regulation (TFR) update and the Regulation on Markets in Crypto-Assets (MiCA) by the European Parliament, the landscape of cryptocurrency regulation has undergone a significant transformation. These regulations set forth stringent requirements for cross-border money transfers involving cryptocurrencies and establish a comprehensive framework for the regulation of crypto-assets within the European Union.
MiCA entered into force on 29 June 2023. However, its provisions will become applicable only towards the end of December 2024, except the rules on E-Money tokens and Asset-Referenced tokens which will become applicable on 30 June 2024.
It’s important to understand that MiCA targets two types of crypto-asset activities: the first is crypto-asset services (corresponding with the TFR) and the second is issuance and offerings of crypt-assets. In both cases, as we will detail herein, MiCA aims to provide clarity and certainty regarding who or what is included under the definition of Crypto-Asset Services or Crypto-Assets, however the definitions may still remain a bit vague for many players in the industry.
While those service providers or crypto-assets that will fall under MiCA will be able to benefit from the advantages of the regulation, the players or assets that will not meet the criteria will have to turn to other areas such as any regulation adapted to financial instruments (such as listed securities) in order to be considered as regulatory operations.
It is also important to note that while most attention was set on MiCA, the revised TFR, which was amended to include crypto-assets, will most likely have significant effects on the industry as well.
The Revised Transfer of Funds Regulation:
So, who will be considered a Crypto-Assets Service ?
In general, MiCA defines a crypto-currency as: “a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology;” MiCA establishes a regulatory framework for crypto assets utilizing decentralized ledger technology (DLT). The key types of crypto assets covered by MiCA include:
Crypto assets not covered by MiCA
MiCA does not cover emerging concepts such as the DeFi (Decentralized Finance) sector and non-fungible tokens (NFTs). As per the European Central Bank’s definition, DeFi represents a novel approach to delivering financial services, eliminating the need for traditional centralized intermediaries and instead relying on automated protocols.
Non-fungible tokens, on the other hand, are distinct and indivisible tokens that represent unique digital artwork, videos, tweets, or other singular items. Unlike cryptocurrencies, which are interchangeable with others of equal value, NFTs are one-of-a-kind and backed by unique assets.
It is important to note that MiCA also does not cover central bank digital currencies (CBDCs) and other forms of financial instruments (like pension funds, deposits etc.).
Transfer of Funds Regulation (TFR) Update:
The TFR update focuses on enhancing the existing framework for cross-border money transfers, including those involving crypto assets. Key aspects of the TFR update include:
So, are you effected by MiCA?
Regulation on Markets in Crypto-Assets (MiCA):
The MiCA regulation focuses on establishing a comprehensive framework for the regulation of crypto-assets. Key aspects of MiCA include:
To be compliant with MiCA, you should consider the following key steps:
Obtain the Required Authorization: If you are an issuer or service provider operating in the crypto-asset market, assess whether your activities fall within the scope of MiCA. If so, you will need to apply for authorization from the competent authority in your EU member state. Ensure that you meet the eligibility criteria, including capital requirements, operational conditions, and governance standards.
Implement Robust Internal Controls: Establish comprehensive internal controls and policies to ensure compliance with MiCA. This includes implementing robust anti-money laundering (AML) and know-your-customer (KYC) procedures, as well as mechanisms for safeguarding client assets and preventing conflicts of interest.
Provide Adequate Information to Investors: Comply with the transparency requirements outlined in MiCA by providing accurate, clear, and understandable information to investors about your crypto-assets. This includes details about the nature of the asset, associated risks, and any potential conflicts of interest, all should be disclosed in a whitepaper submitted to the applicable authority in the EU.
Maintain Proper Record-Keeping: Establish robust record-keeping procedures to ensure accurate and complete documentation of all relevant activities, transactions, and communications. Maintain these records for the prescribed periods as required by MiCA.
Stay Informed and Adapt: Keep abreast of any updates, guidelines, or clarifications issued by regulatory authorities regarding MiCA. Adapt your operations, policies, and procedures accordingly to ensure ongoing compliance with evolving regulatory expectations.
Being compliant with the TFR update and MiCA regulations offers several advantages:
At Porat Group, we understand the complexities and challenges that arise from the evolving regulatory landscape in the cryptocurrency industry. With the recent approval of the Transfer of Funds Regulation (TFR) update and the Regulation on Markets in Crypto-Assets (MiCA) by the European Parliament, compliance has become paramount. Our team of experienced legal professionals is well-versed in the intricacies of these regulations and equipped to guide our clients through this dynamic environment.
We offer tailored solutions that ensure our clients’ compliance with the TFR update and MiCA, mitigating legal risks and enhancing their credibility in the market. With our comprehensive knowledge and expertise, we assist clients in implementing robust customer due diligence measures, strengthening anti-money laundering frameworks, navigating authorization processes, and establishing investor protection mechanisms.
By partnering with Porat Group, clients gain a competitive edge, enjoying the benefits of a secure and compliant approach to cryptocurrency operations within the European Union.