Clifford Chance

On 30 June 2022, it was announced that the EU Trilogue negotiators had reached agreement on the Regulation on Markets in Cryptoassets (MiCA). While the agreed text has not yet been published, information in respect of what to expect has been reported via a range of news outlets and lobbyists. We summarise the key points below. However, as the agreed text of MiCA is not yet available, please note that there may be nuances to the final position.

Supervision

Competent Authorities (CAs) at member state level will be responsible to supervising cryptoasset services providers (CASPs) and enforce requirements under MiCA.

CASPs that have more than 15 million active users will classify as "Significant CASPs" and will remain supervised by CAs but ESMA will have an "intervention power" to prohibit or restrict the provision of crypto-asset services by CASPs if there are threats to market integrity, investor protection or financial stability. Additionally, ESMA will be able to issue opinions on how to promote supervisory convergence, ESMA already has these powers for the wider financial market.

The EBA will supervise stablecoins that have more than 10 million users or a reserve of assets that are worth more than €5 billion. We note that the ECB will have veto rights in respect of any stablecoin that it has concerns on. Stablecoin issuers will be obliged to maintain reserves 1:1 to cover all claims and provide permanent redemption rights to holders. Reserves will be fully protected in case of insolvency.

Blacklisting

ESMA will be empowered to operate a crypto Blacklist in which it can effectively name and warn investors of any CASP that fails to comply with the requirements in MiCA.  This would enable MiCA to include in the Blacklist any company that refuses to register in an EU member state or that purposely avoids having to register by operating outside legal structures.

Energy disclosures

CASPs (and issuers of cryptoassets) will have to disclose what type of blockchain consensus mechanism they use e.g. PoW or PoS in an informational document, called a whitepaper.  ESMA will develop further measures that will specify what these disclosures should look like. The Commission, meanwhile, will write up a report that compares the different types of blockchain technologies on offer and present policy options for decision-makers to consider.

Custody liability

Custodian Wallet providers (or exchanges holding cryptoassets for clients)  will be liable for damages or losses caused to customers because of hacks or operational failures that they could have prevented. However, Cryptoassets will be protected in case of insolvency of the exchange. There are also new liability rules for custodians holding asset-referenced token reserve assets.

Quick crypto fixes

DeFi protocols and NFT have largely been left out of MiCA. However, there is a review clause baked into the rulebook that will likely lead to specific regulatory regimes at a later date, if needed.

DEFI

Note that cryptoassets that are issued by a DeFI protocol will still qualify as crypto-assets and so CASPs that carry on activities in respect of these assets will have to comply with relevant requirements under MiCA.

NFTs

Truly unique NFTs are excluded them unless the issuer creates a “collection” of assets for purchase. The idea behind this is to allow artists and firms to create individual digital assets without being buried in regulatory paperwork. Companies behind NFT collections, however, will have to provide a whitepaper that explains what their product is and how they operate on the blockchain.

More generally, NFTs that replicate a financial instrument will be in scope of MiCA.

You can find out more about MiCA by navigating to our previous publications:

Fintech: the evolving French regulatory landscape

MiCA – where are we now?

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