On Thursday, April 20th, 2023, the EU Parliament passed the Markets in Crypto Assets (MiCA) regulation with overwhelming support from European members of parliament. This landmark legislation will come into effect in 2024, making the EU the first major jurisdiction to implement a comprehensive crypto law and provide regulatory clarity. MiCA is set to become a global standard for crypto industry regulations, as it mandates that crypto companies register in one of the EU’s member states and ensures compliance oversight by the European Securities and Markets Authority and European Banking Authority. As the industry continues to rapidly evolve, it is crucial to maintain a flexible and balanced approach.
MiCA aims to provide regulatory clarity to the crypto industry, and it achieves this through three primary measures.
Firstly, the law mandates a universal license for all “crypto asset service providers,” including exchanges, custodial wallet providers, and token issuers, who operate in the EU. To qualify for the license, companies must comply with stringent requirements, such as maintaining separate funds for consumers and businesses, meeting capital minimums, and implementing anti-money laundering procedures. Additionally, token issuers must publish whitepapers with project information. Secondly, MiCA requires stablecoin issuers, such as Circle and Tether, to maintain sufficient reserves to meet redemption requests and avoid liquidity issues. Stablecoin issuers must also disclose the composition of their reserves on a monthly basis and report any events that could impact the value of stablecoins or their reserves.
Lastly, MiCA provides critical consumer protections for retail crypto investors. The legislation holds companies with crypto asset service provider licenses accountable for lost consumer funds due to cyberattacks, theft, or any other malfunctions. This is a significant step towards preventing the loss of billions of dollars in funds that retail crypto investors have experienced in recent years.Collateralized stablecoins: Under MiCA, stablecoin issuers, like Circle and Tether, will be required to maintain an adequate amount in reserves to meet redemption requests and prevent liquidity issues. Additionally, they will be required to publicly post the composition of their reserves on a monthly basis, and disclose any event that could have a significant impact on either the value of stablecoins or their reserves.
Consumer protections: MiCA also carves out key protections for retail crypto investors, who have lost billions of dollars in funds in recent years due to hacks and misused funds. The new legislation states that companies with crypto asset service provider licenses could be held liable for lost consumer funds in the case of a cyberattack, theft, or any malfunctions.
