Blockchain Bites: What does MiCA mean for crypto intermediaries?

The European Union has finally adopted the Markets in Crypto-assets Regulation (MiCA), making it the first major jurisdiction to pass a comprehensive regulatory framework for crypto-assets. This groundbreaking regulation is expected to come into force in 2024, and will apply across the EU. But what does this mean for crypto asset service providers (CASPs or crypto intermediaries) in general?

Who are CASPs and what services are licensed?

Under MiCA, a CASP is a legal person or other undertaking whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis. CASPs must be authorised and have a registered office in an EU member state where they carry out at least part of their crypto-asset services, subject to exceptions. MiCA lists 10 types of crypto-asset services, including providing custody and administration of crypto-assets on behalf of clients, operation of a trading platform for crypto-assets, and providing advice on crypto-assets.

What are CASP’s licensing obligations?

MiCA imposes a number of general obligations on all CASPs, regardless of the specific crypto-asset services they provide. CASPs must act honestly, fairly and professionally in the best interests of clients and provide clear and not misleading information, in particular in marketing communications. They are also required to warn clients of risks associated with purchasing crypto-assets.

Prudential requirements are imposed such as CASPs must at all times have in place prudential safeguards and qualified shareholders are subject to fit and proper person requirements. CASPs should also adopt policies and procedures that are sufficiently effective to ensure compliance with MiCA.

Adequate regulation for CASP’s management services is also demanded such as safekeeping of clients’ crypto assets and funds, having effective policies and procedures on complaint handling, conflicts of interest, outsourcing, and orderly wind-down.

A number of specific obligations may apply to CASPs depending on the specific crypto-asset services they are authorised to provide. For example, CASPs providing custody and administration need to provide a statement of position to clients at least once every three months, and segregate client holdings from their own. Crypto-assets in custody are to be insulated from the CASP’s own estate in the event of insolvency. CASPs operating a trading platform need to implement operating rules that define what crypto-assets are admitted to trading.

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Key Takeaway

Crypto asset service providers (CASPs) are subject to a number of licensing obligations under the Markets in Crypto-assets Regulation (MiCA), including prudential requirements, governance arrangements, and safekeeping of clients’ crypto assets and funds, as well as specific obligations depending on the type of crypto-asset services they provide. With the adoption of MiCA, the EU has become the first major jurisdiction to pass a comprehensive regulatory framework for crypto-assets, providing greater clarity and security for market participants.

Conclusion

The adoption of the Markets in Crypto-assets Regulation (MiCA) by the European Union is a significant development for the crypto-assets market. While it will impose significant obligations on crypto asset service providers (CASPs), it will also provide greater clarity and security for market participants. With MiCA set to come into force in 2024, CASPs will need to ensure they are fully compliant with the new regulatory framework in order to operate in the EU market.