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The Markets in Crypto-Assets Regulation (MICA) and the EU Digital Finance Strategy

The Markets in Crypto-Assets Regulation (MICA) and the EU Digital Finance Strategy The European Commission published its new Digital Finance Strategy on 24 September 2020. Furthermore, one of the centrepieces of the Strategy is the draft Regulation on Markets in Crypto-Assets (MiCA), designed to provide a comprehensive regulatory framework for digital assets in the EU.

Evolution of Fintech

With MiCA the EU Commission has proposed bespoke regulation for utility tokens and stablecoins including payments tokens. Including asset-backed tokens and “significant” stablecoins (including “global stablecoins”). As to investment and securities tokens, the EU Digital Finance Strategy relies on the existing body of EU financial and securities law, with the Prospectus Regulation, the MiFID framework. As well as the UCITSD and AIFMD at its core, with the intention to incorporate necessary changes as part of the existing ongoing amendment and review processes.

MiCA provides for a bespoke prospectus regime for crypto-assets. With the issuing of e-money tokens (i.e. payment tokens), asset-referenced tokens (also known as stablecoins) and crypto-asset services being regulated activities subject to licensing.

While supervision of crypto-asset service providers (CASPs) will rest with national authorities, supervision of significant asset-referenced and e-money tokens will rest mainly with the European Banking Authority.

The EU Digital Finance Strategy marks a very important step for the EU in developing both innovation and the Single Market. At the same time, while MiCA is an ambitious legislative project, there is room for improvement.

Firstly, the scope of MiCA remains uncertain as the draft MiCA does not clearly delineate between utility tokens subject to MiCA and investment tokens subject to EU securities law. Secondly, a systematic approach to EU law is absent.

Thresholds and concepts known from other EU laws should be firmly embedded in MiCA. Thirdly, a framework for supervisory cooperation with regard to truly global stablecoins is missing.

The regulation of payment tokens, on the other hand, is well justified from a financial stability perspective given that a well-functioning payment infrastructure lies at the heart of all financial systems. In this regard, MiCA has indeed filled a gap, often by leaning on existing rules of the E-Money Directive.

While this approach may be justified for small token offerings it does not provide a suitable legal environment for truly large global stablecoins of global importance. Moreover, we recommend the insertion of cooperation mechanisms. Similar to systemically important market infrastructures of international importance with regard to global stablecoins. 

In conclusion and more broadly, MiCA does not stand on its own. But, is part of an ambitious and comprehensive approach of the sort we view as essential.

Read the Full Paper : The Markets in Crypto-Assets Regulation (MICA) and the EU Digital Finance Strategy

Written by:

Dirk A. Zetzsche

Universite du Luxembourg – Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf – Center for Business & Corporate Law (CBC); European Banking Institute

Filippo Annunziata

Bocconi University – Department of Law; European Banking Institute; Bocconi University – Baffi Carefin Centre

Douglas W. Arner

The University of Hong Kong – Faculty of Law; University of Hong Kong

Ross P. Buckley

University of New South Wales (UNSW) – Faculty of Law