At the end of 2022, the European institutions agreed on a final version of the MiCA (Market in Crypto Assets) regulation which must be definitively adopted at the beginning of 2023 and will thus enter into force in 2024.
The MiCA Regulation is inspired by the regulatory framework for Digital Asset Service Providers (DSPs) created in France, in 2019. It aims to set common rules for EU member states in the still poorly regulated market for digital assets.
General principles
National frameworks, such as the one introduced in France in 2019, will be replaced by the MiCA framework. Companies wishing to issue cryptocurrencies and offer services around all digital assets (custody, purchase/sale, etc.) will have to apply for European approval from their national regulator. They will have to obtain the status of Crypto-Assets Services Provider (CASP) to carry out their activities. This status and the approval that accompanies it also provide the company with a European passport allowing it to practice throughout the European Union.
The Regulation strengthens the supervision of the digital asset market. ESMA will thus be responsible for sanctioning market abuse and listing service providers deemed non-compliant or not having applied for European authorisation.
A Travel Rule will also be established and will cover PSANs with more than 15 million annual active users in the European Union. It imposes strict anti-money laundering and combating the financing of terrorism (AML-CFT) rules, which are indifferent to the amounts transferred.
Finally, the European Banking Authority (EBA) will classify each asset listed on a blockchain. It will regulate cryptocurrencies that meet the following criteria:
- More than 10 million holders in the EU
- Total capitalization of more than $5 billion
- Number of transactions exceeding €2.5 million per day (totalling more than €500 million).
The regulation also includes environmental obligations. PSAPs will be required to report the energy consumption and full environmental impact of their digital assets. ESMA will publish RTS (Regulatory Technical Standards) on compliance with environmental requirements. However, "proof of work" is not prohibited, as was envisaged at the beginning of the reflection on the text.
Focus on the French regime
The main objective of the PACTE law (Action Plan for Business Growth and Transformation) of 22 May 2019 was to enable companies to innovate to support their growth. In this sense, one of the provisions of this law was to create a status of Digital Asset Service Providers (PSAN) to provide a framework for the digital asset market in France.
Below, the articles of the Monetary and Financial Code (CMF) integrating the provisions of the PACTE law:
The law first clarified what digital assets are. It is therefore all digital representations of values, which can be stored and exchanged electronically, are not necessarily pegged to a currency having legal tender but which are accepted by natural and legal persons as a medium of exchange.
Thus, the services that can be provided by PSANs to their clients are as follows:
- Custody (digital assets or cryptographic access keys)
- Purchase/sale of digital assets in legal tender
- Exchanges of different digital assets
- Provision of a trading platform for digital assets
Companies wishing to offer these services must obtain, from the Autorité des Marchés Financiers, a registration[ME1] as a PSAN. This status is obtained after examination of an application by the AMF. For the first two services, the Autorité de Contrôle Prudentiel et de Résolution (ACPR) must give its assent to the measures to combat money laundering and the financing of terrorism. Finally, the companies making the application must be located in France, in the European Union or in the European Economic Area.
PSANs can apply for an optional authorisation from the AMF, which will subject them to more stringent rules concerning the organisation of their activities and their financial soundness. In addition to the four activities mentioned above, accreditation makes it possible to offer the following services:
- Retrieval of orders on digital assets
- Digital Asset Portfolio Management
- Advice for buyers of digital assets
- Underwriting of digital assets
- Guaranteed and unsecured investments of digital assets
Developments and prospects
While its adoption by the European Parliament and the European Council is scheduled for February 2023, the MiCA Regulation is expected to enter into force in 2024. It will introduce new rules, harmonised at European level, on the management of digital assets and which will replace national frameworks, including the one introduced in France by the PACTE law.
French PSANs will benefit from a transitional period of 18 months following the entry into force of the text, to continue to provide their services to their clients, in France, while preparing their application for CASP approval, with the AMF. The response to the request must be delivered within three months.
With MiCA, the European Commission has set itself the goal of providing a regulatory framework for a market that is still poorly regulated. The text has been designed to support innovation while protecting investors against possible losses from a highly volatile market. The text notably provides for provisions against market abuse and for consumer protection without making PSAPs fully responsible for events outside its prerogatives.
