Markets in Crypto-assets (MiCA) – New EU law on crypto-assets

The MiCA Regulation was published in the Official Journal of the EU (OJ EU L 2023, No. 150, p. 40 as amended; “MiCAR”)  some time ago, as it came into force on 9 June 2023. Since the publication of the first draft, we have informed you about the scope of this landmark regulation of the cryptoassets market at EU level (please see Road to MiCAR). With this in mind, 2024 will be a turning point for this segment of the financial market, as the part of the MiCA Regulation concerning stablecoins will come into force on 30 June and the rest of the MiCAR on 30 December 2024. Thus, we would like to refresh some of the key messages on this subject and show the impact on the Polish crypto market in the following article. At the same time, we encourage you to read other Bird & Bird publications on crypto-assets and their regulation available on our global Digital Rights & Assets page here.

MiCA Regulation aims to foster use of innovative technologies by setting a regulatory framework that covers crypto-assets, crypto-assets issuers and crypto-asset service providers. EU regulations are directly applicable in all EU members states, so implementation procedures in Poland will be limited.

MiCAR was proposed as a part of the digital finance package which also included a digital finance strategy (COM/2020/591 final), the Digital Operational Resilience Act (DORA) (OJ EU L 2022, No. 333, p. 1; “DORA"), that covers crypto-asset service providers as well, and a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (OJ EU L 2022 No. 151, p. 1; the “DLT Pilot Regime”). For some initial guidance on the digital finance package, please see here.

MiCAR entered into force on 29 June 2023 and will become applicable in part (provisions regarding asset-referenced tokens and e-money tokens) from 30 June 2024, and in other parts from 30 December 2024. Currently there are legislative procedures undertaken on the EU level related to MiCAR’s delegated acts (Regulatory Technical Standards and Implementing Technical Standards).

Crypto-assets defined

The EU lawmakers decided to provide a general definition of a crypto-asset, stipulating that it is a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology. As regulation, this definition will apply directly in Poland.

Then, MiCAR divides crypto-assets into three categories:

• asset-referenced tokens (“ART”) - a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies;
• electronic money token (“EMT” or “e-money tokens”) - a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency;
• tokens that are qualified as neither ART nor EMT; this category includes utility tokens - a type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer.

MiCAR further divides ARTs and EMTs into significant and non-significant tokens based on several criteria, such as inter alia: the number of holders, the value of issued token, the significance of the activities of the issuer on an international scale (e.g., use of the token for payments and remittances).

What about NFTs?

MiCAR explicitly excludes crypto-assets that are unique and not fungible with other crypto-assets. Therefore, in relation to most NFTs, MiCAR will not apply. However, MiCAR may apply to NFTs whose characteristics make it more likely to be fungible (e.g., NFTs issued in series or as a collection).

What is out of scope?

Even though MiCAR forms a comprehensive regulatory framework for crypto-assets and related activities, not all assets that could potentially qualify as crypto-assets fall under its scope.
Thus, the MiCA Regulation does not apply, for example, to the following types of assets, which qualify as:

• financial instruments;
• deposits, including structured deposits;
• funds, except if they qualify as e-money tokens;
• unique and not fungible with other crypto-assets (as stated above, that includes certain NFTs);
• non-life or life insurance products;
• social security schemes.

An issue worth noting in particular is the exclusion from the scope of MiCAR of cryptocurrencies that qualify as “financial instruments”. This means that so-called “security tokens” are not covered by the MiCA Regulation, if they qualify as “transferable securities” under MiFID II. However, given that EU law does not contain a clear legal definition delineating the essence of “financial instruments”, distinguishing between crypto-assets falling under MiCAR and those not falling under MiCAR is difficult. Accordingly, ESMA has been required to issue guidelines by 30 December 2024 on the conditions and criteria for the qualification of crypto-assets as financial instruments. Draft guidelines are available here.

Furthermore, MiCAR does not cover crypto-asset services, which are fully decentralised. Therefore, for example – the world's most well-known cryptocurrency, that is Bitcoin - is not itself regulated by the MiCA Regulation.

CASPs

Poland has so far had hardly any legislation regulating crypto-asset service providers. The only regulatory framework in this area was the Polish AML Act, which, by implementing AMLD5, covers virtual asset service providers (VASPs).

MiCAR introduces a new category of regulated entities within the EU financial regulatory framework, which are crypto-asset service providers (“CASP”). MiCAR defines CASPs as legal persons or other undertakings whose occupation or business is the provision of one or more crypto-asset services to clients on a professional basis, and that is allowed to provide crypto-asset services in accordance with MiCA. Other than the current Polish regime on VASPS which covers only the activities of exchanging virtual currencies for cash or other virtual currencies (as well as brokering these exchanges) and operating crypto-asset accounts/wallets, the scope of crypto-asset services will be broader: it will, for example, cover custody services, operating of a trading platform, exchanging crypto to fiat or providing advice on crypto-assets, providing advice on crypto-assets, and providing transfer services for crypto-assets on behalf of clients.

MiCAR provides for licence requirements for CASPs, which is a novelty for the Polish market since up to now Polish law required simple registration and compliance with Polish AML laws. The authorisation for CASPs is granted on an application submitted to the competent authority in the home country (in Poland it will be Polish Financial Supervision Authority).

Regarding the territorial scope of the MiCAR - of course it will apply to activities within the EU. However, like MiFID II - MiCAR also explicitly provides for the provision of crypto-asset services by entities not licensed in the EU. Thus, a client established or situated in the EU may initiate at its own exclusive initiative the provision of a crypto-asset service or activity by a third‐country firm. In such situations, the requirements for authorisation envisaged in MiCA do not apply to the provision of that crypto-asset service or activity by the third‐country firm to that client. This model of providing financial services is known in EU regulations as "reverse solicitation". If you are interested in a comparison of the MiFID regime on reverse solicitation and the MiCAR regime, please see here.

As of now, for the purpose of actively providing services in various EU member states, CASPs need to register, or obtain licence, in each EU member state. So, the good news is that under MiCAR a CASP licenced in Poland is able to passport this licence to any other EU member state and provide its services cross border. This expands the potential client base for a Polish CASP less than 40 million people living in Poland to almost 450 million living in the EU – an increase by more than 400 million potential customers.

ART issuers

ART issuers are obliged to obtain authorisation that is granted upon application submitted to the competent authority in the home country, i.e. Polish Financial Supervision Authority. There are also exceptions to the rule – authorisation is not required if: (i) the issuer is a credit institution or (ii) the value of issued tokens does not exceed a certain threshold or (iii) the offer is addressed solely to qualified investors and the asset-referenced token can only be held by such qualified investors.

Even though credit institutions are not required to obtain authorisation to issue ART, MiCAR imposes certain obligations on credit institutions, such as inter alia drawing up a whitepaper and notifying the respective competent authority 90 days ahead of issuing ART.

EMT issuers

EMTs may only be issued by credit institutions or e-money institutions, provided that such institutions notified the whitepaper to the competent authority.

There are also several restrictions related to EMTs. Firstly, EMT issuers can redeem EMTs for their holders at any time and at par value, by paying in funds. Secondly, EMT issuers cannot grant interest in relation to issued EMTs.

Issuers of crypto-assets other than ART or EMT

MiCAR also introduces requirements for the issuance of tokens that do not qualify as ART or EMT, though they are not as far reaching as the requirements for EMT issuers.

The requirements for issuers of crypto-assets other than ART or EMT do not apply if the crypto-assets are offered for free. In addition, the requirements for issuers of crypto-assets do not apply when:

• the crypto-asset is automatically created as a reward for the maintenance of the distributed ledger or the validation of transactions;
• the offer concerns a utility token providing access to a good or service that exists or is in operation; or
• the crypto-asset holder has the right to use it only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror.
  Investor protection

MiCAR contains a number of measures aimed at protecting investors’ funds, as well as ensuring that the investors are well aware of what are the characteristics of the crypto-asset, such as inter alia:

• Whitepaper – issuers of crypto-assets are obliged to prepare and publish a whitepaper that contains certain information required under MiCAR. Depending on what type of token it relates to, such information may include inter alia information: (i) about the offeror or the person seeking admission to trading, (ii) about the token, (iii) about the issuer, (iv) about crypto-asset project, (v) on the risks or (vi) on the underlying technology, etc.
• Marketing communications – all marketing communications relating to an offer to the public or admission to trading of the crypto-asset should comply with certain requirements, such as inter alia: (i) being fair, clear and not misleading, (ii) being identifiable as such and (iii) being consistent with the whitepaper.
• Honesty, fairness, professionalism – issuers and CASPs are obliged to act honestly, fairly and professionally.
• Own funds – ART issuers are obliged to keep the own funds on a certain level.
• Safeguarding of funds - EMT issuers are obliged to safeguard the funds received in exchange
  for e-money tokens by depositing and investing them in a manner described in MiCAR.
• Reserve of assets – ART issuers are obliged to keep reserve of assets securing the claim against the issuer. MiCAR also provides for certain restrictions related to the composition and management of such reserve of assets.
• Investor protection

Poland – state of play

Poland has so far not had extensive regulations applicable to Virtual Asset Service Providers (VASPs). Activity in this area was not subject to oversight by the Polish Financial Supervision Authority (Pol. Komisja Nadzoru Finansowego; the “KNF”). The only applicable laws in this respect stem from the Act of 1 March 2018 on the Prevention of Money Laundering and Terrorist Financing (Journal of Laws 2023, item 1124, as amended; the "Polish AML Act").

Nevertheless, the Polish AML Act does not provide for a robust regulatory framework within which VASPs could operate. It requires a registration of VASPs in the register of virtual assets service providers (which can be obtained in a fairly easy process). VASP activity may only be conducted by persons with no criminal record and with adequate knowledge and experience. Furthermore, qualifying as obliged entities, VASP are obliged to exercise other AML obligations (e.g., apply KYC procedures).

In view of the upcoming entry into application of the MiCA Regulation - the laws regulating the activities of VASPs in Poland will change significantly and will be harmonised with the rest of the European Union.