MiCA Disclosure Requirements for Launching a New Digital Coin in Europe

Question

We're launching a new digital coin and plan to offer it to people in Europe.

What do we need to tell people about our coin before they buy it, according to MiCA rules?

Executive Summary

Launching a new digital coin in Europe requires compliance with the Markets in Crypto-Assets Regulation (MiCA). Here’s a succinct overview of what you need to inform potential buyers:

  • Mandatory White Paper Disclosure: Draft a detailed crypto-asset white paper as per Annex I of MiCA, which includes identity of the issuer, project details, crypto-asset information, and investor rights and obligations.
  • Marketing Consistency: Ensure all marketing communications are consistent with the white paper, fair, clear, and not misleading. They should only be released after the white paper’s publication.
  • Stricter Regulations for Certain Tokens: If offering asset-referenced or e-money tokens, adhere to additional authorization requirements and ensure you’re legally established in the EU.
  • Conduct and Consumer Protection: Act with integrity, manage conflicts of interest, and observe security protocols. Clearly convey the right of withdrawal to retail holders, which allows them to cancel their purchase within 14 days without penalty.

By incorporating these guidelines into your launch strategy, you’ll align your offering with MiCA requirements, focusing on transparency and investor protection.

Assumptions

Assume that:

  1. The digital coin is considered a crypto-asset under MiCA rules and may fall within categories like asset-referenced tokens or e-money tokens, given their typical use for offer to the public.
  2. The offering is intended for the public in multiple EU member states.
  3. The user represents the issuer of the digital coin.
  4. The coin will be offered in the near future, requiring compliance with current MiCA disclosure obligations.
  5. Marketing and promotional activities will accompany the coin offering, necessitating adherence to marketing communication regulations under MiCA.

Legal trace

General Obligations for Crypto-Asset White Papers

ANNEX I details specific parts labeled from A to I that encompass various elements such as information about the offeror, issuer, the project, the offer, and the crypto-assets themselves, among others. ANNEX I

The annex provides a comprehensive checklist of information that needs to be disclosed when offering a crypto-asset. It covers the identity of the issuer, the nature of the offering, specifics about the crypto-asset, and the underlying technology, all while highlighting the rights and obligations of investors. This information not only serves as the foundation for a mandatory crypto-asset white paper but also helps to maintain transparency and trust with potential investors.

”A person shall not make an offer to the public of a crypto-asset other than an asset-referenced token or e-money token in the Union unless that person […] has drawn up a crypto-asset white paper in respect of that crypto-asset in accordance with Article 6” Article 4

The white paper is a crucial document that must contain detailed information that is fair, clear, and not misleading. Including statements that it has not been approved by a competent authority communicates to potential buyers the need for due diligence. Furthermore, any marketing communications must be consistent with the white paper and present relevant disclaimers.

Crypto-Asset White Paper Content and Marketing Communications

”A crypto-asset white paper shall contain all of the following information, as further specified in Annex I […] All of the information listed […] shall be fair, clear and not misleading.” Article 6

By explicitly detailing what should be included in the white paper and how it should be presented, MiCA ensures that the potential investors receive all pertinent information in a manner that is digestible and not intended to deceive.

”Any marketing communications […] shall comply with […] the marketing communications are clearly identifiable as such […] the information in the marketing communications is fair, clear and not misleading […] consistent with the information in the crypto-asset white paper.” Article 7

Under MiCA, marketing communications must not precede the publication of the white paper, which is aimed at ensuring that promotional activities do not mislead potential investors before they have had access to the full and formal disclosure of the crypto-asset’s specifics.

Additional Considerations for Asset-Referenced Tokens and E-Money Tokens

”A person shall not make an offer to the public, or seek the admission to trading, of an asset-referenced token, within the Union, unless that person is the issuer of that asset-referenced token and is […] authorised in accordance with Article 21 by the competent authority of its home Member State; or a credit institution that complies with Article 17.” Article 16

Article 16 delineates authorization requirements, which for asset-referenced tokens and e-money tokens are more stringent than for other crypto-assets. The emphasis on authorization and legal establishment in the EU before offering such tokens highlights the additional layer of investor protection for these types of assets.

”A person shall not make an offer to the public or seek the admission to trading of an e-money token, within the Union, unless that person is the issuer of such e-money token and: is authorised as a credit institution or as an electronic money institution.” Article 48

The e-money tokens fall under specific regulatory requirements akin to electronic money, which imposes a pre-established legal framework on them. This stipulation should be considered by the issuer in the preparation of the required disclosures when offering e-money tokens.

Requirements on the Offeror’s Conduct and the Right of Withdrawal

”Offerors and persons seeking admission to trading […] shall: act honestly, fairly and professionally; communicate with holders and prospective holders of the crypto-assets in a fair, clear and not misleading manner; identify, prevent, manage and disclose any conflicts of interest […] maintain all of their systems and security access protocols in conformity with the appropriate Union standards.” Article 14

Article 14 necessitates that offerors act with the utmost integrity throughout the offering process. This article underpins every facet of the client’s disclosure and interaction with potential investors.

”Retail holders […] shall have a period of 14 calendar days within which to withdraw from their agreement to purchase crypto-assets […] without incurring any fees or costs and without being required to give reasons.” Article 13

The protections offered to retail holders, such as the right of withdrawal, demonstrate MiCA’s focus on consumer protection. Disclosures about these rights are mandatory in the white paper, contributing to a climate of trust and protection for potential investors.

In summary, MiCA establishes a robust framework for disclosures related to the offering of crypto-assets to the public in the EU. This framework necessitates clear, honest, and comprehensive information to be included in white papers and marketing communications, with strict adherence to regulations that underscore the protection of potential investors, transparency, and market integrity.

PDF Repository

We have searched through the PDF repository of draft EBA and ESMA guidelines, draft technical standards, and other documents to provide this supplemental answer.

Details

In response to your query regarding MiCA rules for disclosing information to potential buyers before offering a new digital coin in Europe, we have further analyzed related legal texts to augment our initial advice. This supplemental answer aims to provide you with a deeper understanding of the evolving regulatory landscape, highlighting the critical role of classification of crypto-assets and the importance of ESMA guidelines in navigating compliance obligations.

Legal trace

The Regulation on markets in crypto-assets (MiCA) was published in the Official Journal of the EU on 9 June 2023. The European Securities and Markets Authority (ESMA) has been empowered to develop technical standards and guidelines specifying certain provisions. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 4

This statement underscores ESMA’s central role in providing the details necessary for compliance with MiCA, suggesting that close attention to upcoming guidelines and standards developed by ESMA is essential for any crypto-asset offering in the EU.

The different approaches to the national transposition of MiFID across Member States mean that there is no commonly-adopted application of the definition of ‘financial instrument’ under MiFID in the EU. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 4

This quote highlights the challenges posed by varying interpretations of “financial instruments” across EU member states, indicating the importance of understanding local transpositions of MiFID II when classifying a digital coin for regulatory purposes.

Clarifying Crypto-Asset Classifications and Exemptions

ESMA is mandated to issue guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, as defined in Article 4(1), point (15), of the Markets in Financial Instruments Directive (MiFID II). (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 5

This point illustrates the specific efforts ESMA is making to clarify which crypto-assets might be considered financial instruments under MiFID II, affecting how those assets are regulated differently from others under MiCA.

The technology neutrality principle as outlined in MiCA, ensures that analogous activities and assets are regulated under the same rules, irrespective of their technological format. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 11

This comment reassures that MiCA’s regulatory approach does not discriminate based on technology, emphasizing the need to focus on the characteristics and functionalities of the digital coin rather than the technology used, for compliance purposes.

Understanding ESMA’s Role and the Consultation Process

The guidelines apply to competent authorities and to financial market participants, including issuers as defined in Article 3(1), point (10), of MiCA, crypto-asset service providers as defined in Article 3(1), point (15), of MiCA, investors and all persons engaging in activities relating to crypto-assets. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 26

The broad application of these guidelines to various market participants shows the comprehensive nature of ESMA’s regulatory oversight, implicating a wide range of stakeholders in the crypto-asset space, including issuers like yourself.

Preparing for Compliance: Key Considerations

offerors or persons seeking admission to trading of crypto-assets are primarily responsible for the correct classification of such assets. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 7

This emphasizes the critical responsibility of offerors to accurately classify their crypto-assets in compliance with regulatory frameworks, highlighting the importance of engaging with regulatory standards and guidelines proactively.

This supplemental insight should aid in enhancing your understanding of the regulatory landscape, emphasizing the significant role that classifications and ESMA’s guidelines play in shaping compliance obligations. We encourage staying informed about ESMA’s ongoing developments and considering their implications for your digital coin offering.