Impact of MiCA on Cross-Border Crypto Trading Services

Question

We're planning to offer our crypto trading services to people in different countries, not just in Europe.

How does MiCA affect our business when we deal with customers outside Europe?

Executive Summary

In expanding your crypto trading services globally, understanding the reach of the Markets in Crypto-Assets Regulation (MiCA) beyond the EU is crucial. Here’s how MiCA broadly impacts such international operations:

  • Jurisdiction of MiCA: It primarily applies to entities within the EU, dictating crypto-related activities and services in the EU market. For customers outside Europe, the direct enforcement of MiCA is limited, although the regulation’s principles still influence global operations.
  • Consumer Protection and Ethical Standards: MiCA underscores the importance of client protection and non-discriminatory policies, suggesting EU service providers maintain these standards for all clients, irrespective of their location.
  • International Cooperation and Compliance: EU-based providers are expected to engage in transparent cross-border activities and cooperate with non-EU regulatory authorities, respecting international market integrity and regulatory convergence.
  • Transparency and Disclosure Ethics: EU providers are urged to uphold professional conduct globally, providing fair and clear information to clients while reflecting MiCA’s information and disclosure requirements.

Assumptions

  • Assume the crypto trading service business is based within the European Union and subject to MiCA regulations.
  • Assume the service plans to expand to both retail and professional customers internationally.
  • Assume the crypto trading services include both exchange services and custody services for crypto-assets.
  • Assume the business has existing compliance infrastructure that is aligned with European regulations and may need adaptation for services offered in other jurisdictions.
  • Assume the target countries for expansion do not have prohibitive regulations against crypto trading services based in the EU.

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

Following our comprehensive analysis of how the Markets in Crypto-Assets Regulation (MiCA) might affect your crypto trading services to customers outside Europe, we provide additional insights from related legal documents to augment our understanding of potential indirect effects.

Legal trace

Enhancements to Reporting and Monitoring Obligations

issuers should provide the size of the reserve of assets in a broken-down manner to reflect the value and the composition of the reserve of assets, including liquidity management measures. (Draft) Implementing Technical Standards on the reporting on asset-referenced tokens under Article 22(7) of Regulation (EU) No 2023/1114 (MiCAR) and on e-money tokens denominated in a currency that is not an official currency of a Member State pursuant to Article 58(3) of that Regulation, page 18

This quote spotlights MiCA’s thorough approach to transparency requirements for asset reserves, which your company should consider when facilitating transactions involving asset-referenced tokens globally.

transaction to be reported according to Article 22(1) of Regulation (EU) 2023/1114 should include transactions settled on the distributed ledger (‘on-chain’) and transactions settled outside the distributed ledger (‘off-chain’). (Draft) Implementing Technical Standards on the reporting on asset-referenced tokens under Article 22(7) of Regulation (EU) No 2023/1114 (MiCAR) and on e-money tokens denominated in a currency that is not an official currency of a Member State pursuant to Article 58(3) of that Regulation, page 18

This delineates the scope of transaction reporting under MiCA which includes both on-chain and off-chain activities. It’s pertinent to your international operations as it indicates the level of detail that might be required in reporting procedures, potentially influencing your services to non-EU customers.

Proactive Strategies for Classifying Crypto-Assets

While this Consultation Paper does not include a draft cost-benefit analysis, ESMA has developed its draft guidelines having due regard to the principle of proportionality and being mindful about the possible costs the obligations they contain would create for market participants. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 6

This emphasizes ESMA’s intention to ensure that regulatory obligations are not unduly burdensome, which may resonate with your business strategy for offering cross-border services while ensuring compliance with the proportionality principle of European regulations.

Implications of ARTs and EMTs Significance

Regulation (EU) 2023/1114 on markets in crypto-assets (MiCAR), confers on the European Commission (EC) powers to adopt delegated acts on the most relevant indicators in relation to specific criteria for determining whether asset-referenced tokens (ARTs) and electronic money tokens (EMTs) are to be regarded as ‘significant’ (namely the criteria on the issuer’s activities on international scale outside the EU… EBA's Technical Advice in response to the European Commission's December 2022 Call for Advice on two delegated acts under MiCAR concerning certain criteria for the classification of ARTs and EMTs as significant and the fees that are to be charged by EBA to issuers of significant ARTs and EMTs, page 5

The prominence of your services in terms of international scale is a direct factor in the European Commission’s determination of the significance of ARTs and EMTs. This might impact the regulatory oversight and obligations your firm faces as part of MiCA, even when engaging with clients beyond EU borders.

Cooperation and Standards Across Borders

issuers should provide the information on the transactions with a breakdown for geographical distribution, meaning the countries of origin of the holders involved in the transactions. (Draft) Implementing Technical Standards on the reporting on asset-referenced tokens under Article 22(7) of Regulation (EU) No 2023/1114 (MiCAR) and on e-money tokens denominated in a currency that is not an official currency of a Member State pursuant to Article 58(3) of that Regulation, page 19

The need for geographical breakdown in reporting mirrors the level of data granularity required by MiCA. This could have practical implications for your international operations, influencing how transaction data is collected and used for compliance with European standards.

Potential Cost Implications and Strategic Planning

The second part of the report presents the EBA’s advice in relation to the type of supervisory fees, the matters for which fees are due… EBA's Technical Advice in response to the European Commission's December 2022 Call for Advice on two delegated acts under MiCAR concerning certain criteria for the classification of ARTs and EMTs as significant and the fees that are to be charged by EBA to issuers of significant ARTs and EMTs, page 6

Exploring the type and scope of supervisory fees associated with significant ARTs and EMTs is meaningful for estimating future costs related to regulatory supervision within the EU framework. It indicates a factor for financial forecasting and strategic planning as MiCA’s reach evolves.

Our compiled augmentation, grounded in excerpts from relevant legal documents, enhances the informative foundation provided in the initial analysis. This should assist in plotting a forward-looking compliance strategy that respects MiCA’s principles while acknowledging its potential international ramifications for your crypto trading services.