Coverage of Crypto-Assets under MiCA Regulation

Question

Which types of crypto-assets are covered under the MiCA regulation?

Executive Summary

The Markets in Crypto-Assets Regulation (MiCA) provides a comprehensive framework for crypto-assets within the EU. Here’s a summary of the key points relevant to entrepreneurs:

  • Crypto-Asset Categories: MiCA broadly covers digital representations of value or rights known as crypto-assets, specifically focusing on asset-referenced tokens, e-money tokens, and utility tokens.
  • Exemptions: Certain entities and asset types are excluded from MiCA, including intra-group services, activities by central banks/public authorities, international organizations, and unique non-fungible crypto-assets (e.g., NFTs).
  • Authorisation and Trading: Both asset-referenced and e-money tokens require authorization from competent authorities for public offerings and trading within the EU, with specified operational and governance standards.
  • Exclusions: MiCA does not apply to financial instruments, deposits, funds (unless they are e-money tokens), securitization positions, or certain pension products – which fall under existing financial regulations.
  • Financial Instrument Definition: For crypto-assets that qualify as financial instruments, MiCA defers to established frameworks like MiFID II, to avoid redundant regulation.

Entrepreneurs venturing into crypto-assets under MiCA should be aware of the specific requirements and exclusions to ensure regulatory compliance.

Legal trace

Understanding Crypto-Asset Categories and the Scope of MiCA

’crypto-asset’ means 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; Article 3, point 5

MiCA defines crypto-assets broadly, addressing any digital representation of value or rights facilitated by advanced technologies such as distributed ledgers. This all-encompassing approach indicates the regulation’s aim to encompass a wide variety of digital initiatives within its scope.

‘asset-referenced token’ means 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’ or ‘e-money token’ means a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency; ‘utility token’ means a type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer; Article 3, points 6, 7, 9

Distinct categories are carved out: asset-referenced tokens, e-money tokens, and utility tokens. Asset-referenced tokens seek stability by referencing various assets, while e-money tokens are inherently linked to singular fiat currencies. Utility tokens provide digital access to services specifically meant for the asset’s issuer.

This Regulation does not apply to:

  • (a) persons who provide crypto-asset services exclusively for their parent companies, for their own subsidiaries or for other subsidiaries of their parent companies;
  • (b) …
  • (c) the ECB, central banks of the Member States when acting in their capacity as monetary authorities, or other public authorities of the Member States;
  • (d) the European Investment Bank and its subsidiaries;
  • (f) public international organisations.
  • (g) crypto-assets that are unique and not fungible with other crypto-assets. Article 2, paragraphs 2 and 3

MiCA’s reach excludes intra-group services, the actions of central banks and public authorities, international organizations, and unique, non-fungible crypto-assets. Thus, internal corporate use or sovereign financial activities, typical monetary operations and unique items like individual NFTs are not under regulatory concern.

Detailed Provisions Concerning Specific Crypto-Asset Types

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. The authorisation granted by the competent authority to a person shall be valid for the entire Union and shall allow an issuer of an asset-referenced token to offer to the public, throughout the Union, the asset-referenced token for which it has been authorised, or to seek an admission to trading of such asset-referenced token. Article 16, paragraphs 1 and 3

Asset-referenced tokens under MiCA are subject to stringent requirements, including obtaining authorization and adherence to a range of operational, governance, and transparency standards, suggesting a targeted regulatory approach that recognizes their macroeconomic and systematic importance.

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… Issuers of e-money tokens shall issue e-money tokens at par value and on the receipt of funds. Issuers of e-money tokens shall not grant interest in relation to e-money tokens. Article 48, paragraphs 1 and 3; Article 49, paragraph 3; Article 50, paragraph 1

E-money tokens are similarly safeguarded through authorization requirements and mechanisms to maintain value parity with fiat currency, but distinctively, they may not offer interest returns. These rules align their usage closer to traditional money than to speculative assets, reflecting a considered integration into the financial system.

Exclusions and Clarifications

This Regulation does not apply to crypto-assets that qualify as one or more of the following: (a) financial instruments; (b) deposits, including structured deposits; (c) funds, except if they qualify as e-money tokens;

  • (d) securitisation positions in the context of a securitisation as defined in Article 2, point (1), of Regulation (EU) 2017/2402;
  • (h) individual pension products for which a financial contribution from the employer is required by national law and where the employer or the employee has no choice as to the pension product or provider; Article 2, paragraph 4

Crypto-assets that are classified under existing financial regulations concerning instruments, deposits, structured products, and obligations are deliberately kept outside MiCA’s domain. This clear delineation ensures that products with existing regulatory structures are not redundantly or confusingly dual-regulated.

‘financial instrument’ means financial instruments as defined in Article 4(1), point (15), of Directive 2014/65/EU; Article 3(49)

Reinforcing this separation, MiCA defers to existing frameworks like MiFID II to govern crypto-assets that qualify as financial instruments, emphasizing the focus on novel digital asset types not already encapsulated by legacy financial regulations.

This Title shall not apply to offers to the public of crypto-assets other than asset-referenced tokens or e-money tokens where any of the following apply: …the crypto-asset is offered for free; …the holder of the crypto-asset 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. Article 4, Paragraph 3

The non-fungible crypto-assets and certain utility-type assets, which have specific use constraints or are non-monetary rewards, are acknowledged with tailored provisions, suggesting a lighter regulatory touch that considers their unique roles and features.

In summary, MiCA endeavors to foster a regulated crypto-asset market, emphasizing asset-referenced tokens and e-money tokens due to their resemblance to financial instruments and potentials for mass adoption. It purposefully excludes assets already covered under established financial rulesets, as well as entities conducting activities that do not implicate broader market health or consumer protection concerns. Moreover, unique and specific-use assets like NFTs receive attention to ensure the regulation does not stifle innovation and remains proportionate to the risks posed.

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 the types of crypto-assets covered under the Markets in Crypto-Assets Regulation (MiCA), we have prepared a supplemental answer intended to augment the initial analysis with additional insights and context. This further elaboration will focus on expanding your understanding of how crypto-assets, including NFTs and utility tokens, are classified under both MiCA and the broader framework of financial regulations within the EU.

Legal trace

Enhancing the Regulatory Understanding of Crypto-Assets Under MiFID II

The goal of these guidelines is to provide NCAs and market participants with structured yet flexible conditions and criteria to determine whether a crypto-asset can be classified as a financial instrument. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 8

This statement underlines the European Securities and Markets Authority’s (ESMA) intention to offer a clear, yet adaptable, set of guidelines for classifying certain types of crypto-assets as financial instruments under MiFID II. It accentuates the ongoing efforts to ensure that emerging digital assets fit within the existing regulatory framework, grounding our understanding of how these assets are viewed in relation to more traditional financial instruments.

Crypto-assets might be recognised as transferable securities if they grant rights similar to shares, bonds or other securities (e.g. securities embedding a derivative). (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 9

This clarification is crucial as it highlights the criteria under which crypto-assets may fall under the regulatory scope of MiFID II, serving as transferable securities. Particularly, it sheds light on how the rights conferred by certain crypto-assets, mirroring those of conventional securities, can influence their regulatory classification. This understanding is paramount for delineating the boundaries of MiCA’s applicability.

Distinguishing Crypto-Assets under MiCA and MiFID II: A Focus on NFTs and Utility Tokens

The definition of crypto-assets in MiCA is broadly defined capturing not only “cryptocurrencies”, such as Bitcoin or Ethereum, but also “stablecoins” and so-called utility tokens. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 18

This insight broadens the spectrum of digital assets under MiCA, indicating its regulatory embrace extends beyond cryptocurrencies to include stablecoins and utility tokens. The delineation enables a deeper comprehension of MiCA’s scope, signifying its intent to create a secure and comprehensive regulatory environment for a variety of crypto-asset classes.

MiCA does not apply to crypto-assets that are unique and not fungible with other crypto-assets. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 21

This statement directly informs on the regulatory stance towards Non-Fungible Tokens (NFTs) within the MiCA framework, illustrating a deliberate exemption based on their unique and non-fungible characteristics. Understanding this exception is critical for stakeholders exploring NFT initiatives, emphasizing the current regulatory perspectives on these distinct assets.

Utility tokens serve a specific utility/usage or provide some consumption rights. The rights granted by a utility token may thus vary according to the different business models implemented by DLT projects. (Draft) Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, page 20

This elucidation on utility tokens reinforces their definition under MiCA, noting their purpose in offering access to services or consumption rights, which can differ widely across the distributed ledger technology (DLT) landscape. Highlighting the flexibility and diversity of utility tokens’ applications aids in understanding their regulatory treatment and innovation potential under the current framework.

Through these supplemental insights, our goal was to enrich your understanding of how crypto-assets are distinguished and regulated under EU financial directives, notably MiFID II and MiCA. By examining the classification of crypto-assets, including NFTs and utility tokens, within this defined regulatory context, we aim to provide you with a deeper grasp of the legal landscape impacting crypto-asset activities. This extended analysis should serve as a valuable resource for navigating the complexities of crypto-asset regulation and aligning your strategies with legal requirements effectively.