Countdown to Implementation of MiCAR Begins as EU Shapes Crypto’s Future

The long-awaited Markets in Crypto-Assets Regulation (MiCAR) is nearing completion, with full implementation scheduled for December 2024. This significant development will reshape the crypto market, specifically CASPs.

MiCAR is a part of the ‘European Commission’s Digital Finance Strategy’ and is responsible for establishing an EU framework to regulate CASPs that EU law doesn’t cover completely, including issuance, custody, administration, and operation of crypto-asset trading exchanges & platforms.

By 30th December 2024, CASPs will need to comply with four AML/CFT regulations.

1. CASPs have to get a license to operate in the EU. To secure authorization, they have to demonstrate control mechanisms & risk management processes across their organization’s operations & governance from a financial crime perspective.
2. After getting a license, all EMT issuers and CASPs must comply with EU AML/CFT regulations, including assessing the ML/TF risk. They should also implement internal policies, procedures & controls designed to mitigate these risks effectively.
3. Issuers of ARTs that don’t fall under the CASPs category or other regulated entities are not subjected to specific AML/CFT rules & systems. However, these entities must ensure that sectors or issues are not exposed to ML/TF risks & that financial crime isn’t facilitated and occasioned.
4. Lastly, CASPs have to provide complete information about crypto-related transactions, including beneficiary & originator names and relevant details, to ensure transparency in transactions.

MiCAR defines other crypto assets under Title II as not being EMT or ART, and no crypto asset will be excluded from MiCAR according to Article 2(4). Title II will be implemented from December 30, 2024, for individuals who want to trade crypto assets rather than ART or EMT.

MiCAR article 143(3) provides a grandfathering provision for CASPs operating before the implementation date of regulations. They can continue their operations until 1st July 2026 or until they receive authorization under MiCAR.

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European Supervisory Authority Announced Guidelines for CASPs

The European Supervisory Authorities (ESAs) announced final guidelines to set benchmarks for CASPs within the EU to ensure consistent regulatory application of the MiCAR.

Key Provisions of the Guidelines

The ESA’s guidelines announced standardized procedures & templates to assess the regulatory classifications of crypto-assets. Guidelines include:

• Templates for legal opinions that are required for ART explanations & issues for other types of crypto-assets to streamline the regulatory approval for issuers & facilitate regulatory oversight.
• A standardized classification test is used to determine if digital assets fall under the category of MiCAR. This test also includes different factors, including technological features and fungibility.

Impact of Guidelines on the Crypto Industry

According to the EBA Press Release, these guidelines will significantly impact the crypto industry within the EU by providing greater legal certainty for entities operating in the crypto-asset space by establishing a consistent & clear regulatory framework.

These guidelines also raise concerns about the regulatory burden on businesses, specifically small-size industries.