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For the sake of completeness, even though it is outside the scope of this blog, we feel it is important to mention that MiCA also introduces a separate set of general rules to prevent market abuse involving crypto-assets.

Affected parties welcome the long-awaited regulatory clarity but face significant compliance challenges

With MiCA, the EU answers to the demand for a clear regulatory framework for crypto-assets. The regulation is therefore welcomed by numerous issuers and CASPs, including Binance, the world’s largest cryptocurrency exchange.

However, the clock is now ticking for in-scope parties to comply with the relevant requirements, and the road to compliance is paved with significant challenges. Firstly, affected organisations are likely to be subject to multiple – if not all – regimes, adding to the compliance burden.

On top of that, complying with MiCA involves dealing with local competent authorities in some way, such as the licensing procedure for ART issuers and CASPs. Each separate MiCA regime entails an extensive list of requirements. Upon closer examination of the requirements, it becomes clear that in-scope parties require specific knowledge they may not yet have in-house (e.g. legal). 

Our experience with similar requirements under other EU legislation (e.g. PSD2) has shown that such licensing processes are complex and the organisational impact is often underestimated. In addition, a deep understanding of the local competent authority is required, particularly regarding ambiguous (governance) requirements which may be prone to interpretation differences across Member States. These licensing processes also tend to be rather protracted, especially when approval is not granted immediately but multiple iterations with authorities are required instead, as is the case with MiCA. 

Lastly, in-scope parties face an important consideration regarding their desired operating model moving forward. Companies tend to skip this step, having already decided that they will only focus on having a strictly compliant setup. However, an alternative would be a more holistic ‘operationalisation of compliance’ approach. This has an advantage when it comes to adaptability. Integrating compliance in an organisation’s whole operational procedure allows parties to retain their licence and adapt to changing requirements more easily, which would create more breathing space for further iterations of MiCA (i.e. MiCA2). While this approach may not be the best option for everyone, it is an important consideration during the compliance process.

In-scope parties must act now to avoid suspension of their European operations

Considering the short timeline, prompt action is imperative for crypto-asset issuers and CASPs. The initial step involves identifying the applicable requirements and gathering the required knowledge – both specific expertise related to the requirements as well as an understanding of the local competent authority. Following this preparatory phase, an operating model should be designed which is compliant with the identified applicable requirements. Its design strongly depends on whether the organisation chooses to be strictly compliant or take a more holistic ‘operationalisation of compliance’ approach. Lastly, the new operating model must be implemented, followed by preparation of the corresponding documentation and licence application (if necessary). Given the short transition period of MiCA and the extensive lead time of the licensing process, applicants should ensure that their initial attempt to obtain a licence is successful.