What is MiCA

The objective of MiCA is to pass legislation that establishes a comprehensive framework of regulations (extending beyond AML/CFT rules) for various services associated with unregulated crypto-assets. These services include the operation of platforms for trading crypto-assets, the provision of crypto-asset exchange services for funds or other crypto-assets, and the custody of crypto-assets. However, in addition to serving this objective, such legislation will also aid in the fight against money laundering and the financing of terrorism. In light of this rationale, organisations providing services falling within the application scope of MiCA will be obligated to adhere to relevant AML regulations that incorporate global benchmarks, including those established by the Financial Action Task Force on Virtual assets.

EU financial services legislation is guided by the principles of "technology neutrality and functionality" and "same activities, same risks, same rules." The final principle, referred to as the principle of technology neutrality and functionality, stipulates that regardless of the technology utilised in their issuance or transfer, crypto-assets falling under the purview of existing EU financial services legislation should remain subject to the aforementioned regulations. In particular, "crypto-assets that qualify as financial instruments" or financial instruments issued and transferred in a digital format will be subject to the regulations governing financial instruments. Directive 2014/65/EU on financial instrument markets (so-called "MiFID") was amended by the Regulation on a pilot regime for market infrastructures based on distributed ledger technology (the "Pilot Regime") to clarify that financial instruments issued via distributed ledger technology will also be considered under the definition of "financial instrument."

Due to the absence of regulations governing all other crypto-assets and the consequent lack of a rule specific to their nature, their holders may be exposed to risks, particularly in areas not governed by consumer protection regulations. It can also result in significant threats to market integrity, such as financial crime and market manipulation (a subject that was recently the subject of an ESMA Report). Such a situation may result in a diminished level of trust among users regarding the aforementioned assets, thereby impeding the growth of a market for such assets and potentially depriving EU companies of prospects for innovative digital services, alternative payment mechanisms, or fresh sources of funding.

Furthermore, this situation exacerbates the absence of legal certainty regarding the treatment of their crypto-assets across various EU Member States, thereby impeding their endeavours to leverage such assets for digital innovation.