In May 2023, the European Union adopted a ground-breaking regulation on cryptoassets markets, known as MiCA, which establishes the first single legal framework for this dynamically developing sector. The MiCA Regulation is now in force and will apply in EU Member States from 30 December 2024.

Prior to the adoption of the Regulation, the cryptoassets market was characterised by its unregulated nature, which posed risks for users and made cross-border business more difficult. MiCA introduces rules to promote transparency and user protection, guided by the principles of "same activities, same risks, same rules" and technological neutrality. 

With the adoption of MiCA, a fundamental change is thus taking place that will benefit many users and companies, but will also increase the demands on cryptoasset service providers ("providers"), issuers of asset-linked tokens and issuers of electronic money tokens ("issuers"). Transparency, user protection, authorisation and oversight can be included among the main objectives of MiCA.

Transparency

MiCA places a strong emphasis on transparency throughout the cryptoassets market. It imposes an obligation on both providers and issuers to clearly, accurately and understandably inform users of all risks associated with their products and services. This information includes, inter alia, details on the issuance of crypto-assets, their admission to trading, the level of asset reserves or the procedures for handling complaints. A key tool in this process is the white paper - a document that details all of this information. The white paper must be publicly available and understandable, which will significantly reduce the risk of misleading users. This will be of particular benefit to ordinary users, who often lack the technical knowledge needed to understand the risks associated with cryptocurrencies.  

To promote transparency, the MiCA Regulation recommends that ESMA (European Securities Authority) create a public register of white papers, issuers and providers. This registry would further enhance market transparency and credibility.

Protection of crypto-asset holders and clients of service providers

Another main objective is to strengthen the protection, both of the users themselves and of their deposits. The cryptocurrency sector could be described as very risky at the moment, mainly because of the significant loss of assets, cyber-attacks and the many frauds linked to crypto-assets, which most often target users. 

MiCA aims to significantly reduce these risks by introducing strict rules to create a safer environment for users. Providers as well as issuers will now have to create and maintain an asset reserve at all times to cover the risks associated with the assets as well as the liquidity associated with users' rights to redeem. This reserve must be separate from the provider's or issuer's assets and the reserve of other tokens. In this way, the MiCA Regulation aims to increase the protection of users, in particular in the event of the insolvency of the provider or issuer. For users, this means a higher level of certainty and protection as their deposits will be protected against unexpected events. 

Compliance with the new rules must, of course, also be monitored, which will be the responsibility of each Member State's supervisory authority in addition to ESMA. In Slovakia, the National Bank of Slovakia will be in charge of supervising the rules and will have the power to impose sanctions if they are breached. 

Authorising (licensing) and supervising

In order to offer their services, providers and issuers must apply for a licence from the competent authority (NBS). In both cases, the application itself must already contain all essential information, such as security measures, the procedure for separating crypto-assets and user funds, the complaints procedure. The aim of this obligation is to ensure that only reputable and financially stable providers and issuers that meet strict conditions operate on the market.

Applications for authorisation can be submitted from 30 December 2024 and, under the MiCA Regulation, authorisation must be obtained by the end of the transitional regime, i.e. by 01 July 2026. However, Slovakia has taken the opportunity to shorten the transitional regime and authorisation must be obtained by 30 December 2025, otherwise the obliged entities will have to cease providing cryptoasset services in Slovakia. 

The MiCA Regulation also introduces a simplification of the provision of cryptoassets services to those entities that have obtained an authorisation from the competent home authority, as this authorisation is then valid in all EU Member States on a passporting basis.

Licensing will increase the confidence of users, who will know that providers and issuers are subject to strict rules and that their activities are monitored. This step will eliminate the possibility of unfair practices or companies operating in the market that could harm users.

The MiCA Regulation represents a significant step in the regulation of the cryptoassets market and brings a number of changes that can improve its stability, safety and credibility in the long term. The introduction of compulsory licensing, strict control by regulators and measures to protect users are expected to clean up the market from non-serious providers and issuers. This process is likely to lead to a reduction in the number of players in the market, but at the same time increase the quality of the services offered. For users, this means a greater degree of legal certainty, which may attract more conservative users.

However, it is important to stress that the responsibility for investment decisions remains on the shoulders of the users themselves. They should therefore be prudent and only invest funds that they can afford to lose. 

This article was published in .týždeň: