Even though the official publication in the Official Journal of the European Union is still pending, the final version of the future Markets in Crypto Assets Regulation (MiCAR) of the European Union is in existence since the end of September 2022. The new regulation will for the first time create a single regulatory framework for crypto-related business models at the European level, which will allow crypto service providers to conduct their business on the basis of the same regulations across Europe. MiCAR does not require implementation by member states. 18 months after coming into force, the new regulations will be directly applicable to market participants and will have legal effect without the need for further involvement of the national legislators. A core element of MiCAR is the regulation of crypto-asset services, which may not be provided without obtaining an authorization of the competent supervision authority in advance. But which activities will be regulated under this term as requiring authorization in the future?

MiCAR Provides Conclusive Catalog of Crypto-Asset Services

MiCAR will positively and conclusively regulate which activities are considered crypto-asset services and will thus be subject to the newly created authorization requirements. Specifically, the custody and administration of crypto assets for third parties, the operation of a trading platform for crypto assets, the exchange of crypto assets for legal tender as well as for other crypto assets, the execution of client orders for and placement of crypto assets, the acceptance and transmission of orders for crypto assets for third parties as well as the provision of advice on crypto assets will be activities subject to authorization throughout the EU in the future. For the interpretation of the terms, MiCAR offers definitions in each case. According to MiCAR, custody and administration means the secure storage of private keys or other necessary means for third parties, which are required to access crypto assets. Advice on crypto assets refers to offering or making personalized recommendations regarding the use of crypto services. All exchange services relating to crypto assets, whether for fiat money or other crypto assets, will be regulated activities in the future. In contrast, the exchange of crypto assets for items other than fiat money or crypto assets will not be explicitly covered. In summary, crypto-asset services under MiCAR are noticeably modeled closely after the activities that are regulated under the current investment services regulation under the second Markets in Financial Instruments Directive (MiFID II) in the securities sector.

Only Activities Related to Crypto Assets can be Crypto-Asset Services.

A mandatory requirement for the classification of an activity as a crypto-asset service will be that it relates to crypto assets within the meaning of the MiCAR definition. This definition is formulated very broadly and covers almost all digital representations of value that are based on distributed ledger technology and which can be transmitted and stored electronically. However, it does not cover digital representations of value that also qualify as financial instruments within the meaning of MiFID II, as electronic money under the Second E-Money Directive or as deposits. In this respect, MiCAR will only regulate activities for which more specific regulation does not already exist at the European level.

Attorney Lutz Auffenberg, LL.M. (London)

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