With the EU Regulation on Markets in Crypto Assets (MiCAR), the European Union will create a uniform EU-wide definition of crypto assets in the future. From the time MiCAR is expected to come into force in the second half of 2024, crypto assets will thereafter be regulated as a digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology. In addition to this very broad and general definition of crypto assets, the MiCAR also provides definitions for specific forms of crypto assets in its final text. One of these specific forms will be e-money tokens. MiCAR defines these as a type of crypto asset that seeks to achieve stable value by referencing an official currency. Such e-money tokens have existed for some time and play a central role in international crypto markets. For example, Tether’s USDT and joint venture Center’s USDC, which reference the U.S. dollar, currently rank third and fourth, respectively, in terms of market capitalization. The BUSD of the crypto group Binance, which is also referenced to the US dollar, ranks seventh in terms of market capitalization and is thus also a top ten crypto asset.

E-Money in the EU Regulated So Far Only by the E-Money Directive

E-money has already been regulated in the European Union since 2005 through the Electronic Money Directive. The E-Money Directive defines electronic money as electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions and which is accepted by a natural or legal person other than the electronic money issuer. The EU Directive stipulates that electronic money may only be issued in the European Union by authorized credit institutions or by electronic money institutions. The e-money business in the European Union is thus a strictly and specifically regulated area of business. According to its wording, the e-money definition in no way precludes e-money from being issued via a blockchain solution. An entity that issues blockchain units that meet the e-money definition of the E-Money Directive will therefore, in principle, be deemed to be an e-money institution within the meaning of the Directive and will need to comply with the regulatory requirements for its business. In particular, such a company will have to obtain an authorization as an electronic money institution to the extent that it wishes to direct its business to the European market. If, on the other hand, a crypto asset lacks one of the prerequisites of the e-money definition, for example because there is no identifiable issuer, the regulatory regime of the E-Money Directive is generally not applicable.

E-Money Tokens to be Considered Traditional E-Money According to MiCAR

MiCAR’s definition of e-money tokens is significantly broader than the E-Money Directive’s definition of e-money. As a result, not all e-money tokens necessarily meet the definition of e-money under the E-Money Directive. Nonetheless, in this regard, MiCAR stipulates that e-money tokens under MiCAR should be treated as e-money under the E-Money Directive. This equation is not without problems, because according to the MiCAR definition of e-money tokens, the existence of an issuer, as seen, is not a mandatory requirement. Even e-money tokens without an issuer would be crypto assets and thus, for example, a suitable subject of regulated crypto asset services. The e-money definition of the E-Money Directive, on the other hand, requires that e-money must be a claim on the issuer. Following this approach, almost all of the requirements of the E-Money Directive relate to the rights and obligations of e-money issuers. MiCAR’s equation of decentralized created e-money tokens with traditional e-money is therefore meaningless. Nevertheless, MiCAR also stipulates that e-money tokens may only be offered by credit institutions or e-money institutions and that all holders of e-money tokens must be granted a claim against the issuer. In contrast, e-money tokens that do not provide for claims against the issuer are to be prohibited. Nevertheless, such prohibited e-money tokens will also be crypto assets within the meaning of MiCAR and may to that extent be subject to crypto asset services.

Atty. Lutz Auffenberg, LL.M. (London)

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