By: AGPLAW | A.G. Paphitis & CO. LLC
European Union’s MiCAR Regulation: Impact on Crypto Service Providers
The Markets in Crypto-Assets Regulation (MiCAR) was officially adopted on 31 May 2023. The new Regulation, which is part of the European Commission’s Digital Finance Strategy, represents a groundbreaking legal framework that establishes harmonized rules for crypto assets across the European Union.
The Regulation aims to provide legal certainty, enhance consumer and investor protection, ensure financial stability, promote market integrity and foster innovation while preventing market abuse and financial crime.
MiCAR applies to the issuance, offer, and provision of services related to crypto assets, covering entities involved in trading, custody, and exchange services. The Regulation, however, excludes decentralized finance (DeFi) systems without an identifiable service provider and non-fungible tokens (NFTs) unless they form part of a broader financial scheme.
MiCAR, governs, among others, CASPs wishing to provide the following services:
- Providing custody and administration of crypto-assets on behalf of clients
- Operation of a trading platform for crypto-assets;
- Exchange of crypto-assets for funds;
- Exchange of crypto-assets for other crypto-assets;
- Execution of orders on behalf of clients
- Placing of crypto-assets;
- Reception and transmission of orders for crypto-assets on behalf of clients;
- Providing advice on crypto-assets;
- Providing portfolio management on crypto-assets;
- Providing transfer services for crypto-assets on behalf of clients.
MiCAR also became applicable to issuers of Asset-Referenced Tokens (ARTs) and E-Money Tokens (EMTs) on June 30, 2024, with the Crypto Asset Service Providers to follow on January 1, 2025.
In Cyprus, as of January 1, 2025, Crypto Asset Service Providers are required to obtain license from Cyprus Exchange Securities Commission and comply with all applicable regulatory requirements to operate within the European Union. These include safeguarding arrangements of clients’ assets, adhering to anti-money laundering and counter-terrorism financing regulations, and implementing measures to prevent market manipulation and insider trading. CASPs must also meet specific capital thresholds, depending on the type of services offered, to ensure financial stability. Once licensed, CASPs may benefit from passporting rights, allowing them to operate across the EU without additional authorizations.
In conclusion, MiCAR is a landmark regulation that balances the need for investor protection and market stability with the promotion of financial innovation within European Union through a unified regulatory framework. It remains to be seen how the European Member States will put into force the regulatory tool and whether the applicants will operate in this new environment.
For all enquiries related to MiCA and to Crypto licensing in general, please contact our team of experts at agp@agplaw.com
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