Although crypto-asset markets are still relatively small and pose no threat to financial stability, they have nevertheless been recognized by EU legislators. Their rapid development and growing popularity have led to the creation of the MiCA (Markets in Crypto-Assets) regulation, which is dedicated entirely to the crypto-asset market.
One of the goals of MiCA is to regulate the issue of tokens offered and issued, including the widely known "stablecoins." The regulation itself does not use the term "stablecoin," but it does introduce the concepts of asset-linked token (ART) and e-money token (EMT), which, according to EU lawmakers, are potential forms that "stablecoins" could take.
Key Stablecoin Regulations
ART Tokens:
- A public offering and application for admission to trading generally require permission from the relevant supervisory authority (no permission is required for credit institutions);
- Submitting extensive documentation required for obtaining a permit, including a business program, a legal opinion stating that ART does not qualify as a token excluded from the scope of MiCA and that it is not classified as an EMT, an information document regarding the crypto-asset, as well as many other documents and internal procedures required by MiCA;
- Issuers that have already obtained authorisation for one ART are not obliged to submit, for the purposes of obtaining authorisation for another ART, information that they have already submitted to the competent authority if that information is identical.
EMT Tokens:
- A public offering and application for admission to trading require the interested entity to have a permit to operate as a credit institution or electronic money institution;
- Requirement to submit an information document regarding the crypto-asset to the relevant supervisory authority and make it public.
Capital and reserve requirements
- ART issuers shall at all times hold own funds in an amount at least equal to the highest of:
o EUR 350,000;
o 2% of the average asset reserve;
o one quarter of the fixed overheads of the previous year. - ART issuers establish and maintain an asset reserve on an ongoing basis. The asset reserve is established and managed to:
o address the risk associated with the assets associated with the ART; and
o address the liquidity risk associated with the holders' permanent redemption rights. - In the case of EMT Issuers, MiCA provisions do not provide for capital and reserve requirements.
Issuer supervision mechanisms
Under the MiCA regulation, competent supervisory authorities will be provided with mechanisms for overseeing ART and EMT token issuers. Among these mechanisms, it's worth noting that:
- The competent authority of the home Member State may require the issuer of an ART to hold an amount of own funds up to 20% higher than the amount resulting from the application of the 2% average asset reserve where the assessment of any of the elements listed in MiCA indicates a higher degree of risk;
- MiCA introduces an obligation for the acquirer to notify the competent authority of the intention to acquire a significant block of shares or interests in the issuer of ART or EMT;
- Quarterly reporting of ART issuers to the competent authority has been introduced if the value of the issue exceeds EUR 100,000,000. However, the competent authority may impose such an obligation even on issuers that have not exceeded this amount;
- The Regulation gives competent authorities the power to withdraw the authorisation of an ART issuer;
- An obligation to notify the competent authority of changes in the management body of ART issuers is provided for;
Summary
One of the main goals of MiCA is to strengthen the certainty and stability of the European cryptoasset market by excluding "predatory" projects, thus contributing to increased public acceptance and trust in the use of cryptoassets. To achieve its goals, the MiCA regulation establishes a high entry barrier for entities interested in issuing stablecoins, particularly through the high costs and complex process of applying for the right to conduct a public offering and offer cryptoassets on the European market.
This alert is for informational purposes only and does not constitute legal advice.
Legal status as of September 12, 2024
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