Consumer protection under MiCA - new requirements for cryptocurrency issuers

05.09.2024 | Technoglogy

The MiCA (Markets in Crypto-Assets) Regulation, adopted in 2023, introduces fundamental rules for consumer protection in the crypto-assets market in the European Union. One of MiCA's main goals is to safeguard the interests of cryptocurrency users by imposing a series of requirements on crypto-asset issuers. This is the first such broad regulation that aims to ensure transparency and stability in the market and reduce risks for consumers investing in various types of cryptocurrencies.

Disclosure obligations of issuers - the key role of the white paper

One of the central elements of the MiCA is the obligation of cryptocurrency issuers to publish a white paper. A white paper is a document that must contain key information about the issuer, the characteristics of the cryptocurrencies offered and the risks associated with the investment. The purpose of this requirement is to ensure that consumers have access to detailed information before making an investment decision.

Scope of the white paper:

Issuers must provide detailed project data, including:

  • A description of the functions of cryptoassets and the technology on which they are based.
  • Information on laws related to cryptoassets.
  • Details of the risks associated with the investment, both technological and market risks.
  • Future development plans for the project and how to issue assets.

The white paper should be written in a way that is understandable and accessible to the average investor. Its submission to the relevant regulator is intended to increase transparency in the cryptocurrency market and minimize the risk of misleading investors.

Issuer's responsibility for accuracy of information

The MiCA regulation introduces the principle of issuer responsibility for the content of published information documents. This means that issuers bear full responsibility for the accuracy and completeness of the data contained in the white paper. If it turns out that the information contained in the white paper was misleading or untrue to consumers, the issuer can be held liable, both administratively and civilly.

Example: An issuer that misrepresents information regarding guarantees of the stability of the value of cryptocurrencies or hides risks associated with the technology can be penalized by the regulator. Consumers who have suffered losses also have the right to seek compensation from the issuer.

Protection against fraud and manipulation

One of MiCA's key goals is also to protect consumers from fraud and market manipulation, which has been a serious problem in the crypto market in the past. MiCA is putting in place mechanisms to prevent the activities of fraudulent issuers and increase transparency in crypto trading.

Issuers are required to:

  • Transparency in the issuance and distribution of cryptoassets. All transactions must be public, and procedures must comply with the law.
  • Protection of user funds. Issuers must ensure that customer funds are adequately safeguarded, for example by maintaining capital reserves in the case of stablecoin.

New AML (anti-money laundering) requirements

The MiCA has also imposed new anti-money laundering (AML) and counter-terrorist financing (CFT) obligations on crypto issuers. Issuers must implement mechanisms to identify users and monitor suspicious transactions. Cooperation with regulators in this regard is mandatory, and non-compliance can lead to serious sanctions.

AML requirements include:

  • User identification (KYC - Know Your Customer). Issuers need to verify the identity of their customers, especially for higher-value transactions.
  • Monitoring transactions. Issuers must monitor fund flows to detect suspicious operations that may indicate money laundering or other illegal activities.

Consequences of non-compliance with MiCA regulations

The MiCA provides for severe sanctions for issuers who fail to comply with the new regulatory requirements. Regulators have the right to impose fines and even ban cryptocurrency market operators that flagrantly violate the regulations. In addition, companies can be held civilly liable by consumers who have suffered losses as a result of an issuer's misconduct.

Sample sanctions:

  • Financial Fines.
  • Prohibition on doing business in the European Union.
  • Suspension of cryptocurrency licenses.

Summary

The MiCA regulation introduces a comprehensive system of consumer protection in the crypto market. Issuers are required to provide accurate information in white papers, comply with transparency standards and implement anti-money laundering mechanisms. MiCA significantly raises market standards, with the aim of increasing consumer confidence and reducing the risks associated with investing in cryptocurrencies.

This alert is for informational purposes and is not legal advice.

Legal status as of September 05, 2024.

Author:

Michael Wales

Lawyer
+48 22 856 36 60 | m.walesa@kglegal.pl

series editor:

Natalia Serwińska-Deles

Legal counsel
+48 22 856 36 60 | n.serwinska@kglegal.pl