MiCA Compliance Essentials: Navigating the Regulatory Landscape for Crypto Assets

2024 01 05

Lithuania has been a target destination for crypto businesses – especially after the EU nations passed a law that will revolutionize cryptocurrency and blockchain forever.

So, if you’re going to establish a crypto business in Lithuania, you’ll need to understand how the Markets in Crypto-Assets Regulation (MiCA) will impact your operations.

What is MiCA compliance?

MiCA, which stands for Markets in Crypto-Assets Regulation, is created to standardize the varied regulations across the EU nations regarding crypto and digital finance compliance.

With a unified framework, it aims to establish clear rules for stakeholders. These include guidelines and rules on operational standards, compliance requirements, and KYC measures for all entities in the crypto industry, such as crypto-asset service providers (CASPs) and token issuers.

Additionally, crypto-asset issuers are mandated to submit detailed and transformation information on each asset they issue.

On the other hand, CASPs are obliged by law to register their businesses to comply with anti-money laundering regulations – providing them with more protection against fraud.

Aside from that, MiCA also highlights the following key points:

• Filling regulatory gaps. Some areas in the crypto-asset space are not yet covered by any financial regulation. MiCA is designed to provide more regulatory certainty to cover such gaps.

• EU-wide authorization of crypto services. Companies offering crypto services within the EU, spanning from custody, trading, portfolio management, or advisory services, will need to obtain a permit from one of the 27 national financial regulations.

Compliance with MiCA might be a challenge, especially for companies that are new to the regulatory environments.

Thankfully, you can use the service of MiCA crypto consultants like Demire to prepare for the upcoming compliance requirements and get your business off the ground.

What’s the state of MiCA regulation in 2024?

In April 2023, the European Commission approved the Transfer of Funds Regulation (TFR) updates and the Regulation on Markets in Crypto-Assets (MiCA). The regulation will come into force in December 2024.

So, what does this entail for crypto businesses? It means that the growth of digital finance will be supported and supervised by the government, who will also help with risk mitigation.

This is because crypto is often used as a tool for fraud and money laundering, which is a serious threat to Lithuania’s financial system and investment climate as well as the fate of international fintech companies operating in the country.

Classifications of crypto assets according to MiCA

MiCA defines crypto-assets as digital values or rights that can be transferred or stored electronically, such as using a distributed ledger technology.

There are three main crypto assets covered by MiCA:

• Asset-Referenced Tokens (ARTs). This type of crypto-asset is designed to maintain a stable value. It works by linking to or combining the value of fiat currencies, commodities, and other crypto-assets. An example is Digix (DGX), which is based on the amount of physical gold securely stored.

• Electronic Money Tokens (EMTs). The key difference between ARTs and EMTs lies in the backing asset: whereas ART is supported by non-cash assets or a mix of currencies, EMTs are backed by a single fiat currency. The concept is similar to electronic money (e-money).

• Other Crypto Assets (Non-ARTs/AMTs). This category includes crypto assets such as utility tokens.

Crypto assets not regulated by MiCA

MiCA appears to encompass all existing digital assets within its framework. However, it has yet to cover the following emerging paradigms:

• Decentralized Finance (DeFi). Instead of relying on traditional centralized intermediaries, DeFi breaks through this with the innovation of automated protocols, often powered by Blockchain, to provide a range of financial services. Unfortunately, DeFi is still challenging to regulate due to its rapidly changing dynamics.

• Non-Fungible Tokens (NFTs). NFTs are among the most popular digital assets that represent the ownership or proof of authenticity of a specific item, ranging from digital art to videos. NFTs, unlike other digital financial assets, cannot be interchanged – making them unique collectibles.

Fret not, MiCA is continuously analyzing its policies and considering potential separate regulatory frameworks for DeFi, NFTs, and other emerging financial technologies.

Conclusion

MiCA is an important step forward for business owners in Lithuania, or foreigners who are looking to launch their entrepreneurship venture in the country.

How so? MiCA will increase regulatory certainty, provide stronger protection for crypto consumers, and promote further innovations.

The regulatory bodies and crypto stakeholders will work hand-in-hand to stabilize the value of cryptocurrencies and other digital finance assets by establishing a mechanism, enhancing transparency, preventing users from betting on excessive risks, and protecting the assets under custody.

Make sure to get yourself prepared as MiCA will be effective from December 2024. Contact our experts at Demire Inc today to get started. With years of experience in the digital finance compliance field, we’re ready to help you with bespoke MiCA consultations.

Frequently asked questions

What is MiCA ESMA?

The European Securities and Markets Authority (ESMA) is a regulatory body that ensures the smooth implementation of the Markets in Crypto-Assets Regulation (MiCA), starting in 2024.

ESMA will make sure that all crypto businesses follow the rules in MiCA. This is done to maintain and improve the protection of crypto assets, clients, and providers.

If cryptocurrencies are regulated well, financial stability and integrity in Lithuania will be sustained – which means a healthier business ecosystem for all.

What are the objectives of MiCAR?

MiCAR, another name for MiCA, has the goal of unifying the European Nations with a standardized framework to ensure compliance in the digital finance sector.

MiCAR focuses on increasing protection against fraud for customers, removing barriers in crypto asset regulations, providing new sources of funding for aspiring crypto companies, and opening new business models via crypto payments.

MiCA Compliance Essentials: Navigating the Regulatory Landscape for Crypto Assets