In April 2023, the European Parliament voted in favour of the implementation of the Markets in Crypto-Assets (MiCA). This new regulation is a first for any major jurisdiction providing a more comprehensive regulatory approach to crypto and digital assets.
What is MiCA?
The Market in Crypto Assets (MiCA) regulation is the European Commission’s new regulatory framework for European Crypto-Assets. MiCA forms part of a broader package of measures coming under the Commission’s Digital Finance Strategy, including a legislative proposal for a pilot regime to test distributed ledger technology (DLT) market infrastructure solutions for the trading and settlement of financial instruments.
The purpose of MiCA is to help ensure the stability of the crypto assets (CA) market and protect investors. This should have the added effect of increasing the accessibility of the crypto asset
Who will be affected by MiCA?
Ultimately MiCA will apply to all individuals inside the EU involved in the provision and issuance of CA and CA services, or who service EU clients. This will include providers of virtual asset service providers (VASPs). Issuers will include any legal entity who seeks to admit CA to a trading platform or offers CA to a trading platform.
What will MiCA Do?
When implemented MiCA will:
- Implement an authorisation framework for issuers and providers of CA;
- Implement a series of consumer protection measures, like those of MiFID, intended to protect and empower investors;
- Provide regulatory and legal certainty for CA, not already covered by an existing EU regulation;
- Institute rules specific to e-money and ‘stablecoins’, or any cryptocurrency which is designed to be benchmarked against a commodity or fiat currency;
- Provide clear regulatory rules for issuers and CA service providers, this includes those operation trading platforms, CA exchanges, those providing advice on CA products, custody service providers or those executing orders for these assets; and,
- Replace any current national regulatory frameworks applicable to crypto assets (not already covered by EU regulation, for example MiFID).
What should all firms consider?
MiCA is the next frontier for EU financial regulation, it’s the first step in the expanding EU regulatory perimeter and ensuring a more holistic and complete EU financial regulatory market. The next steps for firms impacted by MiCA are to begin the work of preparing for implementation and authorisation. CA service providers must consider several aspects when rolling out the MiCA regulation.
Is your firm ready for the implementation of MiCA?
Firms who offer digital and crypto asset services should be preparing for the implementation of MiCA over the coming months and should ensure their business model, governance arrangements, risk management and controls are documented, embedded and fit for purpose.
Are digital and crypto assets on your strategic plan?
Boards and Senior Management should consider if crypto is on their long-term strategic plans. The process of preparing for regulatory compliance with MiCA often requires significant investment. For those firms who are
What new product and services opportunities exist?
Given the potential opportunities crypto assets can provide, has your firm undertaken an objective assessment of its potential product and services suite and determined whether there are any potential opportunities and/or impacts from this regulation? For those already offering some of these services, firms should focus on ensuring that their offerings meet the regulatory obligations under MiCA and plan their transition into a regulated environment.
Have you completed a gap analysis?
Organisations should take steps now to understand the scope and scale of MiCA and its obligations relative to your business. Understanding early what obligations will apply to you and what steps will need to be taken to bring an organisation into compliance will benefit any organisation that hopes to be an early adopter.
Are you MiCA and DORA ready?
MiCA, when read in conjunction with the Digital Operational Resilience Act (DORA), requires a high level of operational ICT resilience from firms operating within the EU. Both MiCA and DORA are part of the EU Commission’s digital finance package from September 2020, alongside a proposal on distributed ledger technology. The highly digital nature of CA and distributed ledger technology, places greater importance on robust digital operational resilience of any firm offering CA services.
How KPMG can support you
KPMG has supported a range of firms in understanding of the regulatory landscape relating to digital assets. This new asset type represents the emergence of new technologies, opportunities and innovation in the broader market which many firms are exploring. There are digital asset opportunities for traditional financial services providers and new crypto-only service providers, as well as risks and challenges to be tackled by legislators and regulators.
KPMG’s Digital Assets team is connected to the wider KPMG international network and we can help you understand the regulatory requirements and incorporate them into your broader digital asset strategies – in particular we can support you with a range of services including:
- To explore the potential benefits brought about by digital assets, cryptocurrencies and underlying technologies;
- Support the assessment and implementation of MiCA including regulatory gap assessments, authorisations and the development of appropriate capabilities;
- Support with tax and audit requirements; and,
- Engaging with regulatory authorities in respect of licence permissions, for new licences or amendments to existing licences.
