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The Impact of MiCA on E-Money Regulations


The eagerly anticipated Markets in Crypto-Assets Regulation (MiCA) has been introduced in the European Union (EU) with the aim of providing clarity and certainty to the crypto-assets industry. This comprehensive regulatory framework aligns with existing financial services legislation, covering various aspects of the industry, including the issuance, trading, and offering of crypto-assets. In this article, we will explore the effects of MiCA on e-money regulations and its implications for the industry.


Before MiCA's introduction, the regulatory framework for crypto-assets in the EU mainly consisted of anti-money laundering (AML) obligations under the Fifth Anti Money Laundering Directive (5AMLD). Additionally, certain aspects of the industry were subject to traditional financial services legislation like the E-Money Directive and the Payment Services Directive. However, these regulations did not offer comprehensive coverage for the crypto-assets sector.


Some EU member states, such as Cyprus, established their own comprehensive regulatory regimes for crypto-asset service providers (CASPs) influenced by existing EU financial services legislation, Financial Action Task Force (FATF) recommendations, and the draft MiCA proposal. These national experiences will prove valuable for both regulators and industry participants during the transition to MiCA.


MiCA categorises crypto-assets into various types, including e-money tokens and asset-referenced tokens. For e-money tokens, which maintain a stable value by referencing an official currency, MiCA imposes specific rules and considers them electronic money under the E-Money Directive. Asset-referenced tokens, on the other hand, maintain a stable value by referencing other values or rights but are not classified as electronic money tokens.


MiCA introduces rules for offering crypto-assets to the public and their admission to trading platforms, requiring issuers to prepare white papers with specific specifications and notify national competent authorities. Unlike the prospectus approval requirement, there is no prior approval for white papers under MiCA. Retail buyers also benefit from a 14-day right of withdrawal.


Additionally, MiCA establishes an authorisation regime for CASPs providing crypto-asset services falling under its scope, including custody and administration of crypto-assets, operation of trading platforms, and more. These requirements are rigorous and comparable to existing EU financial services legislation. Some traditional regulated institutions may be exempt from obtaining CASP authorisation in certain cases, and provisions for third-country firms providing services to EU-based individuals are also in place.


For e-money tokens and asset-referenced tokens, MiCA imposes specific requirements. The issuer of an e-money token must be authorised as an electronic money institution or credit institution, complying with the E-Money Directive, including capital, safeguarding funds, and redemption rights requirements. E-money tokens are subject to ongoing prudential supervision by competent authorities. Asset-referenced tokens' issuers must also be authorized, meeting obligations like regular public disclosure of information, maintaining asset reserves, and conducting audits.


Impact on E-Money Regulations:


The implementation of MiCA significantly impacts e-money regulations in EU. It introduces a comprehensive regulatory framework for e-money tokens and asset-referenced tokens, ensuring appropriate supervision and consumer protection measures. By aligning these tokens with the E-Money Directive and imposing authorisation requirements, MiCA enhances regulatory certainty and investor confidence in the market.


MiCA's introduction may lead to harmonisation among EU member states concerning the regulation of e-money tokens. While some countries had their own regulatory frameworks, MiCA provides a unified approach applicable across the entire EU, reducing regulatory fragmentation and promoting a level playing field for market participants.


Moreover, MiCA's authorisation regime for CASPs offering e-money services can contribute to developing a robust and well-regulated e-money ecosystem. It sets clear standards for CASPs, ensuring they meet stringent requirements, operate transparently and securely, fostering innovation while maintaining financial system integrity.


However, successful implementation and impact on e-money regulations will require careful consideration and coordination between regulators, industry stakeholders, and market participants. Striking a balance between consumer protection and fostering innovation in the dynamic crypto-assets industry is essential.


The Evolving Landscape of Digital Finance and E-Money Tokens:


The evolving landscape of digital finance has brought about innovative concepts like e-money tokens (EMTs). As these tokens gain prominence, questions arise concerning their classification and the applicable regulatory frameworks. Understanding the relationship between Directive 2009/110/EC, the Electronic Money Directive (EMD), defining e-money, and the Markets in Crypto Assets Regulation (MiCA) is crucial for entities issuing EMTs.

MiCA and EMD2 are both regulatory frameworks applying to electronic money but have distinct scopes and objectives. EMD2 is an EU Directive providing a legal framework for electronic money institutions (EMIs), regulating the issuance, distribution, and redemption of electronic money representing fiat currency.


On the other hand, MiCA is a proposed regulation aiming to regulate crypto-assets markets in the EU, covering crypto-assets service providers and a wide range of tokens not representing traditional fiat currencies.


For example, if a company intends to issue electronic money representing fiat currency, it must comply with EMD2 regulations. However, if the company issues a token representing a commodity like gold or silver, it must adhere to MiCA regulations as an asset-referenced token issuer.


EMTs, being a specific category of crypto-assets, are subject to MiCA if they aim to maintain a stable value by referencing an official currency. To issue EMTs, authorisation as an electronic money institution or credit institution under EMD2 is required.


EMTs bear similarities to traditional e-money as defined under EMD2. These crypto-assets act as electronic surrogates for coins and banknotes, facilitating payments and making them likely to be used for this purpose, thus defined in MiCA as 'e-money tokens.'

EMT issuers, unless specified otherwise in MiCA, must comply with the relevant requirements outlined in EMD concerning the taking up, pursuit, and prudential supervision of e-money institutions (EMIs) and issuance and redeemability of electronic money.


EMD's extensive scope encompasses electronically stored monetary value represented by a claim on the issuer, issued upon receipt of funds for making payment transactions, and accepted by natural or legal persons other than the electronic money issuer.

An e-money token is considered electronic money if it is electronically stored, holds monetary value, represents a claim on the issuer, is issued upon receipt of funds, intended for payment transactions, and accepted by entities other than the issuer.

EMIs issuing crypto-assets must comply with both EMD and MiCA requirements, carefully assessing their activities and types of crypto-assets to determine their regulatory obligations.


To sum up, MiCA's introduction significantly impacts e-money regulations, providing a comprehensive framework for e-money tokens and asset-referenced tokens. The regulation aligns these tokens with the E-Money Directive and aims to enhance regulatory clarity and consumer protection.


Entities issuing EMTs must carefully consider the regulatory landscape, ensuring compliance with both MiCA and EMD if their tokens meet the criteria of e-money. Striking a balance between innovation and financial stability will be crucial for regulators and industry participants navigating the evolving crypto-assets market successfully.


Book a free consultation with our experts to learn more about MiCA and it’s impact on your business.

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