Author: Bai Qin, Song Kewei; Source: Mankiw Blockchain Legal Services

On December 30, 2024, the European Union's "Crypto Asset Market" Regulation Act (hereinafter referred to as the "MiCA Act") officially came into effect, marking a new era for the European crypto-asset compliance framework. In our previous series of articles, we have introduced the key definitions of the MiCA Act. Interested readers can click "Interpretation of the EU MiCA Act. How do virtual currency custody services comply?"丨Mankiw Web3 Law Popularization" View. For the majority of Web3 practitioners, especially those interested in the European market, how should they respond after the MiCA Act takes effect? Today, lawyer Mankiw will take you to find out.

Who must comply with MiCA?

Article 2 of the MiCA Act defines the scope of application of the Act, that is, natural persons, legal persons and other enterprises engaged in the following activities in the EU:

1. Issuance of crypto assets: Create new crypto assets.

2. Offer to the Public: Offer crypto assets to the public for subscription.

3. Admission to Trading: Allow crypto assets to be listed and traded on trading platforms (such as crypto asset exchanges).

4. Provide Services Related to Crypto-Assets: Involves various services provided for crypto-assets, including custody, buying and selling Matchmaking, transaction execution, wallet management, etc.

The MiCA Act basically covers all crypto-asset-related activities. In short, as long as entities wish to carry out crypto-asset-related activities within the EU, they may Fall within the scope of the MiCA Act. We have sorted out the scope of 10 different crypto-asset-related service businesses in previous articles. Readers can click on "Interpretation of Web3 | An article explaining why Web3 companies need EU MiCA and Dubai VARA licenses" to read.

It is worth noting that no matter where the virtual asset service provider (CASP) is registered or established, as long as its services involve European interests (serving European interests), may fall within the scope of MiCA's regulations.

Who will enforce the MiCA Act?

According to relevant EU regulations, MiCA's execution entities are divided into EU level and member state level:

1. EU level

There are two main regulatory agencies responsible for the enforcement of MiCA: the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA).

ESMA is the European Union's financial markets regulator. The role positioning is similar to that of the my country Securities Regulatory Commission. According to the Financial Times, “ESMA wants to expand its powers to regulate major stock exchanges and other key parts of the EU’s financial infrastructure, striving to become a European version of the US Securities and Exchange Commission (SEC).” For the foreseeable future, ESMA will In European financial markets, it plays a more significant role.

EBA is the EU banking regulatory agency. The role positioning is similar to that of my country’s former Banking Regulatory Commission. Develop harmonized supervisory standards for the European banking industry.

ESMA and EBA have the following differences:

·Different regulatory fields: EBA is mainly responsible for banks The regulation of the securities industry, while ESMA is responsible for the regulation of the securities market.

·Different functional focuses: EBA focuses more on bank operations and depositor protection, while ESMA focuses on investor protection and the orderly operation of the market.

2. Member State level

Originally, each EU member state independently designated its own agency to formulate the supervision and implementation of penalties for crypto assets within its jurisdiction. The names and terms of reference of the regulatory agencies in each EU member state are different. For example, Poland’s financial regulatory agency is called the Polish Financial Supervisory Authority (PFSA), and Malta is called the Malta Financial Services Authority (MFSA).

The MiCA Act encourages regulatory agencies among EU member states to cooperate with EU institutions to improve the efficiency of the implementation of the Act and closely monitor possible violations in the market. In the foreseeable future, the regulatory framework for crypto assets will be more unified and complete in the EU. So for Web3 practitioners who are planning or already doing business in the EU, what are the core points of the MiCA Act?

The core points of the MiCA Act 1. Unified framework and comprehensive compliance

If the license is compared to a passport, then the direct benefit brought by the MiCA bill is that Web3 practitioners can use the "Schengen visa" to travel throughout Europe.

In the past, the Web3 compliance systems of EU countries were fragmented and unable to form a unified regulatory framework; now, MiCA has developed a unified framework and standards for EU member states. In the foreseeable future, whether it is the issuance of virtual currency Party, operator or crypto asset service provider will reduce repeated applications and improve compliance efficiency.

Compared with previous regulatory frameworks that differed across countries, in general, the provisions of the MiCA Act are more detailed and impose higher compliance requirements for Web3 businesses in Europe. As far as crypto asset service providers are concerned, MiCA Comprehensive rules are in place for it, covering everything from governance and capital requirements to custody and management, for example, to be authorized, CASP. There must be at least one director based in the EU and a registered office in the EU. In marketing, special attention is paid to regulating misrepresentations, complying with the rules on marketing communications and information activities, and conducting activities in a fair manner. Otherwise, the supervisory authority Corresponding warnings and penalties will be issued

2. Sufficient capital and stable value

In order to prevent the occurrence of systemic financial risks in the crypto market, MiCA has formulated special requirements for the issuance of stable coins, stipulating that issuers need to hold sufficient reserve assets to support their value stability to ensure the value stability of stable coins.

Therefore, stablecoin issuers need to maintain sufficient capital and liquidity reserves to cope with potential market fluctuations and redemption needs; especially for stablecoin issuers, they need to ensure that there are sufficient reserves to support the tokens issued. . If readers are interested in learning more about the compliance requirements of stablecoin issuers in the EU, you can read Mankiw’s previous research article: "Mankiw Research: Compliance Points for European Stablecoin Issuers Facing MiCA"

3. Fight crime and regulate the market

The MiCA Act attaches great importance to and prevents possible illegal and criminal activities in the crypto market, such as insider trading, market manipulation, etc. It also requires all crypto asset service providers to implement anti-money laundering (AML) and counter-terrorist financing (CTF) measures, including Strict KYC procedures and transaction monitoring , to prevent criminals from conducting illegal activities through the crypto market. Crypto asset service providers must implement strict customer due diligence (CDD) procedures, monitor suspicious transactions, and report to relevant authorities to prevent money laundering and terrorist financing activities.

Possible penalties for violating the MiCA Act

For Web3 practitioners, what they are most concerned about is whether the project can be carried out normally. The reason why they pursue compliance is because the cost of non-compliance is high. After sorting out, Mankiw lawyer summarized the penalties of the MiCA Act Measures are summarized into the following four categories:

1. Warning

Warnings serve as warnings to remind practitioners of the importance of compliance. The EBA will formally issue a warning to the issuer. Failure to perform MiCA One or more obligations under regulations

·Nature: A warning is a formal administrative notice that serves as a formal administrative record indicating that the regulatory agency has taken notice. There is a problem with the publisher

·Applicable situations: It is usually used when the violation is relatively minor, or occurs for the first time, and the issuer shows a cooperative attitude towards correction. For example, it may involve untimely information disclosure, minor non-compliance in marketing communications, minor flaws in internal management processes, etc. Situation.

·Impact: The warning itself may not directly result in business interruption or financial loss, but it can have a negative impact on the issuer's reputation and may result in greater regulatory scrutiny if the issuer fails to take prompt corrective action after receiving the warning. May face more severe penalties

·Example: ESMA warns an issuer that the white paper it publishes lacks certain necessary information disclosures and requires it to disclose certain information within a specified period.

2. Fines and daily penaltiesFine and daily fine are both economic sanctions, and their differences are as follows:

In short, Fine is retrospective and punishes past violations, while Periodic Penalty Payments) are proactive and deter continued or future non-compliance by imposing daily penalties until obligations are met

3. Suspension or prohibition of activities

Suspending or banning activities is a more severe penalty than a warning and will have a direct impact on the issuer’s business operations.

Suspending Activities: It refers to temporarily prohibiting the issuer from conducting one or more specific activities within a certain period of time, such as suspending disclosure.Issuance, suspension of trading platform transactions, suspension of marketing activities, etc.

Period: There is usually a clear deadline, such as "a maximum of 30 consecutive working days at a time" mentioned in Article 130.

Applicable situations: Usually used when the violation is serious or the issuer failed to effectively correct the problems pointed out in the previous warning. For example, it involves misleading publicity, failure to manage reserve assets as required, and serious deficiencies in internal controls.

Impact: Suspension of activity can cause business interruption, lost revenue, lost customers, and severely damage an issuer's reputation.

·Prohibiting Activities: refers to permanently prohibiting the issuer from performing one or more specific activities. For example, a permanent ban on the public issuance of a certain token, a permanent ban on trading on a specific platform, etc.

Nature: This is a very severe penalty, which means that the issuer will no longer be able to continue its business in this field.

Applicable situations: Usually used when the violation is very serious, or the issuer has repeatedly violated regulations and refuses to correct them. For example, it involves major illegal activities such as fraud and money laundering, or behaviors that seriously harm the interests of investors.

Impact: Prohibited activities will have a devastating impact on the issuer's business and increase the company's operating risks.

4. Delisting or license revocation

Delisting or license revocation is the most severe penalty in the MiCA Act.

· Nature: Refers to the regulatory agency officially revoking the issuer's operating license obtained under the MiCA Act, making it ineligible to provide related services in the EU.

·Applicable situations: Usually used when the most serious violations occur, such as:

Seriously violates the core provisions of the MiCA Act and causes significant damage to financial market stability or investor interests.

Providing false information to obtain authorization to issue licenses.

Continuous and repeated violations of regulations have not been corrected even after repeated warnings and penalties.

The company is insolvent or facing bankruptcy liquidation.< /p>

·Influence: The revocation of authorization means that the issuer must immediately cease all related business in the EU and may face further legal proceedings and penalties. This is a fatal blow to the issuer, which will not only lead to the complete termination of business, but also its reputation. and future development will cause irreparable damage.

In summary, four punitive measures constitute MiCA. There is a multi-level punishment system for violations under the bill. Regulators can choose appropriate punishment measures based on the specific circumstances of the violation, or use a combination of measures to achieve the best regulatory effect. Of course, the four listed above. This is not a complete list. For Web3 practitioners, understanding the penalties imposed by the MiCA Act on information disclosure will help to better understand the compliance requirements of the MiCA Act and take necessary measures to avoid violations. p>Continuing Compliance: The Future of MiCA Act

As far as virtual asset service providers (VASPs) are concerned, the MiCA Act reserves a grace period for practitioners who have registered before it takes effect to transition to the time limit specified in the MiCA Act. Each one is different. Taking Poland as an example, if Companies falling under a registered VASP (old license) will be allowed to provide services under a VASP license during the grace period until June 30, 2025 (expected date)

But for virtual asset service providers who have never applied for a VASP license, they must apply for a CASP license before starting operations.

No matter the EU country How long is the prescribed grace period? Currently, the MiCA Act stipulates that all crypto asset service providers (CASP) must complete their license application before July 2026.

Of course, the MiCA Act is not static. Regulators will submit a publicly released report to the European Parliament and the Council every year based on market changes and the actual application of the Act, reporting modifications to regulations and changes in regulations. direction. At that time, Lawyers Mankiw will continue to follow up and provide Web3 practitioners with the latest and most comprehensive compliance guidelines for major encryption regions around the world.

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▲Picture source ESMA

Mankiw Lawyer Summary

While MiCA introduces strict regulatory standards, it also helps companies expand the European market. Gaining a competitive advantage creates opportunities. By proactively meeting compliance requirements, in the short term, Web3 practitioners can obtain official endorsements and seize opportunities; in the long term, a more transparent and standardized business environment will also be conducive to the sustainable development of the project.