Issuance of Crypto-Assets in the light of the MiCA Regulation

The Markets in Crypto-Assets (MiCA) regulation, enacted by the European Parliament and Council, has garnered significant attention since its inception. With MiCA's enactment, the European Economic Area has acquired comprehensive and directly applicable regulations, covering all European Union (EU) member states. This development is pivotal, as previous crypto-asset regulations were primarily based on amendments to so called the Anti-Money Laundering Directive. Consequently, some member states formulated national laws on virtual currencies, while others merely made passing references to virtual currencies in their domestic legislation.

In our prior discourse titled "Basics of MiCA Regulation," we delved into MiCA's primary objectives and the various crypto-asset types it identifies for regulation, each governed differently based on their characteristics and intended use. In this exposition, we examine Chapter II of the MiCA regulation, which encompasses crypto-asset, and their issuance, thereby delineating the entities that issue such assets.

What Constitutes Crypto Assets Under Chapter II of the MiCA Regulation?

Firstly, it's essential to grasp that the overarching aim of the MiCA regulation is to subject all crypto-asset types to EU regulations comprehensively, particularly within the ambit of financial services and regulations pertaining to anti-money laundering and countering the financing of terrorism. Consequently, the MiCA regulation doesn't extend to crypto-asset classified as financial instruments, as these are already regulated under the MiFID II -regulation. Instead, the MiCA regulation pertains to electronic money tokens (EMTs) and asset-referenced tokens (ARTs), alongside other crypto-assets not categorized as EMTs or ARTs.

As per Article 3 of the MiCA regulation, a crypto-assets is defined as a digital representation of value or rights, transferable and storable electronically using distributed ledger technology or other similar technology. EMTs and ARTs, as delineated in the same article, are crypto-asset types designed to maintain a stable value by referencing an asset, right, or combination thereof, or an official currency. Consequently, EMTs and ARTs are termed stablecoins, with their issuance being underpinned by a commitment to back the crypto-asset's value with assets and reserves held by the issuer.

Therefore, other crypto-asset, as stipulated by the MiCA regulation, are crypto-assets subject to MiCA regulation (i.e., not deemed financial instruments) but which are not classified as stablecoins. Distinct from electronic money tokens and asset-referenced tokens, these other crypto-asset are issued based on market valuations directly, thereby conferring value solely as perceived by acquiring parties.  

How Are Other Crypto Assets offered to the Market?

According to Article 3 of the MiCA regulation, an issuer is a natural or legal person, or other undertaking, who issues crypto-assets. Moreover, the MiCA regulation recognizes offer to the public as a distinct activity, encompassing any form of communication aimed at individuals through any channel, furnishing sufficient information regarding the offering's terms and the crypto-assets offered, enabling potential holders to decide on purchasing these assets. An entity offering crypto-assets to the public is denoted as an offeror per Article 3 of the MiCA regulation, with further elaboration slated for a separate article later in the year.

The offering of crypto-assets, apart from asset-referenced or electronic money tokens, falls within Chapter II of the MiCA regulation. The principal prerequisites for issuing such crypto-assets are stipulated in Article 4 of the MiCA regulation, mandating that an entity offering crypto-assets to the public must:

1. Be a legal entity;
2. Prepare a white paper delineating the crypto-asset's characteristics and other pertinent information;
3. Provide a description of the crypto-assets to its home member state's competent authority;
4. Publish the description on its website and keep it publicly accessible for a reasonable period before offering the crypto-assets to the public;
5. Prepare any marketing communications in adherence to Article 7 of the MiCA regulation;
6. Publish any marketing communications in a manner akin to the description's publication, as stipulated above; and  
7. Comply with the requirements set forth in Article 14 of the MiCA regulation in its operations, including, but not limited to, the requirement of honest, fair, and professional conduct, and the prerequisite to prevent conflicts of interest.

It's noteworthy that a market entity may also apply to have other crypto-assets included for trading in the EU, triggering the application of Article 5 of the MiCA regulation, effectively transferring the obligations outlined in Article 4 to said entity.

As evident, a pivotal divergence between the MiCA regulation and previously enacted Finland’s Virtual Currency Providers Act lies in the absence, under the MiCA regulation, of a requirement for separate registration or licensing for entities issuing other crypto-assets or offering them to the public. Previously in Finland, even issuers of other crypto-assets were mandated to register with the Financial Supervisory Authority as virtual currency providers. It's pertinent to stress that the issuance and offering of EMTs or ARTs necessitate appropriate authorization under the MiCA regulation.

Principal Obligations Imposed by the MiCA Regulation on Providers of Other Crypto Assets?

As earlier highlighted, various obligations predicated on the MiCA regulation also apply to providers of other crypto-assets. Notably, the marketing provisions enshrined in Article 7 of the MiCA regulation warrant attention, necessitating, among other stipulations, the inclusion of the following sentence in marketing communications:

"This crypto-asset marketing communication has not been reviewed or approved by any competent authority in any Member State of the European Union. The offeror of the crypto-asset is solely responsible for the content of this crypto-asset marketing communication."

Additionally, emphasis is warranted on the obligation, as outlined in Article 13 of the MiCA regulation, to afford retail holders of other crypto assets a 14-day withdrawal right, alongside obligations concerning practical operations articulated in Article 14. Nonetheless, the primary obligation is deemed to be the requirement to draft a white paper of the offered crypto-asset, subsequently notified to the competent authority prior to description publication, as mandated by Article 8 of the MiCA regulation. This description must be prepared at the risk that failure to ensure its comprehensiveness, balance, clarity, or the presence of misleading information may render the entity applying to offer for public or the trading platform operator and its governing, managerial, or supervisory body members liable to the crypto-asset holder for any resultant losses.

While the aforementioned obligation may seem stringent, it's considered necessary, given that other crypto-assets lack the asset reserves underpinning stablecoins, thus underscoring the pivotal role of pre-acquisition information provision. Governed by Article 6 of the MiCA regulation, the description of the crypto-asset must encompass the following:

• information about the offeror or the person seeking admission to trading;
• information about the issuer, if different from the offeror or person seeking admission to trading;
• information about the operator of the trading platform in cases where it draws up the crypto-asset white paper;
• information about the crypto-asset project;
• information about the offer to the public of the crypto-asset or its admission to trading;
• information about the crypto-asset;
• information on the rights and obligations attached to the crypto-asset;
• information on the underlying technology;
• information on the risks;
• information on the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the crypto-asset.

Furthermore, the furnished information must be equitable, clear, non-misleading, and comprehensive. The crypto-asset white paper must prominently feature a statement: "This crypto-asset white paper has not been approved by any competent authority in any Member State of the European Union. The offeror of the crypto-asset is solely responsible for the content of this crypto-asset white paper." Additional mandatory information includes unequivocal notification, among other aspects, that the crypto-asset may not be inherently liquid and may depreciate partially or entirely. The description is subject to further formal and mandatory requirements.

Synopsis

The MiCA regulation substantially transforms the legal landscape for entities issuing other crypto-assets beyond electronic money tokens or asset-referenced tokens, and for entities bringing them to market. Henceforth, entities referenced herein does not need to seek separate registration but are mandated to notify the white paper and information of the crypto-asset to the authorities before white paper’s publication. Compliance with the MiCA regulation in other aspects is also required, with mnemonic rules summarizing the primary obligations as follows:

• Confirm that crypto-asset is not financial instrument, EMT or ART
• Diligently draft white paper
• Adhere strictly to mandatory marketing regulations
• Offer withdrawal right
• Conduct operations with honesty, fairness, and professionalism

At Nordic Law, we boast extensive proficiency in crypto-asset markets, regulation, and entities. We've aided clients operating in crypto-asset markets with licensing matters, legality assessments of operational practices, other assignments concerning crypto asset issuance and offering, and tax-related matters.

Should you have any inquiries or contemplate issuing your crypto-asset, feel free to reach out to us via email at info@nordiclaw.fi or by phone at +358 96829340.

Our Associate Trainee Charlotta Grandell took part in writing this article.