Introduction to the MICA Regulation
The Crypto Asset Markets Regulation (MICA Regulation), marks a new era for cryptocurrencies and digital assets in the European Union. It is a bold attempt to lay the foundations for a level playing field, aiming to balance innovation with financial stability, transparency, and consumer protection. We imagine a world where cryptocurrencies are no longer wild and undisciplined, but part of a well-oiled system that guarantees security and reliability. This is what MiCA tries to do.
The trigger for this move is the meteoric rise of cryptocurrencies, which are slowly but surely intertwining with traditional financial systems, bringing with them a host of security challenges such as scams, money laundering and market volatility. . With clear rules for those issuing and trading crypto-assets, MiCA aims to bring order to the chaos, ensuring that everyone can play by the same rules.
It is a strategy that rests on two pillars: "same activities, same risks, same rules" and "technological neutrality". This means that crypto-assets that fall under existing EU financial regulation are regulated by that framework, regardless of the technology used, while crypto-assets that are not classified as financial instruments fall under the scope of MiCA.
All this means that: a) crypto-assets are officially recognized as an integral part of the modern financial system; b) there is now a safe regulatory environment that could push even further towards innovation and acceptance of blockchain technologies; c) with an eye on investor protection and the fight against money laundering, MiCA wants to build a bridge of trust between the world of crypto and European citizens, with the ambition of extending this trust globally.
Abstract
The article analyzes the European Union's Markets in Crypto-Assets (MiCA) Regulation, focusing on the difference between tokens that qualify as financial instruments, under MiFID II, and those regulated, in fact, pursuant to the MICA Regulation, as well as the exploration of the classification criteria established by the MiCA Regulation and MiFID II themselves.
The discussion opens on how to distinguish crypto-assets: on the one hand we have those that fall into the category of financial instruments and, on the other, those that do not. This comparison follows the philosophy that equal activities correspond to equal risks and, therefore, equal rules, without forgetting the importance of technological neutrality. The intent is to clarify the way in which crypto-assets are regulated within the EU, underlining what this means for those who issue and invest in these assets, with the aim of promoting a market environment that is at the same time safe , transparent and stable.
The article highlights how crucial it is to take a substance-over-form approach to determining how to classify and regulate crypto-assets in the EU, with particular emphasis on the implications for investor protection and anti-money laundering. of money.
In summary, the objective of the article is to provide a clear understanding of how crypto-assets are regulated in the EU, highlighting the classification criteria and regulatory implications for issuers and investors of crypto-assets, with the ultimate goal of promoting a safe, transparent and stable market environment.
The difference between tokens/financial instruments, pursuant to MiFID II, and tokens regulated pursuant to the MICA Regulation
Taking a closer look at this topic, the first thing that catches your eye is that Article 2 of the MiCA acts as a guide, explaining exactly what this Regulation applies to. Then, if we move a little further, in the same article but to paragraph 5, we find that ESMA has a rather important task: it must come up with guidelines. These are used to better understand the conditions and criteria that allow crypto-assets to be identified as financial instruments. This, in particular, is explained in Article 4, paragraph 1, point (15) of another important document, the MiFID II Markets in Financial Instruments Directive. In short, a nice tangle of articles and paragraphs, but fundamental to understanding how to move in this intricate world of crypto-assets.
To have a complete and clear picture of the topic in question, it should first of all be highlighted that lArticle 2 of the MiCA outlines the scope of application of the Regulation and, subsequently, in the same article, in paragraph 5, it is established that ESMA has the task of describing the conditions and criteria that allow crypto-assets to be identified as financial instruments. For this reason, in particular, reference is made to Article 4, paragraph 1, point (15) of the MiFID II Directive on Markets in Financial Instruments.
As already highlighted in the introduction, the essence of the MICA Regulation is summarized in the principles of“same activities, same risks, same rules” and “technological neutrality”. In fact, according to Recital (9)“Union legislative acts on financial services should be guided by the principle of 'same business, same risks, same rules' and the principle of technological neutrality. Therefore, crypto-assets covered by existing Union financial services legislation should remain governed by the existing regulatory framework, regardless of the technology used for their issuance or transfer, rather than being governed by this Regulation. Consequently, this regulation expressly excludes from its scope of application crypto-assets that qualify as financial instruments as defined by Directive 2014/65/EU, those that qualify as deposits as defined by Directive 2014/49/EU of the European Parliament and of the Council , including structured deposits as defined by Directive 2014/65/EU, those qualifying as funds as defined by Directive (EU) 2015/2366 of the European Parliament and of the Council, except where they qualify as electronic money tokens ("money tokens electronic"), those qualifying as positions towards securitization as defined by Regulation (EU) 2017/2402 of the European Parliament and of the Council and those qualifying as non-life or life insurance contracts, pension products or social security schemes. Taking into account that electronic money and funds received in exchange for electronic money should not be treated as deposits in accordance with Directive 2009/110/EC of the European Parliament and of the Council, electronic money tokens cannot be treated as deposits which are excluded from the scope of this Regulation”.
The MiCA Regulation therefore lays the foundations for an inclusive approach, but with well-defined limits. It does not apply to crypto-assets already regulated by EU financial services legislation. In other words, if a crypto-asset falls into the categories already regulated by existing regulations, such as financial instruments, deposits, funds or insurance contracts, to name a few, then the MiCA Regulation does not intervene. This is to avoid regulatory overlaps and ensure that the technology, however innovative, is not exempt from liability. This is an acknowledgment that despite the newness of crypto-assets, the fundamental rules of the financial game remain the same.
The qualification of crypto-assets as financial instruments is based on the specific characteristics and nature of such crypto-assets. To assess whether a crypto-asset is a security or another type of MiFID II financial instrument, it is necessary to consider the specific characteristics and rights or characteristics attached to that crypto-asset. ESMA, in its Consultation Document of 29/01/2024, encourages us to consider each crypto-asset on an individual basis, so that it can be appropriately classified under the right legal regime. This means adopting a “substance over form” approach when it comes to defining what a financial instrument actually is. In other words, it's not so much how a product is packaged that matters, but rather what it represents.
Crypto-assets pursuant to the MICA Regulation
At present, in the vast universe of crypto-assets and blockchain, it is possible to come across a great diversity of digital assets, each with its own peculiarities and purposes. When delving into this wide variety of digital assets, experts and legislators orient themselves through a targeted approach, distinguishing assets based on their intrinsic function.
The crypto-assets that follow the provisions of the MICA Regulation are usually divided into three types of tokens: a) utility tokens, which act as keys to access specific services or resources of a system; b) tokens that refer to goods or assets (ART), which seeks to maintain a stable value by reference to another value or right or to a combination of the two, including one or more official currencies of a country issued by a central bank or other monetary authority; c) tokens considered as shapes payment systems (EMT), which are basically the digital versions of cash and which aims to maintain a stable value by referring to the value of a country's official currency issued by a central bank or other monetary authority.
With this tripartite division we are sure to have regulated all the tokens that do not fall within the sphere of financial instruments, where each type of crypto-asset has its place and its rules, making everything a little clearer and more manageable to deal with the risks and the challenges that this new frontier brings with it.
Crypto-assets pursuant to the MIFID II Directive
The MiFID II Directive has always presented new rules designed to make everything clearer and safer for investors, and to ensure that the markets continue to encourage exchanges and transactions on financial instruments. When it comes to crypto-assets, this directive becomes even more interesting, given that it establishes which of these digital assets can be considered as financial instruments, establishing specific rules and duties for each of them.
Understanding the difference between the various types of crypto-assets and understanding the different types of financial instruments that crypto-assets can fall into is a key step in keeping investors safe and keeping the market honest and transparent.
Below, therefore, are the different classifications of financial instruments into which crypto-assets can converge, depending on their intrinsic characteristics.
- Classification into securities
Land crypto-assets could fall into the category of securities if they offer rights comparable to those guaranteed by shares, bonds or other types of transferable securities, such as a security that includes a derivative. Based on Article 4(1)(44) of MiFID II, there are three criteria that must all be met for a crypto-asset to be defined as a transferable security:(i) the transferable security must be part of a “class of securities”, (ii) it must be negotiable on the capital markets and (iii) it is not a payment instrument.The importance of adopting a substantive rather than formal point of view emerges clearly when trying to classify a crypto-asset as a financial instrument.
To be classified as a distinct category, crypto-assets must guarantee investors comparable rights, thus promoting their tradability in financial markets. A set of crypto-assets representing a particular class of securities, whether equity interests, equity-like rights, bonds or other forms of debt, or including derivatives, should be considered “securities”. Although the European Union has not yet provided a precise definition of "tradability", this term indicates the possibility for crypto-assets to be traded or transferred on markets, even if there may be legal, market or technical limitations. Most countries interpret as "tradable" those assets that can be easily transferred or exchanged, while some distinguish between transferability and tradability, associating the concept of "standardization" with the latter.
Still in terms of securities,in recent times, some new financial instruments have taken hold that serve more than anything else as investment vehicles. They offer investors the opportunity to take part in the profits of specific assets without having to physically buy them. These include investment certificates, also known as ETCs (Commodity Traded on the Stock Exchange), as well as participation certificates and tracker certificates. The peculiarity of these instruments is that they do not confer a real right of ownership on the reference asset. Rather, they give the right to receive the returns resulting from the performance of the asset, through a credit that the issuer of the certificate owes to the investor, depending on the behavior of the asset or its physical delivery.
- Classification into money market instruments
In today's financial world, cryptocurrencies are making room for themselves, aiming to be integrated like more traditional financial instruments, such as Treasury bills, certificates of deposit, and bills of exchange.. The idea is that a cryptocurrency represents a type of credit, generated from funds deposited into an account or from temporary transactions carried out through standard banking operations. This type of credit is something that the financial institution has a legal obligation to return to the holder, as established by the European Directive 2014/49/EU.
- Classification in collective investment funds
To be considered a part of a collective investment fund, a cryptocurrency must represent the rights of investors within these funds. This means that when you invest in a fund, what you receive in return is a sort of "share" or "share" that indicates how much of the fund you own. These funds can take different forms, such as open-ended or closed-ended funds, and may or may not be officially registered as companies.
Cryptocurrency, in this context, should act as a collection of funds from several investors, with the aim of investing those funds to obtain a profit which will then be distributed among the investors. So, it is not just about buying a digital currency, but about investing in a fund that aims to grow capital through various investments.
Investors generally do not have the power to decide how funds are managed on a day-to-day basis. This responsibility is usually in the hands of a manager who follows well-defined rules to invest the money raised.
For the company issuing the cryptocurrency to be considered a collective investment fund, the objective of the project must not be linked to traditional commercial or industrial activities.
- Classification in derivative contracts.
Derivatives are types of financial arrangements whose value is based on other assets, such as interest rates or indexes. These agreements provide rights and obligations for the parties involved. Speaking of crypto-assets, according to the MiCA rules, these digitally represent a value or a right.
To earn the title of financial derivative under the MiFID II umbrella, a crypto-asset must be, in essence, the digital transposition of an agreement that depends on something external determining its price. It can be another asset, an index or something like that. The important thing is that the value of this crypto-asset responds to the volatility of the external element. There must be a clear agreement between the parties, which sets out the terms of this agreement in black and white, including details such as deadlines and prices. However, it is not the only aspect to consider.
Conclusions
Taking an in-depth and meticulous look at the relevant regulations,This article offers an overall view of the regulatory landscape that frames crypto-assets in the European Union, in particular through the Markets in Crypto-Assets Regulation (MiCA) and the Markets in Financial Instruments Directive (MiFID II). There is a crucial distinction between those crypto-assets that are included among financial instruments and those that remain outside this category. This distinction represents a turning point for managing and keeping under control a sector that is as dynamic as it is constantly evolving. Thanks to the principles of "same activities, same risks, same rules" and "technological neutrality", the European Union aims to establish a regulatory framework that is not only cutting-edge and versatile, but which also manages to protect consumers and ensure financial stability.
The strategy of giving precedence to substance over form, emphasized by ESMA and other supervisory bodies, highlights the importance of analyzing crypto-assets on a case-by-case basis. This is to better understand their nature and establish which legislation is most suitable. This tactic highlights how critical it is to fully understand the characteristics and rights attached to each crypto-asset, including the ways in which they are issued and transferred.
The article also sheds light on the complicated issue of classifying crypto-assets. A challenge that requires careful evaluation of the criteria of negotiability, fungibility and their assimilation to existing categories of securities. The key to effective and targeted regulation of crypto-assets lies in interpreting and applying these criteria with flexibility but without losing rigor. This will ensure that rules can evolve with technological progress, while protecting investor interests and financial stability.
The text, therefore, makes a valuable contribution to our understanding of the regulatory framework that governs crypto-assets in the EU, underlining the importance of a coordinated regulatory system capable of addressing the peculiar challenges posed by this new category of assets. Of course, although MiCA and MiFID II lay a solid foundation for their regulation, the crypto-asset sector is constantly evolving, whichIt will require constant evaluation and updating of regulations to ensure that innovation can thrive in a safe and transparent environment.
