Crypto-asset classification under MICA
The EU is lagging behind the rest of the world, particularly North America and Asia, in regulating distributed ledger technology, crypto-assets, and tokenization. In a major step forward, the EU is about to enact the Market in Crypto Assets regulation (“MiCA”).
What is it and what does it do? MiCA is an attempt by the EU to standardize rules concerning crypto for the entire bloc. It does this, in part, by classifying crypto-assets in a clear and concise manner. The goal is to provide regulatory certainty for market participants in all national markets with the EU.
MiCA defines crypto-assets as a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger or similar technology. It then subdivides crypto-assets into the following three categories:
- Utility tokens
- Payment tokens
- Investment tokens
All crypto assets must fall within one of the categories.
MiCA is meant to provide a greater degree of legal certainty by removing fragmented national regulatory regimes (e.g. classification of crypto assets), and providing the opportunity for a EU crypto-asset market to be accessed from a single point of entry. It was designed that the regulatory framework proposed within MiCA could fit into the currently existing regulation of capital markets and payments industry. Up until recently, the anonymous nature of crypto-assets was a primary reason the banking sector avoided working with crypto-asset businesses. Bankers were afraid of running afoul of KYC and AML rules, which were difficult to adhere to under the crypto model. With MiCA, banks may finally be open to crypto-assets service providers.