Application of Second Part of MiCA - Regulation of CASPs and Other Public Offering of Crypto Assets

The Second Part of MiCA entered into application on December 30, 2024 - CASPs and public offers of crypto-assets other than ARTs and EMTs fall within the scope of MiCA

MiCA¹ regulates the issuance of crypto-assets in the European Union (EU) as well as the providers of certain services in relation to crypto-assets. Unique and non-fungible crypto-assets, as well as crypto-assets qualifying as financial instruments within the meaning of MiFID² are excluded from the scope of MiCA. For a general summary of MiCA, please refer to our previous OnPoint.

The first part of MiCA entered into application on June 30, 2024, and regulates the issuance and the issuers of asset-reference tokens (ARTs) and e-money tokens (EMTs). ARTs and EMTs were considered by the EU Commission as the main types of crypto-assets that were to be subject to regulation in MiCA's first phase. Our previous OnPoint summarizes the regulation of ARTs and EMTs under MiCA.

The remaining part of MiCA entered into application on December 30, 2024. It regulates the public offering of crypto-assets other than ARTs and EMTs in the EU, as well the crypto-asset service providers (CASPs).

Public Offers of Crypto-Assets Other Than ARTs and EMTs

As with ARTs and EMTs, an issuer making a public offering of any other form of crypto-asset in the EU must prepare a crypto-asset white paper and notify it to the competent authority. The issuer must furthermore comply with certain requirements laid down in MiCA including:

• acting honestly, fairly and professionally;
• communicating in a fair and clear manner that is not misleading;
• identifying, preventing, managing and disclosing conflicts of interest; and
• maintaining all of their systems and security access protocols in conformity with the appropriate standards of the EU³.

No white paper is required if:

1. the offer is made to less than 150 persons in the EU, where these persons are acting on their own behalf;
2. the offer is for a consideration that does not exceed €1 million over a period of 12 months; or
3. the offer is solely addressed to qualified investors, where the crypto-assets can only be held by such qualified investors⁴.

Regulation of CASPs

From December 30, 2024, the below-mentioned crypto asset services can only be provided in the EU by a firm which has been authorized by a competent authority as a CASP, unless the firm is already regulated as a credit institution, a central securities depository, an investment firm under MiFID, a market operator, an electronic money institution, a management company of UCITS, or an AIFM that is allowed to provide crypto-asset services in accordance with their applicable regulations. While these other regulated firms will not need to go through a separate and full authorization process under MiCA, they will need to notify their relevant competent authority if they seek to provide crypto asset services set out in MiCA. For instance, an investment firm authorized under MiFID or an AIFM⁵ providing portfolio management services or investment advice does not need to be authorized as a CASP if they would like to manage or advise on a portfolio of crypto-assets. The relevant firm must, however, notify their competent authority of the intention to provide such a service and will likely need to update their program of activity that provides the basis on which they have received their relevant authorization.

The following crypto-asset services fall within the scope of MiCA:

• custody and administration of crypto-assets on behalf of clients;
• operating a trading platform for crypto-assets;
• exchange of crypto-assets for funds;
• exchange of crypto assets for other crypto-assets;
• execution of orders for crypto-assets on behalf of clients;
• placing of crypto-assets;
• reception and transmission of orders for crypto-assets on behalf of clients;
• providing investment advice on crypto-assets;
• providing portfolio management on crypto-assets; and
• providing transfer services for crypto-assets on behalf of clients.

MiCA provides for the authorization and operating conditions of CASPs, detailing the content of an application for authorization, the assessment of the application and the rights granted to competent supervisory authorities to withdraw an authorization. MiCA also sets out the operating conditions that apply to authorized CASPs and provides for a regime on the disclosure of inside information, and the prevention and detection of insider dealing and market manipulation. CASPs involved in the arrangement and execution of transactions must therefore put in place arrangements, monitoring systems and procedures to monitor and detect market abuse.

More specifically, CASPs are subject to the following obligations:

• CASPs must act honestly, fairly and professionally in accordance with the best interests of their clients and prospective clients⁶;
• CASPs are subject to a minimum capital requirement depending on the type of crypto-asset services they seek to provide to clients and each CASP's own funds must cover at least one quarter of the fixed overheads of the preceding year⁷;
• members of the management of CASPs must be of sufficiently good repute and possess the appropriate knowledge, skills and experience, both individually and collectively, to perform their duties⁸;
• shareholders and beneficial owners must be disclosed for the CASP to be authorized and changes to ownership will cause a change-of-control application with the competent supervisory authority in the EU, provided that relevant thresholds are exceeded;
• CASPs must adopt policies and procedures including on the identification, prevention, management and disclosure of conflicts of interest, as well as a business continuity policy that must include continuity plans for information and communications technology services; and
• the outsourcing of certain services and activities by a CASP to a third party must be assessed from the perspective of the operational risk -no discharge of liability or delegation of responsibility is permitted⁹ including in case of custody services on crypto-assets. While outsourcing to parties outside the EU is not per se prohibited, the outsourcing partner must cooperate with the competent supervisory authority of the CASP and EU standards on data protection must be respected.

One major attraction of MiCA is that CASPs benefit from the EU passport - i.e., a CASP that is authorized in one EU member state will be able to operate across the EU under the passport granted under MiCA. To benefit from the passport, the CASP that intends to provide crypto-asset services in more than one EU member state needs to submit the following information to the competent supervisory authority of the member state in which the relevant CASP has been authorized:

• the type of crypto-asset services to be provided cross-border;
• the list of EU member states where these services are provided; and
• the date on which the CASP intends to start providing crypto-asset services on a cross-border basis.

Third-country firms that would like to offer crypto-asset services in the EU must establish an entity within the EU and seek authorization under MiCA as a CASP. The exception to this requirement is where the crypto-asset services are provided to EU persons based solely on 'reverse solicitation'. Reverse solicitation refers to a situation where a client initiates at its own exclusive initiative the provision of the service. We note that the final report on the guidelines on reverse solicitation published by ESMA aims to limit the scope of reverse solicitation under MiCA¹⁰.

Transitional period and next steps

MiCA includes a transitional regime for CASPs that offered their services prior to December 30, 2024, granting them until July 1, 2026, to become authorized by their competent authority as a CASP¹¹ unless the relevant EU member state where the CASP seeks to operate has taken the decision to reduce the transitional period¹².

The EU Commission has also adopted several implementing and delegated regulations specifying technical standards, among other things, on the information to be provided by entities seeking to become authorized CASPs. In addition, ESMA has released several pieces of guidance including on the interpretation of reverse solicitation and the conditions and criteria for the qualification of crypto-assets as financial instruments.

Conclusion

MiCA's second phase enters operation at a pivotal time for the crypto industry. More specifically, MiCA offers a clear regulatory framework that other major jurisdictions may seek to emulate. Among other things, MiCA provides clarity by (i) clearly defining the class of crypto-assets to which it applies and carving out traditional financial instruments from its coverage; (ii) providing a relatively straightforward approach for issuers seeking to offer crypto-assets (especially assets other than ARTs and EMTs) across the EU; and (iii) providing clarity around the conditions for the licensing of CASPs.

Each of these features of MiCA will likely be of interest to US crypto firms, some of whom have claimed that US regulators have failed to provide a clear regulatory path forward for crypto-asset issuers and intermediaries. The incoming US administration may therefore seek to ensure that any new US crypto regulatory regime is not perceived to be more onerous or less advantageous than MiCA. US crypto firms will also likely stress the importance of not being subjected to duplicative or conflicting regulations across the EU and the US. It is therefore likely that the new Trump administration will be mindful of MiCA's requirements as it seeks to put in place a new US crypto regulatory regime.

The UK is not implementing MiCA but is working on its own framework for the regulation of crypto-assets. The legislation to facilitate the bringing of stablecoins and crypto-assets into the scope of UK financial services regulation, the Financial Services and Markets Act, received Royal Assent on June 29, 2023. The UK's Financial Conduct Authority (FCA) is developing an approach to regulating cryptoassets that "looks to mitigate the risks while supporting potentially beneficial technology". Most recently, on December 16, 2024, the FCA published a discussion paper on crypto-asset admissions and disclosures and the Market Abuse Regime for crypto-assets. The discussion paper¹³ closes to comment on March 14, 2025. The FCA plans to consider any feedback and conduct further industry engagement to determine its next steps. It will consult via a consultation paper on any of the proposals outlined in the discussion paper if it proposes to adopt them as part of its final rules.

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