The world of cryptocurrency and blockchain technology knows no borders. As crypto markets continue to expand globally, they attract a growing number of businesses offering a wide range of services. With the European Union’s introduction of the Markets in Crypto Assets Regulation (MiCA), the landscape is changing, and non-EU crypto businesses are faced with new challenges and opportunities as they seek to operate in this influential market.
MiCA in a Nutshell
MiCA, is the regulatory framework designed to create a comprehensive and harmonized set of rules for the crypto industry within the EU. It aims to provide legal certainty, investor protection, and market integrity while fostering innovation in the digital asset sector. MiCA covers various aspects of the crypto market, including token classifications, requirements for service providers, and issuer obligations.
MiCA has been approved by all EU member states and will come into force close to the end of 2024, with a possible grace period of up to six months that may be granted.
The Extraterritorial Reach of MiCA
One of the essential aspects to consider for non-EU crypto businesses is MiCA’s extraterritorial reach. While the regulation is primarily intended for businesses operating within the EU, it can still affect those outside its borders. The extraterritoriality of MiCA extends to:
Where a non-EU crypto business offers services to EU residents or targets the EU market, it must adhere to the MiCA regulations. This includes activities such as trading, offering wallets, or facilitating token sales within the EU.
Even if a non-EU business doesn’t actively target the EU, it must comply with MiCA if it serves EU customers. This means that businesses with EU clientele must follow the regulation’s provisions, regardless of their physical location.
Implications for Non-EU Crypto Businesses
The impact of MiCA on non-EU crypto businesses is significant and multifaceted. Key implications include the following:
Non-EU crypto businesses that fall under the jurisdiction of MiCA must ensure compliance with the regulation’s requirements. This involves obtaining a necessary authorisation from an EU member state to be permitted to provide crypto asset related services to or from the EU, meeting AML and compliance obligations, and adhering to issuer and service provider rules.
MiCA offers a passporting mechanism that allows businesses authorised in one EU member state to provide services across the entire EU. Non-EU businesses should consider the possibility of establishing a presence in an EU member state to access this passporting feature.
MiCA’s introduction provides non-EU businesses with a clearer understanding of the EU’s regulatory framework. This clarity can help them make informed decisions about their market strategy and potential opportunities.
Non-EU firms that proactively adopt MiCA’s best practices can gain a competitive advantage. By aligning with EU regulations, they can build trust with EU customers and expand their market reach more easily.
Strategies for Non-EU Crypto Businesses
There are several strategies that can be considered by non-EU crypto businesses seeking to navigate the challenges and opportunities presented by MiCA. Among them are the following:
Understand MiCA’s requirements and implement measures to ensure compliance, even if not operating within the EU, to prepare the business for potential expansion into the EU market.
Engage legal experts with knowledge of MiCA to obtain advice as to MiCA’s implication on the business’ specific business model and line of services, to make informed decisions.
Consider partnering with EU-based businesses to leverage their expertise and access to the EU market. Collaborations can help overcome regulatory and market access challenges.
Evaluate the benefits and drawbacks of establishing a presence in an EU member state to take advantage of MiCA’s passporting feature. This may be a strategic move for businesses with significant EU-focused operations.
Cyprus – a jurisdiction for CASPs and VASPs
Cyprus introduced a Crypto-Asset Service Provider (CASP) registration framework in September 2021. The registration is made with the Cyprus Securities and Exchange Commission (CYSEC).
There are three types of CASP registration, requiring different minimum capital. Depending on the services offered, the capital required may be €50.000, €125.000 or €150.000.
The CASP registration covers a wide range of services, including among other, investment advice, reception & transmission, execution of orders on behalf of clients, exchange between cryptocurrencies and fiat money, management, transfer, retention, or safekeeping, acting as depositary or custodian of crypto assets and operating a cryptocurrency asset exchange.
For the registration as CASP, the incorporation of a Cyprus company to apply for the registration is necessary. The persons holding an administrative position with the CASP must be competent and the business must maintain a physical office in Cyprus.
The board of directors shall be composed of at least four persons, two of whom shall be executive. The business must establish policies and procedures, systems, and controls to ensure prudent operation and minimisation of risk.
The application fee is €10.000 and there is a €5.000 for renewal every year. CYSEC shall review the application within 6 months.
Cyprus – Interplay with MiCA
The current Cyprus CASP registration is not a MiCA license. However, noting that the existing Cyprus legislation largely mirrors or aligns with MiCA, where a company satisfies the CASP requirements and registers as a CASP, it will be also to the greater extent also in compliance with MiCA.
When MiCA comes into force, already registered Cyprus CASPs will be able to follow a notification/registration process to convert their registration to a MiCA license.
MiCA’s impact on cross-border operations for non-EU crypto businesses is a complex and evolving landscape. While it introduces challenges, it also offers opportunities for those willing to adapt and align with EU regulatory standards.
By understanding the extraterritorial reach of MiCA and taking strategic steps to address its implications, non-EU crypto businesses can position themselves for success in the EU market and ensure regulatory compliance in an ever-evolving crypto regulatory environment.