EU’s new MiCA regulation and cryptocurrencies

The regulation of cryptocurrencies continues to advance in the European Union. A few days ago, the European Parliament took another step by approving the proposal for the MiCA (Markets in Crypto Asset) regulation and rejecting the proposal for an amendment to prohibit or restrict the circulation of cryptocurrencies.

A common regulation in Europe could make investors put aside their insecurity when investing in cryptocurrencies. In this sense, investors blame cryptocurrencies for the lack of government support, poor regulation and high volatility.

On the other hand, there are also doubts from a tax point of view. For example, it is considered that this year cryptocurrencies that are abroad should not be included in Form 720.

However, it is necessary to remember that one of the main characteristics of cryptocurrencies is decentralisation; that is, anybody does not control them, so the new regulation could affect this characteristic and assume that a control body over the digital currencies.

Where does MiCA apply?

MiCA will apply throughout the European Union once it is approved. In addition, it is important to bear in mind that as it is a regulation, it will apply directly to all Member States, national legislation will not be necessary for each state, and it will affect any company that carries out business related to cryptocurrencies in the European Union, regardless of the where it comes from.

What goals does MiCA have?

The regulation regarding cryptocurrencies has several goals:

• Guarantee secure access to crypto assets for investors.
• Contribute to access to innovative investment.
• Fraud control, prevention of money laundering and terrorist financing.
• Establish uniform regulations that replace the existing national legislation in each country of the European Union.

What content will MiCA have?

The new regulation will contain 126 articles and an implementation plan in all the countries of the European Union. It was initially presented in 2020, but it is thought that it will not be applied until 2024.

In general, the following elements stand out in the content of the regulation:

• Definition of crypto-asset services as those services and activities consisting of the custody, administration of crypto-assets on behalf of third parties, the operation of a crypto-asset trading platform, the exchange of crypto-assets for legal tender fiduciary currency, the exchange of crypto-assets for other crypto-assets; execution of descriptive orders on behalf of third parties, placement of crypto assets, reception and transmission of orders for crypto assets on behalf of third parties and advice on crypto-assets.
• Definition of a crypto-asset service provider as a person whose occupation is to provide one or more services related to crypto-assets to third parties in a professional manner.
• Types of crypto assets that are regulated in the MiCA: utility tokens, asset-referenced tokens, and electronic money tokens.
• Obligations of the issuers of crypto-assets to issue a technical document (in English and in the official language of a State of the European Union) that must detail the characteristics, rights and obligations and the technology and project related to the crypto asset. In some instances, the publication of the technical document will not be necessary. Consumers will have a 14-day right to opt out of purchasing an unlisted crypto-asset token if purchased directly. Another of the primary obligations is to guarantee solid cybersecurity to protect investors.
• Authorisation of crypto-active service providers. The regulation establishes an extensive regulation in this sense. The content of the request, the evaluation of the request or the right of the authorities to withdraw the authorisation, among many other aspects, are detailed.
• Preventions related to market abuse. The regulation defines the scope of the rules on market abuse, refers to insider trading and prohibits market manipulation.

In short, the new regulation will mean that crypto-asset service providers must meet transparency requirements to the information they provide and their operation and internal governance, asset reserve requirements (for so-called stable cryptocurrencies), and the protection of consumers’ rules to prevent market abuse.

What benefits does MiCA have?

The MiCA regulation is considered to bring benefits to both crypto asset service providers, investors and national regulatory authorities. The benefits are as follows:

• The unification of the regulation, until now the providers of crypto-active services have had to adapt to different regulations from one Member State of the European Union to another.
• The regulation will also protect investors in crypto assets that have long suffered from scams and other fraud so that new investors can be attracted by providing security.
• As it is a regulation and not a directive, it is applied directly in the Member States without the need for national regulatory development in each state. As a consequence of the above, the new regulation will mean that in the year 2024 the national regulations related to crypto-assets cease to apply and the market operators operate with greater transparency and ease.
• The regulation of cryptocurrencies in the European Union, therefore, continues to move towards unification to prevent fraud and protect European consumers, as well as investors in cryptocurrencies and other crypto-assets.

In this sense, in Spain, the National Securities Market Commission and the Bank of Spain warned of the dangers of digital currencies for retail savers, so if you want to invest in crypto assets it is essential that you have the help of a professional to know the risks and to know how these assets are taxed in the application of the Spanish fiscal regulations in taxes such as VAT, Personal Income Tax or Form 720.