Crypto-Assets (MiCA) Regulation

What is the regulation of crypto-asset markets (MiCA)?

MiCA is a regulatory framework developed by the European Commission to regulate markets for crypto assets and related services that are not currently covered by EU regulations.

It has been developed since 2018 and aims to provide a single licensing regime for all EU member states to harmonize regulation on the creation and trading of cryptocurrencies in line with the European Digital Finance Strategy.

The official name of this regulatory framework is "Proposal for a EUROPEAN PARLIAMENT AND COUNCIL REGULATION on Markets in Crypto Assets and Amendments to Directive (EU) 2019/1937. It is scheduled to enter into force in 2024.

Where will the (MiCA) apply?

MiCA will apply in all European Union (EU) member states once it is adopted. The regulation of crypto-asset markets in the European Union (EU) will have a new legal basis in the form of the European Commission's proposal for the regulation of crypto-asset markets (MiCA). Developed starting in 2018, the proposal regulates crypto assets and service providers that are not under common EU regulation, making it legal to provide crypto services across the EU.

The regulation will also allow the provision of licensed services within the EU without the need to implement it in national law.

The adoption of the regulation will directly affect any company that wants to operate in the EU, even if it seeks clients outside the European Union. In this way, MiCA will be able to guarantee consistency in the regulation of crypto-asset markets and increase security and transparency in these markets.

Who is MiCA for and why?

The MiCA was developed by the European Commission to regulate crypto assets in the EU and protect consumers from the financial risks associated with unregulated virtual assets. Cryptocurrencies have the potential for innovation and advanced investment products, but they also pose risks to investors and markets, such as money laundering, terrorist financing, and trading abuse.

MiCA is the result of work begun in 2018 when Bitcoin was experiencing a bull market and public interest in cryptocurrencies was at its peak. In response to the growing dangers associated with unregulated virtual assets, the European Commission tasked the European Banking Authority and the European Securities and Markets Authority to analyze whether the existing EU financial services regulatory framework is appropriate for crypto-assets.

The analysis found that most crypto-assets were not covered by EU financial services legislation and lacked consumer and investor protections and market integrity. Consequently, European regulators began work on a new regulatory framework for crypto-assets as part of the digital finance package, which became MiCA.

What are the goals of MiCA?

The proposal for "Crypto-Asset Markets" is based on four key goals:

1. Providing legal certainty for crypto-assets that are not regulated by current EU financial services legislation. At this point, there is a clear need for this.
2. Establishing uniform rules for service providers related to crypto assets at the level of European Union legislation. This will help avoid inequality and chaos in this area.
3. Replacing existing national frameworks applicable to crypto assets that are not subject to the regulation of current EU financial services legislation. A single regulatory approach will help avoid fragmentation and conflicts between national regulations.
4. Establishing special rules for "stablecoins" and e-money. This will protect consumers and investors, as well as maintain the stability of financial markets.

When will MiCA come into force?

Normally, any proposed law in the EU undergoes a complex process and must be approved within a certain timeframe, there is no specific timeframe for the implementation of MiCA. However, the European Union expects to implement the new rules over the next four years.

By 2024, the EU plans to create a comprehensive framework that will allow the use of distributed ledger technology (DLT) and crypto assets in the financial sector, taking into account the risks involved.

How can the EU crypto-asset industry benefit from MiCA?

The European Commission's proposal has raised concerns about the inability of crypto-asset companies to take advantage of the European Union's internal financial services market. The reason for this problem is the lack of a clear legal definition of the regulatory regime for crypto assets and the lack of a uniform regulatory regime at the EU level. This situation leads to the fact that crypto-firms cannot "passport" their license in the EU, which is available in traditional financial services.

Moreover, most EU member states do not regulate businesses related to crypto assets, forcing these countries to create separate national rules to regulate such activities.

The diversity of rules and definitions applied to cryptocurrency assets and their service providers is another factor that hampers the development of these companies and their ability to scale at the EU level due to high costs, legal complexities, and regulatory uncertainties.

This situation creates an unfair competitive environment for crypto asset companies, depending on the member state, which negatively affects the efficiency of the internal market. The lack of a common framework at the EU level for cryptocurrency assets and their service providers creates risks for companies and their customers. Meanwhile, the European Union plans to address this problem with a new regulatory instrument, MiCA.

MiCA: new regulation for VASPs in the European Union

In October 2022, the Economic and Monetary Affairs Committee of the European Parliament received the final text of the Regulation of the European Parliament and of the Council relating to crypto-asset markets and amending Directive (EU) 2019/1937 (MiCA). Through these amendments, the analysis of the implemented regulation is made possible. In this article, you can read about MiCA and get our opinion on updates that directly or indirectly affect the field of crypto-assets.

MiCA is a new regulation by the European Parliament and the Council of Europe that is designed to regulate crypto-assets and virtual asset service providers (VASPs). It establishes a pan-European framework for conducting crypto-asset business and covers all types of virtual currencies, including cryptocurrencies. The new regulation is designed to protect investors, reduce risks and combat financial scams. It also obliges service providers to comply with certain security standards and obey rules set by regulators in the European Union.

• The MiCA regulates crypto-asset service providers, but NFTs fall outside its scope. Despite this, it is important to note that transactions in which NFTs are exchanged for crypto-assets are considered part of the overall structure to be regulated. While NFTs are not directly subject to MiCA, it is important to consider the potential consequences of their use in crypto-asset transactions.

As stated in the Board's press release, the new regulation also applies to `"digital assets that represent real objects, such as art, music, and video.`" Although the MiCA's final definition of NFT has not yet been established, some NFTs that do not meet that definition may be subject to the new regulation. According to this statement: collection-based NFTs, where each NFT is unique, cannot be considered exempt NFTs under the MiCA definition and would be subject to its provisions.

• The ESMA Commission must prepare and publish guidance on the conditions and criteria for qualifying crypto-assets as financial instruments within 18 months of the new rules coming into force. This step is necessary to ensure transparency and stability in the crypto-asset market, as well as to provide investors with clear rules and guidelines when making investment decisions.
• Although MiCA represents a huge step in the regulation of crypto assets in Europe, organizations such as the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Central Bank (ECB) also have their projects to regulate crypto assets.

Some of these projects, to be released within 12 months of the entry into force of the MiCA, include guidance on qualifying crypto-assets as financial instruments, developing tools to detect and prevent money laundering and terrorist financing, and strategies for digital and innovative financial services. These projects will complement the new crypto-asset regulation in Europe and help ensure security and stability in these new financial services sectors.

Classification of crypto-assets in MiCA

A crypto-asset is a digital representation of value or a right that can be transferred and stored electronically using distributed ledger or similar technology. MiCA introduces three subcategories of crypto-assets, each with different requirements tailored to the risks they pose:

• The first subcategory is asset-based price (ART) tokens. They are not e-money tokens; their purpose is to maintain a stable value by reference to official currencies. These tokens can be backed by a basket of different fiat currencies, commodities, or crypto-assets, which provides stability in their value. An asset-linked token is a private type of crypto asset that is linked to a real asset, such as gold, oil, real estate, and others. These tokens can be used to create decentralized exchanges where users can trade various assets, as well as to create stable coins. One example of such a token is Tether (USDT), which is linked to the value of the U.S. dollar and is widely used on cryptocurrency exchanges.
• The second subcategory is electronic money tokens (EMTs). These crypto-assets are stable and linked to the value of a single official currency. Electronic money tokens are used as an alternative to traditional currencies, such as dollars or euros, and have a more stable value. They are usually used to trade on cryptocurrency exchanges and to send and receive payments digitally. One example of such a token is the USD Coin (USDC), which is linked to the value of the U.S. dollar and is based on the Ethereum blockchain.
• The third subcategory is service tokens. They are intended solely to provide access to a service or commodity that is provided by the issuer of that token. They are typically used to reward users for their contributions to the ecosystem, as well as to pay for goods and services provided within the ecosystem. One example of such a token is the Basic Attention Token (BAT), which is used in the Brave browser to reward users for viewing ads and supporting content. Crypto assets in this category can be used for a variety of purposes, from investing to digital asset management to solving complex problems in blockchain ecosystems.

MiCa crypto-asset services

Cryptocurrencies and crypto assets have become an important part of today's economy. Many businesses have emerged in this sector that offer various services to ensure the safe and convenient use of crypto-assets. One such business is VASP, which provides portfolio management and advisory services related to crypto assets, as well as classic storage and exchange services.

VASP offers many services related to crypto-assets, including classic wallet and exchange services. It also provides advice on their use and portfolio management services. Regulation, including the activity of listing ICOs and crypto-assets.

The term "crypto-asset service" means providing any of the following services and performing actions related to the use of crypto-assets:

1. Storage and administration:

   Control and storage of crypto assets on behalf of third parties, including their private cryptographic keys, where applicable.

2. Trading platform for crypto assets:

   Management of one or more multilateral systems.

3. Exchange
4. Selling or buying crypto exchange for fiat
5. Execution of orders:

   Brokerage or mediation services, including signing agreements to sell or buy crypto assets on behalf of a third party and agreeing to sell them at the time of issuance.

6. Placement of crypto-assets:

   Marketing on behalf of the offeror or issuer of crypto assets to buyers.

7. Accepting and transmitting orders on behalf of third parties:

   Receiving orders to buy or sell crypto assets on behalf of a customer and transmitting that order to a third party for execution.

8. Portfolio Advisory and Management:

   Managing investment portfolios, including crypto-assets, including those executed on behalf of clients by pre-agreed mandates

REQUIREMENTS FOR ICO

Compliance with MICa requirements is important for an ICO project to operate legally and not violate cryptocurrency and financial laws. If a project fails to comply, it could face the risk of being blocked from accessing resources or even be held liable. In addition, compliance can increase the credibility of the project and convince potential investors of its reliability.

White Paper.

MICA requires a white paper from its member companies to ensure transparency and openness in the cryptocurrency industry.

A white paper is a document that contains detailed information about a project, its goals, technology, and its economic model. In the context of cryptocurrency, a white paper can include a description of the blockchain, token, token distribution, and other information that allows investors and stakeholders to better understand the project and its potential.

The mandatory availability of a white paper from MICA member companies helps set standards of transparency and integrity in the cryptocurrency industry, which increases the credibility of investing in cryptocurrency projects and furthers the development of the industry.

The white paper must contain the following information:

• Information about who wants to bid and the company that issued the crypto asset, if that company is different from the bidder.
• Information about the operator of the trading floor, if he/she is responsible for the development of the technical document.
• If the technical documentation was not developed by any of the above, there must be information about who developed it and why.
• Information about the crypto-asset project, including its specifications and features.
• Information about how the crypto-assets will be sold in a public auction or trading platforms.
• Information about the legal status of crypto assets, obligations to investors and other market participants, and general risks.
• Information about the technology and architecture of crypto assets.
• Description of the risks associated with investing in crypto assets.
• Information about the adverse climate and environmental effects of the consensus mechanism used to issue a crypto-asset.
• A statement that crypto-assets may lose value, may be illiquid, and may not always be transferable to a third party.
• A summary providing key information about crypto-assets for potential investors to help make an informed buying decision.

Requirements:

• Any information in the white paper must be accurate and supported by facts.
• All information must be written clearly and concisely.
• Any white paper must include a notice date and include a table of contents.
• The white paper should be written in the official language of the country of origin, the language of the international financial sphere, or the language of the host country.
• The white paper should be machine-readable.

According to regulations from regulators such as MICa, the supervisory authority must be notified of an upcoming crypto-asset release and the submitted white paper to ensure compliance with the law and protect investors' interests. Such requirements are aimed at increasing transparency and protection to ensure a safer and more stable market for crypto-assets.

Specific requirements for asset-linked tokens (ART, EMT)

The directive focuses on stablecoins, crypto-assets that have sparked much controversy and debate about their safety and use to preserve financial stability. According to the draft legislative act, stablecoins are defined as cryptocurrencies whose value depends on fluctuations in the value of fiat currencies, gold, other crypto assets, etc., and are designated as ART and EMT.

The MiCA contains specific requirements for stablecoins, including:

• obtaining a special license for issuance;
• additional approval of the issuance process;
• development of a white paper that meets certain criteria and its approval by the regulator;
• capital requirements, disclosure, etc.

These requirements are aimed at ensuring the safety and protection of investors' rights regarding stablecoins and must be strictly adhered to.

The proposed draft Directive establishes two main crypto-asset market participants: the issuer of crypto-assets (Issuer of crypto-assets) and the Crypto-asset service provider (CASP). In creating the rules and requirements for them, regulators relied on the experience of the implementation of PSD2 (Payment Services Directive) and the experience of crypto-asset regulation in Japan and South Africa.

To become an issuer of crypto assets and obtain the right to conduct its activities, the following requirements must be met:

• register its legal structure in the territory of the European Union;
• publish a white paper containing information about the crypto-asset, its operating principles, and user security mechanisms;
• act by professional standards, including fair and professional identification of conflicts of interest and other aspects.

The following requirements are imposed on the crypto-asset service provider:

• Register a legal entity on the territory of the European Union;
• The minimum registered capital of 50,000 to 150,000 euros, depending on the type of activity;
• Registration of licenses for certain types of activities.

Companies that issue tokens linked to real assets must have sufficient equity. This amount must be equal to either 350,000 euros or 2% of the company's average reserve assets, whichever is greater. This requirement is necessary to ensure the reliability and stability of such tokens.

The draft Directive also establishes market manipulation prevention requirements for companies that deal in cryptocurrencies allowed to trade on platforms. These requirements include disclosure of insider information, prohibition of insider trading, and prohibition of market manipulation actions.

In addition, members of the governing bodies of companies that issue asset-linked tokens must be in good standing and have sufficient knowledge, experience, and skills to perform their duties effectively. In addition, they must demonstrate a willingness to devote sufficient time to their responsibilities to ensure the company's effective functioning.

Marketing Communications

Marketing communications related to the public offering of asset-linked tokens must meet certain requirements. They must be clear and not misleading, and the information in them must comply with the official crypto-asset document. In addition, token issuers must disclose the number of tokens in circulation, their value, and the composition of reserve assets on their website at least once a month.

Issuers must also establish and maintain procedures for handling complaints received from token holders and other stakeholders, as well as identify, prevent, and manage conflicts of interest between various parties, including shareholders, employees, and token holders. Particular attention should be paid to conflicts of interest arising from managing and investing reserve assets.

These requirements were introduced to enhance the transparency and reliability of the public offering process for asset-linked tokens and protect the interests of token holders and other participants.

Rules for investing asset reserves

Issuers of asset-linked tokens must create and maintain an asset reserve that must be segregated from the issuer's assets and other tokens. The asset reserve must cover the risks associated with the assets to which the tokens are linked and must be managed using policies, procedures, and contractual relationships.

Issuers that invest in the asset reserve should use only highly liquid financial instruments with minimal market and credit risk. Ensuring that investments are liquidated quickly with minimal price effects is also important. All of these measures will help protect the interests of token holders and ensure the stability of the system.

Classification of meaningful tokens

The EBA classifies asset-linked tokens as meaningful tokens if they meet at least three of the following conditions:

• more than 10 million holders,
• market capitalization or the size of the asset reserve exceeds €5 billion,
• there are more than 2,500,000 daily transactions to buy and sell tokens that are actively linked to real assets. The total value of these transactions is more than 500 million euros.

Regular reporting of transactions made with tokens

Regular reporting of token transactions is part of the regulation of the token and digital asset market in the European Union.

The reporting allows regulators to monitor token market activity, identify potential risks and scams, and analyze market dynamics. In addition, regular reporting helps regulators make informed decisions about token market regulation and adapt their strategy to changes in the sector

What reporting can include:

• The number of transactions made in a certain period.
• The number of funds transferred within each transaction.
• Dates and time of each transaction.
• The identifiers of the participants of the transactions.
• Information about the assets associated with each token.
• Other characteristics of the transactions, such as transaction type, fees, etc.
• Various statistical information, such as the total number of tokens in circulation, their market capitalization, etc.

VASPs Requirements

A VASP (Virtual Asset Service Provider) is an organization that provides services related to the exchange, storage, transfer, or management of cryptocurrency, or virtual assets.

The following are general requirements that VASPs must comply with:

1. Regulatory Compliance: VASPs must comply with all applicable laws and regulations, including those relating to anti-money laundering and countering the financing of terrorism.
2. KYC (Know Your Customer): VASPs must conduct customer identification procedures and collect customer information by applicable regulatory requirements.
3. AML (Anti-Money Laundering): VASPs must establish and maintain systems and procedures to identify and prevent transactions related to money laundering and terrorist financing.
4. Monitoring systems: VASPs must have monitoring systems that allow them to identify and track suspicious transactions and activity.
5. Security: VASPs must ensure high security in the storage and transfer of virtual assets, using state-of-the-art technology and security methods.
6. Regular audits: VASPs must conduct regular audits of their systems and procedures to ensure their effectiveness and compliance with applicable requirements.
7. Cooperation with Regulatory Authorities: VASPs must cooperate with regulators and provide them with necessary information and documentation upon request.

In addition, to provide crypto-asset services, providers must meet the following requirements:

• register an office in the Member State of the Union where at least part of the crypto-asset services will be provided.
• determine the place of actual management in the European Union.
• at least one of the founders must be an EU resident.

Who is prohibited to provide crypto-asset services?

• To companies or persons who do not represent a legal entity
• To companies that do not represent credit institutions, central securities depositories, investment firms, market operators, electronic money institutions, UCITS management companies, or alternative investment funds

But there is an exception: organizations that are not legal entities are permitted to provide crypto-asset services only if their legal status can provide third-party protection at a level equivalent to that of legal entities and they are subject to prudential supervision appropriate to their legal form of organization.

Please note. Any person who is not a crypto-asset service provider must not use the company name or name, and may not release advertisements or use any other means that could create a misleading impression that the person is a crypto-asset service provider, or contribute to confusion about the matter.

Cross-border crypto-asset services allowed in the EU

Since the beginning of 2021, new rules have been introduced in the European Union that allow cross-border crypto-asset services. This measure was introduced to simplify and improve the regulation of crypto-asset services in the EU, as well as to improve consumer protection and prevent crypto-assets from being used to fund criminal activity.

For the cross-border provision of crypto-asset services in the European Union, providers must provide the following information to the competent authority of the state of origin:

A list of the Member States where the crypto-asset service provider intends to provide its services;
The date on which the crypto-asset service provider is scheduled to begin providing services;
A list of all other activities carried out by the crypto-asset service provider that is not covered by this regulation;
The types of crypto-asset services that will be provided in multiple Member States.

Capital Requirements.

The minimum capital requirements for crypto-asset service providers depend on the class of services they provide.

1. A list of the Member States where the crypto-asset service provider intends to provide its services;
2. The date on which the crypto-asset service provider is scheduled to begin providing services;
3. A list of all other activities carried out by the crypto-asset service provider that is not covered by this regulation;
4. The types of crypto-asset services that will be provided in multiple Member States.

Capital Requirements.

The minimum capital requirements for crypto-asset service providers depend on the class of services they provide.

Three classes of crypto-asset service providers differ in terms of permitted activities and minimum capital requirements.

1. Class 1: Includes providers who can provide services such as order taking and transfer, advice, placement, and portfolio management on crypto-assets, and crypto-asset transfers. This class requires a minimum capital of €50,000.
2. Class 2: Includes providers who can provide any Class 1 services, as well as custody and management of crypto assets on behalf of third parties, exchange of crypto assets for funds, and exchange of crypto assets for other crypto assets. This class requires a minimum capital of €125,000.
3. Class 3: Includes vendors who can provide any Class 2 services, as well as the operation of a crypto-asset trading floor. This class requires a minimum capital requirement of €150,000.

These capital requirements for each class ensure that crypto-asset providers have sufficient financial resources to meet their obligations to customers and comply with regulatory requirements.

Mandatory Insurance

One of the major innovations of MICA is the requirement of compulsory insurance for crypto-asset service providers. This requirement applies to all three classes of crypto-asset service providers described in the regulatory document.

Each crypto-asset service provider must have an insurance policy to cover possible losses related to consumer infringement, system errors, theft of crypto-assets, and other similar risks.

Requirement for business continuity

The provision of services by crypto-active providers must occur without interruption and regularly. Companies are responsible for implementing all necessary measures to ensure this continuity. They must have appropriate risk management systems and business plans in place to ensure the continuity of their operations. This can include regular testing of business plans and risk management systems, having backups of data, and ensuring the security and availability of company information systems. In doing so, they need to develop various strategies and policies, such as disaster recovery plans, and use robust ICT systems and security procedures.

Crypto-asset service providers must provide adequate and effective preventive mechanisms, systems, and procedures to assess risks and comply with all necessary rules and regulations, and implement continuous monitoring of compliance.

Handling complaints and conflicts of interest

Grievance procedures are an important part of crypto-asset providers' work. They must be transparent, fair, and consistent. Customers should be able to file complaints free of charge and be notified of the status of the complaint. Crypto-asset providers should publish descriptions of their complaint procedures.

An important aspect of crypto-asset providers is the management of confidential information. Crypto-asset providers must ensure that all complaints received are kept confidential and protected from unauthorized access.

Identifying, preventing, managing, and disclosing conflicts of interest

Cryptoasset service providers must have effective policies to identify, prevent, manage and disclose conflicts of interest. They must take into account the scope, nature, and range of crypto asset services provided, as well as potential conflicts between themselves, their shareholders, executives, employees, and customers.

Conflicts of interest can arise in many situations. For example, a crypto-asset service provider may have interests that conflict with those of its customers. There may also be conflicts of interest between the crypto-asset service provider and its executives or shareholders.

Disclosure of conflicts of interest.

In addition to preventing conflicts of interest, it is also important to have effective policies and procedures for disclosing them. Crypto-asset service providers should disclose conflicts of interest and provide information about them to their customers within a reasonable time frame.

If a crypto-asset service provider encounters a conflict of interest that may affect its ability to provide services to customers their interests, it should take immediate steps to manage the conflict of interest. It is also important to assess the possible consequences and notify customers of the conflict of interest and the measures that have been taken to manage it.

Specific requirements for crypto-asset services

One of the key aspects to consider when providing crypto-asset services is the obligation to provide specific services. Specifically, Section 67 of the crypto asset Act requires crypto asset service providers who provide custody and management services on behalf of third parties to enter into an agreement with their customers that outlines their duties and responsibilities.

For the agreement to be legally binding and protect the interests of all parties, it must contain several key points:

1. The identity of the parties to the agreement and a description of the service to be provided must be stated.
2. The document should describe the means of communication between the crypto-asset provider and the client, as well as the client authentication system.
3. The agreement should describe the security systems used by the crypto-asset provider. This includes a description of the processes for verifying the identity and authenticity of crypto assets, as well as measures to protect against cyberattacks and other threats.
4. The agreement should include information about the fees, costs, and charges that will be charged by the crypto-asset service provider, as well as the law applicable to the agreement.
5. A custody policy must be included which defines how the crypto-asset service provider will manage crypto-assets on behalf of third parties and what action it will take in the event of a security breach.

Mergers and acquisitions rules

In a merger or acquisition of a crypto-asset service provider, the prospective purchaser must notify the competent authority of the provider in writing.

If the share of voting rights or equity ownership reaches or exceeds 20%, 30%, or 50%, or if the provider becomes a subsidiary, the competent authority must be notified and the information required by the regulatory technical standards must be provided.

Evaluation of such acquisitions is required to comply with crypto-asset service requirements and to ensure proper oversight by the competent authority.

Specific requirements for large VASPs: identification of significant CASPs

Crypto-asset service providers that have more than 15 million active users in the European Union in a year are considered large and must comply with certain rules and requirements.

If a large crypto-asset service provider reaches the threshold, it must notify its competent authority within two months and provide it with the information required by the regulatory technical standards adopted by the Commission under Article 75(4). When the competent authority is satisfied that the criteria are met, it must notify ESMA.

CASPs have not been subject to specific requirements regarding travel regulations. This means that CASPs are currently free to travel between different countries and regions without any restrictions.

The agreement extends the already existing "travel rule" in traditional finance to cryptocurrency transfers. Providers must first ensure that the assets they transfer are not linked to restrictive measures or sanctions, and do not present a risk of money laundering or terrorist financing, before making them available to recipients.

Banning insider trading

Insider trading of crypto-assets is the use of inside information, which is not publicly available, to buy or sell cryptocurrency. Such transactions are regulated by law and punishable by fines or criminal penalties.

According to the regulations, insider trading refers to transactions in which a person in possession of insider information uses it to buy or sell crypto assets for his or someone else's account. Also, insider trading includes the cancellation or modification of a cryptocurrency order placed before the person concerned became the owner of inside information.

Using insider information to trade cryptocurrency is prohibited by law. No person may engage in insider trading or attempt to profit from possessing inside information about crypto assets. In addition, no person may recommend or induce another person to participate in insider trading.

Violators of insider trading may be subject to administrative liability or criminal prosecution, depending on the jurisdiction in which they are located.

Prohibition of Market Manipulation in the Crypto Industry

To maintain fair and legal trading in the crypto-asset market, a ban on market manipulation has been introduced. This means that no one should engage or attempt to engage in market manipulation, which includes any action intended to create false or misleading signals about the supply, demand, or price of a crypto asset.

It is prohibited to enter into a transaction, place an order to trade or engage in any other behavior that could affect the price of one or more crypto assets using a fictitious device or any other form of deception or subterfuge.

Disseminating false or misleading information through the media or any other means is also prohibited, as it could give false or misleading signals regarding the supply, demand, or price of a crypto asset. The prohibition also applies to the dissemination of rumors where the person who made the dissemination knew or should have known that the information was false or misleading.

Supervisory bodies.

ESMA and EBA will acquire new powers to regulate cryptocurrency services in the European Union. They will get the right to intervene and ban services related to cryptocurrencies, as well as to control the marketing, distribution, or sale of cryptocurrencies. This decision was made due to the need to protect investors and ensure financial stability for crypto-assets.

ESMA

ESMA (European Securities and Markets Authority) is the financial market regulator of the European Union. It is responsible for overseeing the European financial markets, as well as protecting investors and maintaining market stability.

• Oversight of CASP units will remain at a national level, but ESMA will play a key coordinating role for large CASP units.
• ESMA will develop a list of unacceptable organizations and individuals operating in the EU without proper authorization, giving authorities a strong tool to control these organizations.
• ESMA will develop rules (RTS) that will define methodologies and sustainability indicators for crypto-assets. In addition, issuers and exchanges will be required to disclose the climate and environmental impacts of cryptocurrency issuance. This is because cryptocurrencies can have a significant impact on the environment, for example, because of the high level of energy consumption during their creation and use.
• If a service provider has more than 15 million active users, it will be categorized as a "Significant Customer" and will be monitored by CAs. However, ESMA will have the authority to prohibit or restrict crypto-asset services if it threatens market integrity, investor security, or economic stability. Moreover, ESMA will have the authority to speak out on supervisory convergence, as in the case of the broader financial market.
• ESMA will manage a cryptocurrency list that will list CASPs that do not comply with MiCA requirements. This will help alert investors to companies that refuse to register in an EU member state or intentionally avoid registration by operating outside of legal structures. Companies that are blacklisted will be restricted from operating in the EU.

EBA

EBA (European Banking Authority) is the European Union's banking sector regulator. It is responsible for supervising the banking system, consumer protection, and maintenance of financial stability in the European Union.

• The EBA is responsible for controlling stablecoins, which have more than 10 million users or an asset reserve of more than 5 billion euros. It will be the sole regulator of the European Union for the largest stablecoin.

This means that the EBA will be responsible for controlling and regulating this stablecoin, as well as for setting requirements for its issuer. In addition, the stablecoin will be required to maintain a 1:1 reserve to cover all claims and provide holders with permanent redemption rights.

Despite the regulatory measures taken by ESMA and the EBA, some experts have raised concerns that this could negatively impact the innovation and development of blockchain technology. However, ESMA and EBA representatives assure that the regulation is not intended to suppress the development of cryptocurrency technology, but rather to ensure the safety and protection of investors.

In addition, the introduction of stricter regulations could lead to a reduction in the number of unscrupulous players in the market and improve the quality of services provided. Regulation could also increase trust in cryptocurrencies and encourage their use as an alternative form of currency and investment.

However, it is important to note that the implementation of regulatory measures requires significant resources and close monitoring by ESMA and EBA. In addition, CASP entities and stablecoin issuers will also have to pay more attention to regulatory compliance and customer advocacy, which may impose additional costs and complexities in managing the business.

Overall, the introduction of new regulatory requirements and cryptocurrency oversight powers by ESMA and the EBA is an important step toward improving the security and stability of the cryptocurrency market, but its implementation may be challenging and require strict regulatory compliance.

However, FIUs (Financial Intelligence Units) under the MICa initiative are not supervisory bodies. Their task is to collect, analyze and exchange financial information to combat money laundering and terrorist financing. The regulatory function is performed by the respective supervisory authorities in each country. FIUs work closely with supervisors, law enforcement, and others involved in combating financial crime to share information and coordinate actions.