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Draft Legislative Framework for Cryptocurrency in Europe

24 September 2020

Technology & Regulation in the Spotlight


Earlier this month, a leaked version of the European Commission’s draft Regulation on Markets in Crypto-Assets (“MiCA“) was published.

According to the European Commission, MiCA has four main objectives:

  • Increased legal certainty, in order to assist crypto-assets markets to develop in Europe. Currently, in the absence of a European-wide regulation, several member states created their own policies, which do not always align;
  • Promotion innovation and fair competition through the implementation of a proportionate legal framework;
  • Ensuring appropriate consumer and investor protection, as well as adequate market integrity;
  • Maintaining financial stability and orderly monetary policy, which may face risks by various subsets of crypto-assets, such as “Stablecoins” that attempts to offer price stability as it is backed up by other currencies or assets.
  • While, currently, most crypto-assets fall outside the scope of existing financial market regulation, MiCA will not apply to crypto-assets that are subject to such existing regulation (e.g. offering of security tokens which qualify as transferable securities or financial instruments under the EU’s Market in Financial Instruments Directive).

MiCA aims to present a coherent regulatory and supervisory regime, while keeping up with the rapidly evolving technology. Consequently, the draft broadly defines crypto-assets and distributed ledger technology (“DLT“) and would cover a wide range of activities which involve crypto-assets. Due to the fact that the proposed framework is a regulation (as opposed to a directive), it will apply directly throughout the European Union without the need of implementation in each member states’ law.

In order to map its scope, the draft regulation distinguishes between three sub-categories of crypto-assets:

  • Utility tokens, which in many cases have non-financial purpose related to the operation of the underlying digital platform, and are primarily used to provide access to services or resources that are available on a DLT;
  • Asset-referenced tokens, which are complex stablecoins with a payment functionality. Such crypto-assets aim at maintaining a stable value by referencing several currencies, one or several commodities or crypto-assets, or a combination of such assets;
  • E-money tokens, which are single currency stablecoins with a payment functionality. These crypto-assets aim to stabilize their value by referencing only one fiat currency that is legal tender. Electronic money, as defined by the Electronic Money Directive, and E-money tokens serve a similar functionality, however the latter could fall outside the scope of this directive, therefore MiCA aims to capture this new definition within its scope.

MiCA further distinguishes significant asset-referenced and e-money tokens (as opposed to regular ones), based on, inter alia, their market capitalization and the size of their consumer base.

In addition, the draft regulation includes a broad and non-exhaustive list of crypto-assets services (e.g. exchanges) that also fall within the scope of the regulation.

As part of the objective to create a proportionate framework, this division of categories is aimed to enable a tailored approach. Based on their definition, entities would face different levels of requirements and supervision. However, issuers of all of the abovementioned categories will encounter similar obligations.

This draft expected to be officially published later this year. We continue to monitor the developments of this regulatory regime and will update on its advance. Feel free to contact us with any further question regarding the regulation of cryptocurrency or regarding the update above.


Feel free to contact us with any further question or comments regarding the update and subjects detailed above.

Kind regards,

Ariel Yosefi, Partner

Co-Head | Technology & Regulation Department

Herzog Fox & Neeman




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