Given their decentralized nature, it goes without saying that there are no rules for operations related to crypto-assets, such as trading platforms for crypto-assets or the service of exchanging crypto-assets against fiat currency. Thus, broadly speaking, “uncertainty” is the governing word for crypto stakeholders. However, steps are being taken for eliminating such uncertainty, in Romania - What Are the Conditions for Doing Cryptocurrency Business in Romania? – and also the European Union proposed a legal framework in this respect.
At the EU level, a Proposal for a Regulation on Markets in Crypto-assets, and amending Directive (EU) 2019/1937 (“Crypto Regulation” or “Regulation on Markets in Crypto-assets/MiCA”) was adopted on September 24th, 2020. The Crypto Regulation applies to persons that are engaged in the issuance of crypto-assets or provide services related to crypto-assets in the EU and it will be directly applicable in all EU Member States, including Romania.
What technologies does the Crypto Regulation cover?
Crypto-assets and distributed ledger technology (DLT) are mainly addressed. Crypto-asset is defined as a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology. Also, DLT is a type of technology that support the distributed recording of encrypted data.
Crypto-assets are to be categorized as follows:
a type of crypto-asset intended to provide digital access to a good/service, available on DLT, and that is only accepted by the issuer of that token (“utility tokens”);
asset-referenced tokens - aim at maintaining a stable value by referencing several currencies that are legal tender, one or several commodities, one or several crypto-assets, or a basket of such assets, and aim at being used as a means of payment to buy goods/services and as a store of value;
crypto-assets referencing only one fiat currency, which are electronic surrogates for coins and banknotes and are used for making payments or “e-money tokens”.
What are crypto-asset services?
MiCA provides the scope of crypto-asset services as follows:
the operation of a trading platform for crypto-assets;
the exchange of crypto-assets for fiat currency that is legal tender;
the custody and administration of crypto-assets on behalf of third parties;
the exchange of crypto-assets for other crypto-assets;
the execution of orders for crypto-assets on behalf of third parties;
placing of crypto-assets;
the reception and transmission of orders for crypto-assets on behalf of third parties;
providing advice on crypto-assets.
Thus, anyone who intends to issue crypto-assets or to provide the above-mentioned services must comply with the Crypto Regulation.
You intend to issue crypto-assets – what are the requirements?
Firstly, it is important mentioning that the concept of crypto-assets is broad in its purpose.
E-money tokens and asset-referenced tokens intended to be offered to the public in the EU or to be admitted to trading on a trading platform are subject to particular authorization requirements. Such authorization is to be granted by the national competent authority of the issuer’s home Member State. For the time being, in Romania, the Authority for the Digitalization of Romania has certain attributions in the field of virtual currencies, but the Romanian competent authority for crypto-assets matters is to be expressly defined by law in the future. Among these authorization requirements is that the average outstanding amount of the relevant crypto-asset exceeds the threshold of EUR 5.000.000.
On the other hand, issuers of crypto-assets, other than asset-referenced tokens or e-money tokens who intend to offer such crypto-assets to the public or seek an admission of such crypto-assets to trading on a trading platform for crypto-assets must comply with the following requirements, among others:
A crypto-asset white paper must be drafted, unless:
the crypto-assets are offered to fewer than 150 natural or legal persons per Member State where such persons are acting on their own account;
over a period of 12 months, the total consideration of an offer to the public of crypto-assets in the EU does not exceed EUR 1.000.000;
the offer to the public of the crypto-assets is solely addressed to qualified investors and the crypto-assets can only be held by such qualified investors;
the crypto-assets are offered for free; or these are automatically created through mining as a reward for the maintenance of the DLT or the validation of transactions; or are unique and not fungible with other crypto-assets.
If none of the above exceptions applies, then the crypto-asset white paper must be drafted and notified to the national competent authority of the issuer’s home Member State, at least 20 working days before its publication on the issuer’s website (such publication is mandatory).
You provide crypto-asset services – what are the implications for your business?
A crypto-asset service provider must have a registered office in a Member State of the EU and must have been authorised as a crypto-asset service provider. The authorization file must comprise relevant pieces of information, such as a programme of operations setting out the types of crypto-asset services that the applicant wishes to provide, including where and how these services are to be marketed.
At the same time, each type of crypto-asset service is particularly regulated.
The Crypto Regulation is still a draft enactment, and it can be further amended and modified until its adoption by the European Parliament and by the Council. Also, after its adoption, there will be a transitional period until its effective application. As such, all crypto stakeholders will benefit of the necessary time to become compliant.
One of the key benefits of the Crypto Regulation is the passporting regime, facilitating cross-border crypto operations, i.e. an authorization granted in one Member State will be recognized in all EU Member States.
Last but not least, the Decentralized finance concept (DeFi) appears to fade in sharpness in light of the new proposed regulation. Nevertheless, the potential of digital finance must be enabled in terms of innovation and competition while mitigating the associated risks.