Licensing procedures under the MiCA Regulation

What is the MiCA Regulation?

The MiCA regulation, commonly known as. The Markets in Crypto-Assets Regulation (or MiCA for short ) is a robust regulatory framework for cryptoassets within the European Union(EU).

The EU’s main objectives that led it to adopt MiCA were:

1. Creating a harmonised regulatory environment in which cryptoasset service providers and issuers of different cryptoassets can operate across the EU without the need for 27 different permits and licences;
2. Providing protection to consumers who purchase cryptoassets or use other services of cryptoasset providers;
3. Creating legal certainty for cryptoasset service providers with a clear set of rules for different services (token issuance, exchange, custody, etc.);
4. Taking EU leadership in the global regulation of cryptoassets to boost technological and economic innovation in the EU.

The MiCAs are subject to modification by:

1. Rules for the issuance of cryptoassets (known primarily as “ICOs”), the obligations of their issuers, and the rules for the admission of cryptoassets to trading on a cryptoasset trading platform;
2. Rules for the authorisation of issuers of asset reference tokens ( ARTs) and issuers of electronic money tokens ( EMTs);
3. The procedure, requirements and process for the authorisation (licensing) of cryptoasset service providers;
4. Protection of clients of cryptoasset service providers and holders of cryptoassets issued and cryptoassets admitted to trading.

Although MiCA is a comprehensive regulation, it does not regulate the following areas directly related to cryptoassets:

1. NFTs (which are therefore not yet regulated); and
2. Tokenised financial instruments (which are subject to the DLT Regulation and the regulation of “standard” financial instruments)).

MiCA applies in the European Union from 30.6.2024 in relation to ARTs and EMTs and from 30.12.2024 in the rest, in particular in relation to cryptoasset service providers.

In connection with the new MiCA regulation, we provide legal services to clients currently doing business with cryptoassets (in particular through trade licenses to provide virtual currency exchange services and virtual currency wallet services), as well as to clients interested in operating in this area as a regulated institution, on how to comprehensively prepare for the new MiCA regulation, including preliminary consultations with the National Bank of Slovakia on their (planned) business model.

The MiCA Regulation and what it entails was also covered more comprehensively in our video podcast, which you can watch here:

At the same time, we will also discuss the regulation and taxation of cryptos and implementation in investment structures in more detail at conference on cryptosto be held in October 2024.

What activities with crypto-assets will require a MiCA permit?

According to MiCA, a permit will be required for:

1. Public offering of tokens other than ART and EMT;
2. Acceptance of tokens other than ART and EMT for trading on a cryptoasset trading platform;
3. Public offering of ARTs and their admission to trading;
4. Provision of cryptoasset services.

What are the benefits of a MiCA permit?

MiCA is a harmonised regulation of crypto-assets, i.e. an authorisation granted in one EU country is valid in other EU countries. Therefore, for example, public offerings of crypto-assets will be feasible throughout the EU and it will not be necessary to analyse legislation in individual Member States for this purpose. Also, the provision of cryptoasset services will be able to be carried out across borders on the basis of the so-called passporting, as MiCA will make cryptoasset services subject to uniform rules across the EU.

At the same time, by imposing different conditions on cryptoasset service providers or token issuers to carry out their activities, MiCA provides a greater guarantee for the security of cryptoasset investments and investors/clients compared to the completely unregulated environment in many EU countries.

The MiCA also establishes a level playing field for cryptoassets business across the EU, thus creating the prerequisite for a healthy business environment in this area.

What are the consequences of doing business without a permit under the MiCA?

In the event of any activity being carried out in contravention of the MiCA, i.e. even in the case of activities requiring authorisation under MiCA, the competent authorities of an EU Member State, in Slovakia the National Bank of Slovakia, have the power to impose sanctions under national law, which may be administrative or criminal sanctions. In particular, under the MiCA, Member States must ensure that the following financial sanctions are imposed:

1. in the case of a natural person, a maximum administrative fine of at least EUR 700 000;
2. in the case of a legal person, a maximum administrative fine of at least EUR 5 000 000;
3. for certain infringements by a legal person, fines of at least 3 % to 12,5 % of the total annual turnover; and
4. maximum administrative fines of at least twice the amount of the gains made or losses avoided as a result of the infringement.

Token issuance and admission to trading

Tokens other than ART and EMT

The public offering of tokens other than ART and EMT will not be possible in the EU unless a cryptoasset whitepaper is produced. This document will then have to be notified to the NBS at least 20 working days before the date of its publication, without the approval of the NBS being required.

Public offerings of these cryptoassets are subject to similar exemptions as public offerings of securities under the Prospectus Regulation.

The development, notification and publication of a whitepaper are also required for the acceptance of tokens other than ARTs and EMTs for trading on a cryptoasset trading platform.

ART and EMT

The public offering of ART for legal entities other than credit institutions will be possible only upon the granting of permission by the NBS. Again, a whitepaper is required to be produced and published.

The public offering of EMT will only be possible for credit institutions or electronic money institutions that develop, announce and publish a whitepaper on the relevant EMT.

Cryptoasset service providers

Who are the cryptoasset service providers, the so-called. CASP?

MiCA introduces a new concept of “Crypto-asset service providers” ( CASPs), which are regulated persons who will be authorised to provide cryptoasset services within the European Union.

CASPs will be authorised to provide cryptoasset services and will be required to comply with a number of requirements, in particular:

1. Prudential (capital) requirements, which for CAPS must be at least EUR 50 000 to EUR 150 000 (depending on the services provided) or one quarter of the fixed overheads for the previous year, whichever is higher. CASP may meet these requirements with its own resources, an insurance policy, or, where appropriate, a. a comparable guarantee, or a combination thereof.
2. Personnel requirements, namely, both the requirement that the members of the CASP’s governing body be of sufficiently good repute and of sufficiently good knowledge, skill and experience to manage the CASP, and that all direct or indirect shareholders and members who hold qualifying interests in the CASP be of sufficiently good repute.
3. The internal rules that will govern the CASP’s activities, e.g. Regulations relating to the procedure for segregation of crypto assets and client funds, complaint handling procedures, governance mechanism, internal control mechanisms, policies and procedures for identifying, assessing and managing risks, including money laundering and terrorist financing risks, business continuity plan, etc.
4. Other requirements, e.g. IT provisioning requirements, or the location and place of effective management in the EU.

What are cryptoasset services under MiCA?

Cryptoasset services are those services and activities related to any cryptoasset under the MiCA:

(a) providing custody and management of cryptoassets on behalf of clients;
(b) operating a cryptoasset trading platform;
(c) the exchange of cryptoassets for funds;
(d) the exchange of cryptoassets for other cryptoassets;
(e) the execution of orders relating to cryptoassets on behalf of clients;
(f) placement of crypto-assets;
(g) receiving and transmitting orders relating to cryptoassets on behalf of clients;
(h) the provision of advice on cryptoassets;
(i) the provision of cryptoasset portfolio management;
(j) the provision of cryptoasset transfer services on behalf of clients;

Who will need a CASP licence under MiCA?

In practice, any legal persons or businesses that wish to carry out the above cryptoasset activities, respectively. to provide the above cryptoasset services in the European Union will need a CASP authorisation. This includes, for example, the following current business models:

(a) Various cryptocurrency platforms and exchanges;
(b) Cryptocurrency wallet providers;
(c) Managers of various cryptocurrency strategies;
(d) Intermediaries of exchange of cryptocurrencies for FIAT currency or other cryptocurrency;
(e) Advisory services for investments in cryptocurrencies or cryptoassets in general.

How long will it be possible to conduct business on the basis of the trades of provision of virtual currency exchange services and provision of virtual currency wallet services?

Business entities authorised until 30.12.2024 to provide virtual currency exchange services, to provide virtual currency wallet services or to provide services and activities which by their content meet the characteristics of cryptoasset services will be allowed to continue to carry out these activities until 30.12.2025 at the most. If they are not licensed as a CASP by that date, they will no longer be able to carry out those activities and, in addition, their trade licenses to provide virtual currency exchange services and virtual currency wallet services will expire on 30.12.2025.

How long does it take to get a CASP license?

(a) Prior to the actual hearing of an application for a permit before CASP, the recommended to consult the business plan of the prospective CASP with the NBS and then proceed with the preparation of the application itself – this process may take varying lengths of time depending on the readiness of the CASP, in our experience with licensing proceedings for financial institutions, approximately 3 months should be expected;
(b) Once the application has been prepared, the application shall be submitted to NBSwhich must confirm whether the application is complete within 25 working days of receipt;
(c) If the application is incomplete, NBS will set a deadline for completion of the application (this deadline will be individual depending on the extent of the required completion, we expect this deadline to be between 30 and 60 days). If the application is complete, NBS will notify the applicant; if it is not complete even within the additional time period, NBS will reject the application.
(d) Within 40 business days of the submission of a complete application, NBS will issue a decision (grant permission / deny permission). This period may be suspended for 20 working days if the NBS requests further documentation.

What is Highgate’s role in obtaining a permit under MiCA?

What are our services?

Given that no one except CASP and some financial institutions will be able to provide cryptoasset services under MiCA, we advise clients both in analysing their business models to determine whether they fall under the new regulation or other regulation within the financial sector (e.g. collective investment or provision of investment services and investment activities) and in the case of the application for a CASP authorisation before the National Bank of Slovakia.

If the client decides to apply for a CASP licence, we represent the client from the initial consultation of its business plan with the National Bank of Slovakia and subsequently in the preparation of the licence application, including the individual annexes, in cooperation directly with the client and, where appropriate, its other advisors, for example, in the field of IT security. After the application for a licence has been submitted, we represent the client before the National Bank of Slovakia in the licensing procedure itself, in which the National Bank of Slovakia will comprehensively assess the application with all its annexes.

Given our experience with ICOs and STOs, as well as with securities issues , we also advise clients on the preparation of whitepapers for various types of tokens, the preparation of their marketing communications for the purpose of token issuance in accordance with MiCA requirements, and the fulfillment of obligations to the NBS in connection with the issuance of tokens or their admission to trading.

What is our experience in cryptoassets legal advice?

Although MiCA is a relatively new piece of legislation, the regulation of cryptoassets has long been comprehensively addressed, whether in the context of taxation, in the field of tokenised financial instrumentsor by speaking directly at NBS conference on MiCA. In the past, we have provided legal and tax advice to clients in, for example:

(a) the creation of a platform for cryptocurrency trading, including the legal structuring of staking strategies,
(b) the primary issuance of hybrid tokens, as well as their placement on a decentralised exchange as part of a secondary sale,
(c) primary token issuance (ICO) and security token issuance (STO),
(d) the establishment and management of alternative investment funds located in offshore jurisdictions and investing in crypto-assets,
(e) structuring the business model in connection with the creation of cryptocurrency portfolio management services,
(f) assessing the compliance of the cryptocurrency business model with the regulation of payment services and electronic money,
(g) creating investment products investing in crypto assets for client customers,
(h) creating a study for the client aimed at establishing the legal and tax framework for the operation of its internal token system.

At the same time, as we have been involved in financial regulation for a long time and thus represent clients in authorisation, registration and sanction proceedings before the National Bank of Slovakia, our know-how is an elementary prerequisite for qualified representation of a client before the National Bank of Slovakia in the licensing procedure for CASP activities, in the preparation of white papers or in applications for a public offering of tokens or their admission to trading. Demonstrating our extensive experience in the area of financial regulation are the successful conferences (some of the largest of their kind in the country) that we have organised, whether regarding real estate financing or regarding the establishment and operation of investment funds.

If it is not clear to you whether your business model will be regulated by MiCA and therefore whether you should prepare for licensing proceedings before the National Bank of Slovakia, do not hesitate to contact our experts:

1. Peter Varga, e-mail: peter.varga@highgate.sk
2. Roman Baranec, e-mail: roman.baranec@highgate.sk

Alternatively, you can discuss your specific questions with our partner Peter Varga, who has long been involved in the regulation and taxation of cryptoassets:

If you are interested in the regulation and taxation of cryptoassets, please do not hesitate to contact us.