Regulation (EU) 2023/1114 of the European Parliament and of the Council of May 31, 2023 on crypto-asset markets and amending Regulations (EU) No. 1093/2010 and (EU) No. 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937, popularly known as the MiCA Regulation (hereinafter “MiCA” or “Regulation”), is the EU’s response to the dynamic development of the crypto-asset market. The Regulation, in principle, will be fully enforceable from December 30, 2024. In principle, because the rules for e-money tokens (EMTs, or “e-money tokens”) and asset-referenced tokens (ARTs, or “asset-referenced tokens”) will be applied earlier, from June 30, 2024, just over three months from now. In this article, we will focus on EMTs.

Transition period for CASP

It is worth mentioning that the EU legislator has stipulated that crypto-asset service providers (so-called CASP’s) that provided their services in accordance with the current law before December 30, 2024, may – in principle – continue to provide their services until July 1, 2026, or until their authorization is granted or denied, whichever comes first. Member states can skip or shorten the 18-month transition period provided for CASPs. Under the terms of the cryptoassets bill, in Poland this period will be shortened to 12 months and will expire on December 31, 2025

Cryptocurrency – how did it start?

On October 31, 2008, an individual or group of individuals, hiding under the pseudonym Satoshi Nakamoto, published a manifesto entitled “Bitcoin: A Peer-to-Peer Electronic Cash System,” which, as the title implies, presented the concept of a direct settlement system in an electronic currency – Bitcoin. The first Bitcoins were “kicked off” in January 2009. That’s when the first transaction in today’s most popular cryptocurrency took place.

Initially, Bitcoin’s value was close to zero. More than twelve years later, it reached its historic listing peaks. On November 10, 2021, one Bitcoin had to be paid about $69,000.

The world of crypto is not only cryptocurrencies, but also other assets, such as:

• NFT (non-fungible token);
• utility tokens;
• or equity/investment tokens (security tokens).

The value of the cryptoassets market is counted in the trillions of dollars. With its very rapid growth, the cryptoasset market began to generate numerous challenges for regulators over the time. There were doubts as to how to legally qualify the cryptoassets in question, especially cryptocurrencies, as well as whether it could be taxed. While some doubts have been resolved over the time, many still remain, and in fact more are being raised very often.

The matter of cryptoassets is extremely broad and complex, and as a result, difficult to frame in legal terms. MiCA is the first such in-depth attempt to regulate the cryptocurrency market.

What is EMT and who will be authorized to issue it?

According to the Ordinance, an e-money token (EMT) is a type of cryptocurrency that is supposed to maintain a stable value by being tied to a one official currency.

The aforementioned asset-referenced token (ART), on the other hand, is a type of cryptocurrency that is not a token in the meaning of electronic money, and is expected to maintain a stable value by being linked to another value or right or a combination thereof, including at least one official currency.

MiCA anticipates that EMTs will be able to issue:

• credit institutions, and
• electronic money institutions.

Under the term credit institution (as defined in the CRR Regulation) are banks. On the other hand, according to Directive 2009/110/EC, an electronic money institution is a legal entity that has been authorized to issue electronic money. However, Electronic money is defined in the aforementioned directive as monetary value stored electronically, including magnetically, giving a right to make a claim against the issuer, which is issued in exchange for funds for payment transactions (as defined in Article 4(5) of Directive 2007/64/EC) and accepted by natural or legal persons other than the issuer of electronic money.

According to data revealed in the register of domestic electronic money institutions maintained by the polish Financial Supervision Commission (KNF), only one (!) electronic money institution is registered in Poland.

Significantly more electronic money institutions registered in other EU member states have notified the KNF of their intention to conduct business in Poland as well.

EMT issue – information document

In order to conduct a public offering of EMTs or apply for admission of EMTs to trading, it is necessary for the issuer to submit an information document to the supervisory authority (in Poland – the KNF), containing, among other things, data of:

• the issuer;
• EMT;
• public offering or admission of EMTs to trade;
• EMT rights and responsibilities;
• as well as data on the underlying technology, or risk.

Interestingly, the disclosure document must also include a description of the main adverse climate influence and other adverse environmental effects of the consensus mechanism used to issue e-money tokens.

The information document must contain reliable, clear and not misleading data. It must not have significant deficiencies and, at the same time, should be presented in a concise and understandable form. Importantly, the information document must include a warning that the issued EMT is not covered by investor compensation schemes under Directive 97/9/EC, nor is it covered by deposit guarantee schemes under Directive 2014/49/EU.

The summary, which concludes the disclosure document, is intended to present in concise and non-specialist language the key information about the EMT’s public offering or planned admission to trade. It must include adequate information on the characteristics of EMTs to help potential holders of these cryptocurrencies make an informed investment decision. Importantly, the summary must include a warning that:

• should be considered as an introduction to the EMT information document;
• a potential holder should make any decision to acquire an EMT based on the contents of the entire information document on the cryptoasset, and not just on the basis of the summary;
• EMT’s public offering does not constitute an offer or inducement to purchase financial instruments, and that any of such an offer or inducement may only be made through a prospectus or other issuance document in accordance with applicable national law;
• the cryptocurrency information document does not constitute a prospectus as referred to in Regulation (EU)2017/1129 or any other issuance document under Union or national law.

In addition to the issuer, with the issuer’s written consent, other entities may also offer EMTs to the public or apply for EMT admission. A token that is e-money is considered electronic money.

Issuers of e-money tokens at least 40 business days before the day they intend to offer EMTs to the public or apply for their admission to trading shall notify the supervisory authority of their intention.

According to the Ordinance, issuers of EMTs issue them at face value when they receive cash. At the request of the holder of an e-money token, the issuer redeems it – at any time and at face value – by paying the nominal value of the held EMT to its holder in cash other than e-money.

Significantly, issuers of tokens that are e-money do not levy interest with respect to tokens issued. Similarly, cryptoasset service providers (CASPs) do not levy interest by providing EMT-related cryptoasset services.

Responsibility of EMT issuers for information provided in the information document

In addition to the information mentioned above, the information document must not lack a statement by the Board of Directors that it confirms that the information document meets the requirements of the Regulation and that, to the best of the Board’s knowledge, the information presented in the EMT information document is full, fair and clear and not misleading, and that nothing has been omitted from the document that could affect its meaning.

In the event that an issuer of an EMT commits a breach of the provisions of the MiCA regarding the information document by providing incomplete, unreliable, unclear or misleading information in the information document or an amended version thereof, the issuer and the members of its management or supervisory board shall be liable to the holder of the EMT for any losses incurred as a result of such breach. Any contractual exclusion or limitation of liability shall have no legal effect.

EMT marketing materials

Marketing materials relating to the public offer of an EMT or the admission of such a token to trade must be clearly marked as such, and the information contained therein is to be fair, clear and not misleading. Furthermore, the information contained in marketing materials must be consistent with the information contained in the EMT information document. They must clearly state that a cryptocurrency information document has been published, and the issuer’s website address, as well as its contact information, must be provided.

It is important that the marketing materials include information that holders of EMTs bear a right against the issuer to demand redemption at any time and at face value. This is subject to publication on the issuer’s website. However, the prior approval of the KNF (polish Financial Supervision Commission) shall not be required for their publication, although they will have to be submitted by the supervisory authority upon request. Dissemination of marketing materials prior to publication of the information document will be prohibited. This restriction will not prevent the EMT issuer from conducting market research.

Investing EMT funds

The regulation provides for restrictive rules regarding the investment of funds raised in EMT issuance. Namely, funds received by issuers of EMT tokens in exchange for EMT tokens and protected under Article 7 (1) of Directive 2009/110/EC are subject to the following requirements:

• at least 30% of the cash received is always deposited in a separate accounts with credit institutions (banks);
• the remaining cash received is invested in safe, low-risk assets qualifying as highly liquid financial instruments with minimal market risk, credit risk and concentration risk, in accordance with Article 38(1) of the Regulation, which are issued in the same official currency as the currency to which the EMT is pegged.

Summary

The regulation introduces a kind of revolution in the crypto market in the European Union. Some of the players currently operating in this market will not be able to continue their operations after the MiCA begins to apply. The solutions created by the EU legislator will be too restrictive for them, making their business model no longer worthy in the new reality.

In the case of EMT, the right to issue it is limited to credit institutions (banks) and electronic money institutions. As mentioned above, in Poland only one entity has the status of an electronic money institution. This raises the question of how popular EMT public offerings will be, but also ART. Another question that arises is whether residents of EU member states interested in crypto trading will flee outside the EU, i.e. use services provided by crypto providers from outside the EU, using reverse solicitation, at the expense of CASPs licensed in the European Union.

On the one hand, it can be assumed that the European Union is too important market to trade under for the players currently operating in the EU crypto market to abandon it. On the other hand, however, there is a fear that this is exactly what will happen. Let’s hope it doesn’t turn out that the Regulation, which is intended to organize the cryptocurrency market and ensure its flourishing, will in fact lead to its degradation in the EU.