Europe Goes Crypto: The MiCA License
What are the requirements for crypto service providers to obtain a MiCA license?
What are the requirements for providers of crypto services to obtain a MiCA license?
This article first appeared on the Fin Law Blog. The final text of the new Markets in Crypto Assets Regulation (MiCA) has been available since early October 2022. The new EU regulation is expected to come into effect by late 2022 or early 2023 and become legally binding for all market participants in the European Union 18 months later. MiCA will then take on the following tasks: crypto custody and management for others, operating crypto exchanges, swapping crypto assets for fiat or other crypto assets, executing client orders on crypto assets, placing crypto assets, executing crypto transactions for clients, accepting and passing on orders on crypto assets, as well as advisory and portfolio management on crypto assets as crypto services.
Crypto service providers will then need to apply for a MiCA license with the competent authority in their home country – in Germany this would be BaFin, and in the Netherlands the Dutch central bank. Requirements may vary by country.
What requirements must crypto service providers meet to obtain a MiCA license?
Even though the business models that MiCA will regulate in the future are precisely the models not yet covered by European financial markets regulation, the requirements for granting a MiCA license are heavily based on the requirements for financial institutions under MiFID II. To obtain a MiCA license, crypto service providers must be established in the European Union and have at least one executive. They must also provide extensive information to BaFin about their business and the owners, as well as the intended managers, who must be technically competent and trustworthy.
Like financial institutions, crypto service providers will need to prove they have a sound and suitable corporate structure. They must demonstrate internal control mechanisms, contingency plans and secure IT systems, as well as adequate risk management and an organization to prevent money laundering and ensure compliance with legal requirements. Additionally, they must have a professional complaint handling system and keep client funds and client crypto assets strictly segregated from their own assets. In the MiCA license application, crypto service providers will also need to describe their specific business model in detail, possibly by presenting client contract templates. It will also be necessary for crypto service providers to have sufficient capital.
The required minimum amounts for crypto trading platforms are €150,000, for crypto custodians and exchange operators €125,000, and otherwise €50,000 or — if higher — a quarter of the fixed annual operating costs from the previous year. The exact requirements for the operational structure that crypto service providers must maintain will be worked out in technical standards by ESMA in cooperation with the EBA no later than 12 months after MiCA comes into effect.
Short timelines anticipated in the MiCA approval process
MiCA license procedures will differ from those for financial institutions and investment firms, especially regarding statutory processing times. BaFin must inform applicants within 25 business days whether a MiCA license application is complete. If any evidence or information is missing, BaFin must set a deadline for submitting it later. BaFin then has 40 business days to review the substance of a complete MiCA license application.
They must then approve or reject the application. For license applications by financial institutions or investment firms, the law only requires BaFin to make a decision within six months of a complete application, which often leads to additional requirements just before the six-month deadline. In this context, the shorter processing times for MiCA should lead to faster handling of MiCA license applications by BaFin.
