MiCA to Require EUR 150 000 Share Capital for EU-based Virtual Currency exchanges as early as 2024

The European Council has approved the Markets in Crypto Assets Regulation (MiCA) on October 5, 2022. A unified framework controlling the crypto business in the European Union will be established once MiCA law enters into force in the middle to end of 2024.

MiCA is anticipated to improve the current regulatory framework for crypto assets in European financial law affairs. It will be examined in the provided information how MiCA would impact the crypto industry in the European Union.

One of the goals of the upcoming regulation is to provide legal certainty concerning crypto assets on the EU financial markets. CAML has seen in Estonia that many local auditors did not want to sign up on working with regulated crypto exchanges, which narrowed the market participants axing more than 70% out of the country. We see currently that many financial institutions (especially classic banks) do not accept crypto-related businesses nor do customers who execute related transactions to and from such businesses. Therefore, one may ask - why has it been this way? And the answer is clear, there was no clear understanding of how to treat Virtual currency, its different transaction characteristics, and various business plans that often were coexisting on the same path as if they were a regulated investment broker, SME lender, Consumer Credit facility, Payment gateway, Voucher provider, etc. So now MiCA should finally regulate these markets and allow certified/licensed/regulated finance professionals to join the crypto industry.

The main impact of MiCA will arrive in cases where e.g. a Virtual currency exchange provider from a third country is marketing its services in the EU, such VCEP will need to apply for a license and comply with the share capital requirements equivalent to EUR 150 000, for Virtual currency wallet operators the minimum requirement is set to EUR 125 000, and while the Portfolio Management and crypto asset advice service providers to a minimum of EUR 50 000.

MiCA does not discuss the AML/KYC topic, therefore the exchanges will still need to comply with the KYC/AML requirements of the jurisdiction where it is incorporated and licensed/authorized. However, there are two EU regulations at the moment which focus on the AML framework. On the one hand, it is the Transfer of Funds Regulation (TFR) that will need to comply with FATF “Travel Rules”. And on the other hand, EU Anti-Money Laundering Regulation which covers Crypto-Asset Service Providers and will have some special requirements for the crypto industry where blockchain analytics and crypto screening tools will be an essential part of the AML regime of each licensed virtual currency exchange, wallet operator or portfolio manager.

Key Takeaways from MiCA impact and the Country comparison

In today's regulatory environment thus we can see that Estonia has been at a far front of over-regulating the market participants, while most other countries are lagging behind to yet decide whether to take any action on strengthening their legislation and have remained with minimum share capital at anywhere between EUR 1-3000. However, Lithuania was the most recent one that made the changes in November 2022 and required the companies to increase their share capital to EUR 125 000, that so far has been in line and well-prepared action to the upcoming MiCA provisions. We see that such action may attract more quality "players" to the field and for them, we are ready to serve.

Considering that MiCA will likely pressure more of the Crypto related businesses into audit requirements, travel rules, stronger AML principles, and reporting standards, we at CAML focus on all the above solutions. Should you be interested in what we do, do not hesitate to reach out at office@caml.lt