Crypto Regulation: What Does MiCA Mean for Cryptocurrency Projects? – Part II

Intercompany Solutions has assisted thousands of foreign entrepreneurs and investors in the establishment of a Dutch company during the past several years. In this regard, we have been seeing an increase of online entrepreneurs who want to establish their presence in the Netherlands. Some of these people are indeed involved in cryptocurrency trade, which is not really a surprise when looking at the ongoing success of many crypto-assets. If you would like to set up a Dutch company involved in crypto-asset trading, we can assist you during every step of the way. We won’t only incorporate your company and register it with the Dutch Chamber of Commerce, but we can also make sure you have all the necessary permits to be able to conduct business.

As you will read in the article below, companies that are involved in the trading of crypto-assets and all the various services that are related to the trade of crypto-assets will be regulated by the Markets in Crypto-Assets regulation, which is also often abbreviated to MiCA. This is a European regulatory framework that will be operational in all European Union (EU) member states. So please be informed that you will also have to comply with the rules and regulations in the document, if you own a crypto company in one of the member states, or are planning to establish one in the near future. Rest assured that Intercompany Solutions can assist you with any matters that might arise as a result of this new regulatory framework. Just contact us whenever you can, and we will look for the most optimal solution together.

What we already discussed about MiCA

We have already posted an article about MiCA and its basics, you can find the article via this link. In that article, we have discussed MiCA and its goals, the reason it was drafted in the first place and the legal requirements of MiCA and the duration of the transition period. We also discussed the 3 main requirements for companies offering crypto-assets, additional responsibilities and exceptions. In this article, we will provide you with more in-depth information about MiCA, and specifically about Crypto-Asset Service Providers (CASPs). We will also tell you about the way you can obtain a permit, shed some light on definitions and terms, the general benefits of MiCA and the ways in which market abuse will be prevented.

When does MiCA come into effect?

MiCA officially entered into force on June 30, 2023. However, its full application will not take effect immediately. Below, you’ll find some key dates that have already been secured?

• June 30, 2024: The rules concerning Stablecoin issuers will begin to apply officially
• December 30, 2024: All other rules will apply, including those for issuers of crypto-assets other than ARTs/EMTs, crypto-asset service providers (CASPs), and the prevention of market abuse

A transition period of 18 months applies to various subjects under MiCA. In the Netherlands, the legislator plans to extend the transition period for CASPs, which are registered under the Fifth Anti-Money Laundering Directive (AMLD5) with the Dutch Central Bank (DNB), by 6 months. This would allow these CASPs to continue offering their services until July 1, 2025 at the latest.

What are the crypto parties mentioned in MiCA?

It is essential for token issuers and crypto service providers to understand the legal implications of the MiCA regulation to remain competitive in the crypto market. It is therefore wise that you do research and know all the important dates and changes by heart. If you do not adhere to these regulations, you might have to deal with risky situations and even lose all you have built for yourself. So make sure you know what MiCA entails, and when you will need to make the necessary changes. Below, we will outline what types of companies will be regulated by Mica.

Which companies are regulated by MiCA?

MiCA applies to both EU-based companies and non-EU companies that engage in activities or provide services within the EU. It regulates individuals or entities offering crypto-assets to the public or seeking their admission to trading, as well as crypto-asset service providers (CASPs). Chapters 3 and 4 of the regulation will discuss the criteria for companies to be classified as providers of crypto-assets or CASPs. The AFM (Netherlands Authority for the Financial Markets) is responsible for overseeing crypto-asset service providers. From December 30, 2024, these service providers must hold a license from the AFM or another European supervisory authority to continue offering services. This is mainly the most important change.

By June 30, 2025, service providers registered with the Dutch Central Bank (DNB) will also need to obtain a license from the AFM or another European supervisory authority. As a supervisory body, the AFM handles license applications for CASPs (Article 63 of MiCA) and notifications from other financial institutions (Article 60 of MiCA). Market parties can begin submitting CASP license applications or notifications to the AFM from April 22, 2024, with approval allowing them to operate starting December 30, 2024.

What are Crypto-Asset Service Providers (CASPs)?

You might ask yourself what a CASP is, if you are relatively new to the trade of cryptocurrencies. Crypto-Asset Service Providers (CASPs) are companies that facilitate the management, trading, or storage of crypto-assets for users. These providers play a critical role in the cryptocurrency ecosystem by offering services such as wallets, exchanges, payment services, and more. Examples of well-known CASPs include (but are definitely not limited to):

• Blockchain.com (based in Luxembourg), a virtual cryptocurrency wallet provider that facilitates around a quarter of all global Bitcoin transactions
• Bitpanda (based in Austria), a currency exchange platform that allows users to buy and sell crypto-assets, as well as offering payment services
• Bitstamp (based in Luxembourg), a trading platform that allows users to convert between fiat and cryptocurrencies. It also provides institutional clients with liquidity, order executions, and real-time data flows, enabling banks, intermediaries, and fintech companies to offer crypto trading services

These types of businesses are regulated under MiCA’s provisions for CASPs, which set out the regulatory requirements they must follow to operate in the EU. If you fall under the scope of these regulations, please make sure you know what you need to do in order to adhere to the requirements of the regulatory framework.

More detailed information about Crypto-Asset Service Providers

MiCA defines crypto-assets as "a digital representation of a value or a right that can be transferred and stored electronically, using distributed ledger technology (DLT) or similar technology."

A crypto-asset service refers to the following services and activities related to crypto-assets:

1. Custody and management of crypto-assets on behalf of clients
2. Operating a crypto-asset trading platform
3. Exchange of crypto-assets for funds
4. Exchanging crypto-assets for other crypto-assets
5. Executing crypto-asset orders on behalf of clients
6. Placing crypto-assets
7. Receiving and transmitting crypto-asset orders on behalf of clients
8. Providing advice on crypto-assets
9. Providing portfolio management for crypto-assets
10. Provision of crypto-asset transfer services on behalf of clients

A person may not provide crypto-asset services within the European Union unless they:

1. Are a legal person or other undertaking authorized as a crypto-asset service provider under Article 63, or
2. Are a credit institution, a central securities' depository, an investment firm, a market operator, an electronic money institution, a UCITS management company, or an AIFM authorized to provide crypto-asset services under Article 60

For any questions regarding supervision of crypto products and services, you can contact the AFM or contact Intercompany Solutions for personalized advice.

Overview of the permit procedure for CASPs

Crypto-Asset Service Providers (CASPs) play a crucial role in the crypto sector by offering services such as custody of digital assets, operating crypto trading platforms, providing transfer services, and offering investment advice or wealth management on blockchain-based products. They basically provide a variety of crypto-related services. Due to the pivotal role they play, CASPs are considered the "gatekeepers" to the crypto markets. Under MiCA, CASPs are required to obtain a license to operate legally within the European Union. To obtain this license, CASPs must meet the following key criteria:

1. Criteria regarding their legal entity status. CASPs must be registered as a legal entity with offices in at least one EU Member State. This is also one of the main requirements mentioned in MiCA for all crypto-related businesses, as we mentioned in the first article about MiCA.
2. The application requirements. CASPs must submit an application demonstrating:

Sufficient capital

Proof of adequate financial resources.

Good Governance

Arrangements that prevent market manipulation and abuse.

Internal Control Systems

Systems to ensure services are provided in a manner that prioritizes customer interests.

Once licensed, CASPs will benefit from passporting rights, meaning their license is valid across the entire EU, allowing them to offer services in all EU Member States without needing additional approvals. This ensures that CASPs can operate more efficiently and consistently across the European Union. And it protects the consumer from individuals that might want to steal their money; one of the main reasons why MiCA has been created in the first place. We will outline all 3 requirements in detail below, for your convenience.

Capital requirements for CASPs under MiCA

A significant change introduced by MiCA is the implementation of prudential financial requirements for Crypto-Asset Service Providers (CASPs). These requirements are designed to ensure that CASPs maintain sufficient equity to absorb potential losses, enhancing investor protection and financial stability. The capital requirements for CASPs are defined by national competent authorities (NCAs) and include the following:

Minimum capital

CASPs must have a minimum amount of capital, which can range from €50,000 to €150,000 depending on the type of service provided, as outlined in Annex IV

Operating costs-based calculation

Alternatively, CASPs must maintain capital equal to a quarter of their fixed operating costs from the previous year (e.g., office rents, staff salaries), whichever is higher

CASPs must also ensure that their own capital is separate from investors' assets and meets specific standards. This capital can include the following:

• Common equity tier 1 capital, such as share capital and subordinated loans
• Insurance policies, for example covering risks like loss of documents, misstatements, errors, failure to fulfill duties, and negligence in safeguarding crypto-asset funds

The purpose of these measures is to protect investors and ensure the stability of the financial system, especially during economic downturns. By requiring CASPs to have sufficient capital, the regulations ensure that these entities can absorb operating losses and continue to honor investor withdrawals, even in challenging market conditions.

Organizational requirements for CASPs under MiCA

In addition to needing to have a certain amount of capital reserves, CASPs are required to meet organizational standards to ensure sound governance and investor protection. This provides buyers and investors with much-needed trust and professionalism. These requirements include:

1. Appointment of an administrative body

CASPs must appoint an administrative body with sufficient integrity, professional qualifications, and experience to carry out its tasks effectively. This ensures competent management and oversight of the company

2. Shareholder integrity

Shareholders holding qualifying holdings must prove they are in good standing and have no history of financial crimes, such as money laundering or terrorist financing. This ensures that those with significant control over CASPs are trustworthy and compliant with financial regulations

3. Business continuity plan

CASPs must establish a business continuity plan to safeguard the continuity of services in the event of external disruptions. This plan should ensure that systems and procedures are in place to maintain the confidentiality of sensitive information, even under worst-case scenarios.

4. Record keeping

CASPs must maintain detailed records of all orders and transactions. These records must be readily available to National Competent Authorities (NCAs), enabling them to monitor and supervise the provider's operations effectively

5. Market abuse detection

CASPs must implement measures to monitor and detect instances of market abuse by customers. This can include the following:

• Promoting understanding of what constitutes market manipulation and abuse by implementing educational policies
• Deploying automated tools falling under the scope of market surveillance systems to track abnormal trading patterns, such as price movements and trading volume anomalies. These systems must be adjusted to account for the specific volatility of crypto markets to ensure practical and accurate monitoring

These organizational standards are designed to promote transparency, accountability, and integrity in the crypto-asset service sector, enhancing both market stability and investor confidence, which will make the market more trustworthy and dependable.

Internal control requirements for CASPs under MiCA

As part of their role as "gatekeepers" to the crypto market, Crypto-Asset Service Providers (CASPs) must implement robust internal controls to protect both the integrity of the financial system and the interests of their customers. MiCA outlines several requirements for internal control systems:

1. Data protection and market abuse prevention

CASPs must have internal control systems that can detect and prevent the misuse of sensitive customer information, particularly related to automatic payment orders. This is essential to prevent market abuse or market manipulation by anyone with access to sensitive data, including employees

2. Conflict of interest management

CASPs must take measures to ensure that there are no conflicts of interest between:

• Shareholders, managers, and staff
• Different customers. This requires the establishment of policies and procedures to manage and avoid any situation where an individual's personal interests conflict with their professional duties

3. Oversight committee and whistleblowing channels

CASPs must establish a designated oversight committee responsible for monitoring conflicts of interest and ensuring compliance with MiCA’s rules. Additionally, they must provide internal channels that allow employees and other stakeholders to report issues anonymously, facilitating whistleblowing without fear of retaliation

4. Complaint-handling procedures

CASPs are required to set up and maintain clear complaint-handling procedures that are accessible to customers at no cost. These procedures must ensure that customer disputes are resolved internally and effectively, reducing the need for judicial intervention

5. Clear and accurate communications

All communications to the public, particularly regarding the risks associated with the purchase of crypto-assets, must be clear, accurate, and non-misleading. This includes:

• Risk Warnings: Information should explicitly outline the risks involved in trading crypto-assets.
• Pricing Transparency: CASPs must also publish their pricing policies on their websites, detailing fixed costs and how variable costs are calculated, ensuring that investors are fully informed about any fees.

By enforcing these internal control measures, MiCA aims to ensure that CASPs act responsibly, protect consumer interests, and maintain the overall stability of the crypto market. This will create a larger basis of trust among investors and buyers, enriching the market and providing a stable basis for trade.

Applying for a permit to offer crypto services in the Netherlands

Parties seeking to offer crypto services in the Netherlands are urged to apply for a license from the AFM (Netherlands Authority for the Financial Markets), rather than applying for registration with the DNB (Dutch National Bank). This shift is aimed at avoiding duplication of work and costs for all parties involved. Make sure you hand in your application in time, otherwise you risk being put in a position in which you (temporarily) cannot do business. Some key points to consider are as follows:

1. It is wise to be timely with your application. Crypto parties are strongly advised to submit their license applications well in advance. The processing time for a permit application typically takes at least 5 months. To ensure there are no delays or complications, applying early is crucial
2. Be aware of a risk of duplication if registered with DNB. If parties mistakenly apply for registration with DNB after mid-2024, they risk incurring processing costs without receiving registration in 2024
3. Note the absolute deadline for compliance. After 30 December 2024 (and 30 June 2025, for certain services), crypto parties must hold the correct license. Failure to do so may result in the AFM imposing penalties, such as orders subject to a penalty or fines

In summary, it is essential for crypto service providers to apply for a license with the AFM on time to avoid regulatory issues and penalties.

Which crypto-assets are excluded from MiCA?

MiCA was created to regulate previously unsupervised crypto-assets. However, certain crypto-assets already regulated under existing financial laws are excluded from MiCA’s framework:

1. Financial Instruments
2. Electronic Money
3. Warehouse Assets
4. Structured Deposits
5. Securitizations

These assets are already covered by other regulatory frameworks. However, there's an exception: if a token qualifies as both electronic money and an e-money token, it will still fall under MiCA’s regulations.

Key definitions that are used in MiCA

Just like any European regulatory framework, MiCA contains some key definitions that apply to the entire market. It’s wise to keep yourself informed about these concepts, so you know at all times what you are dealing with and what to expect. The key definitions that are used in MiCA are as follows:

1. Crypto-Asset
   "A digital representation of a value or right that can be transferred and stored electronically, using distributed ledger technology or similar technology."
2. Asset-Referenced Token (ART)
   "A type of crypto-asset that is not an e-money token and seeks to maintain a stable value by referring to another value or right or a combination thereof, including one or more official currencies."
3. A-Money Token (MT)
   "A type of crypto-asset that seeks to maintain a stable value by referring to the value of an official currency."
4. Publisher
   "The natural or legal person or other company issuing the crypto-assets."
5. Offer to the Public
   "A communication addressed to individuals, in any form and by any means, providing sufficient information on the terms of the offer and the crypto-assets offered to enable prospective holders to decide whether to purchase the crypto-assets."
6. Crypto-Asset Service Provider
   "The legal entity or other undertaking whose activity or business consists in the professional provision of one or more crypto-asset services to clients, and which is authorized to provide crypto-asset services in accordance with the licensing requirement for CASPs."
7. Utility Token
   "A type of crypto-asset that is intended only to provide access to a good or service offered by its issuer."

Token categories under MiCA

There are several token categories under MiCA. For your information, we have provided the three main categories of tokens on the blockchain. We explain how these tokens fit within the framework of MiCA below:

1. Utility Tokens
   Utility tokens are crypto-assets that grant the holder access to or the right to use a platform, or its goods or services. These tokens are primarily regulated under MiCA for crypto-assets that are not stablecoins
2. Payment Tokens
   Payment tokens, also known as stablecoins, are used to make payments. Due to their purpose, it is essential for these tokens to maintain a stable value. MiCA divides stablecoins into two categories: Asset-Referenced Tokens (ART) and E-money Tokens (EMT).
3. Security Tokens
   Security tokens are tokens that legally qualify as securities or financial instruments, such as shares, bonds, or derivatives. These tokens are already regulated as financial instruments, so they are not subject to MiCA.

What are the benefits of MiCA?

In general, when the government (either national or supranational) creates new guidelines and rules, the main goal is protection from crime and criminal activity and provide a solid basis for whatever activity is mentioned in the regulatory framework. It is also the goal of the new regulatory framework to provide benefits for all parties involved in trade, such as trustworthiness and stability. In this regard, MiCA offers benefits for providers, users and authorities alike:

1. For providers:

• Providers will spend less time researching different rules for each Member State
• Providers only need one authorization for the entire EU
• There is a level playing field for all providers across the EU, with no advantage for easier or cheaper regulations in specific Member States

2. For investors:

• MiCA helps protect investors by implementing rules to prevent market abuse, such as scams and ‘pump-and-dump’ schemes
• Investors are also better protected through information requirements for providers, ensuring transparency

3. For national regulators:

• Regulators benefit because a MiCA license is valid throughout the EU, so Member States do not need to evaluate each company individually

Preventing market abuse in relation to crypto-assets

MiCA includes provisions to prevent market abuse in the trading of crypto-assets on trading platforms or those awaiting admission. This will aid in protecting investors and buyers from scammers, for example. But the provisions are aimed at the prevention of abuse internally as well. The regulation identifies four main types of market abuse:

• Insider dealing
• Market manipulation
• Disclosure of inside information
• Unlawful disclosure of inside information

Violations of these prohibitions may result in sanctions from regulatory authorities. For legal entities, the penalty can reach up to €15 million or 15% of the annual turnover. For natural persons, fines may go up to €5 million.

Sanctions in relation to market abuse

The market abuse frameworks for financial instruments and crypto-assets differ, with MiCA focused on minimum administrative penalties and MAR supplemented by criminal sanctions under the Market Abuse Directive (CSMAD). Here it is important to note that, unlike MiCA, the MAR is part of a series of legislative acts, one of which, the Market Abuse Directive (CSMAD) is still in force. As the name suggests, the CSMAD called on Member States to establish a standard framework of criminal sanctions for market abuse. This was later supplemented by detailed definitions of violations and administrative sanctions introduced by the MAR. MiCA, on the other hand, does not exclude the right of the Member States to provide for criminal penalties, but merely imposes a list of the minimum administrative penalties which must be available to the competent authorities. While MiCA standardizes administrative sanctions across the EU, it allows individual Member States to apply criminal penalties at their discretion. MiCA's administrative penalties include:

• Orders to return profits made or losses avoided due to violations
• Suspension or revocation of CASP licenses
• Temporary or permanent bans for management individuals responsible for violations
• Maximum fines of at least €5 million for individuals and up to €15 million or 15% of annual turnover for legal entities

Member States can also empower local authorities to exceed these baseline penalties, providing flexibility for stricter enforcement.

MiCA supervisory structure and future outlook

Under MiCA, European oversight of crypto-assets is led by the European Banking Authority (EBA) and European Securities and Markets Authority (ESMA), who supervise national authorities like the Netherlands Authority for the Financial Markets (AFM) and the Dutch Central Bank (DNB). The AFM handles license applications for Crypto-Asset Service Providers (CASPs), while the DNB oversees issuers of Asset-Referenced Tokens (ARTs) and E-Money Tokens (EMTs). The EBA and ESMA ensure these national bodies maintain consistent standards across the EU.

Future of crypto-regulation under MiCA

MiCA aims to increase investor protection and transparency, which should help build public trust in crypto assets. Although this framework may raise barriers for new projects, the heightened transparency and civil liability requirements are expected to foster a more reliable and stable crypto environment for both consumers and institutional investors.

How to start a Dutch crypto company?

If you are interested in offering a new token to the world, or maybe offer services that are related to crypto trading, you should consider the location of your company carefully. It’s possible indeed to start an online business from literally anywhere in the world, but some locations can provide you with an extra boost to start your company professionally. The Netherlands is a fantastic location for any business, due to its strategic location, its highly innovative spirit and its welcoming atmosphere towards foreign entrepreneurs. The country is constantly listed in top positions on many internationally renowned business indexes. Many other multinationals have already established headquarters or subsidiaries here, such as Google, Panasonic and Nike, to name but a few.

Do note, that if you establish your business here, you will also fall under the scope of MiCA. However, if you are planning to conduct business legally, this should pose no problem at all. After all, these regulations have been created to protect you and all other parties involved. Intercompany Solutions can guide you through the entire process of business establishment and applying for any permits you might need. All we need from you are some general documents, such as the following:

• A valid form of identification
• The full names and addresses of all (future) shareholders
• A valid Dutch registration address for your business
• A preferred company name
• Possibly a power of attorney, if you want us to establish your company remotely
• All documents necessary to apply for a permit at the AFM

Once we receive all documents, we check them and let you know if something is still missing. If we have all we need, we make an appointment with a notary to incorporate your business in the Netherlands. You will also have to deposit the share capital at this point. Once this is all done and taken care of, we register your company in the Dutch Trade Register and you receive your registration and VAT numbers. You can start your business activities almost immediately. This process should take only a few business days, so you won’t have to wait long.

The services we can offer you

Intercompany Solutions has assisted hundreds of foreign entrepreneurs from over 50 different nationalities. Our clients range from small one-person startups to multinational corporations, and everything in between. Our processes are aimed at foreign entrepreneurs and, as such, we know the most practical ways to assist with your company registration. We can assist with the full package of company registration in the Netherlands:

• Company establishment in the Netherlands
• Opening of a local bank account
• Application for VAT or EORI number
• Application for a variety of permits
• Application for a visa or start-up permit
• Startup assistance
• Financial services
• Administrative services
• Secretarial services
• Legal assistance
• Tax and financial services
• Media
• General business advice

We are constantly improving our quality standards to continually deliver impeccable services. 

Intercompany Solutions helps you set up your Dutch crypto business 

With many years of professional expertise in the field of Dutch business establishment, we have what it takes to set up a potentially successful business for you in a very short timeframe. Please be informed, that the procedure might take a bit longer if you also need permits. If you already know what you want, and you know which permits you need, we strongly advise you to contact us directly. We can then start the permit application procedure, before we establish your Dutch company. If you are not sure yet about which services and permits you will need, feel free to contact us at any given moment for more information and personalized advice. We will always do anything in our power to assist you in the best possible way.

Sources:

https://eur-lex.europa.eu/legal-content/NL/TXT/HTML/?uri=CELEX:52020PC0593

https://www.afm.nl/nl-nl/sector/themas/digitalisering/micar

https://watsonlaw.nl/expertises/crypto/mica/

https://watsonlaw.nl/en/mica-introduction-to-the-markets-in-crypto-assets-regulation/