Following FINMA’s initial categorisation of tokens and their assessment under financial market law in its guidance on initial coin offerings (ICOs), the EU also categorised them in a proposal for a regulation on markets in crypto-assets (“MiCA”). The following article will focus on the objectives, categorisation and differences of the MiCA regulation in comparison to Swiss law.
I. Objective of the MiCA Regulation
The objective of the MiCA Regulation is to regulate the distribution, issuance and trading of crypto-assets. A framework based on the MiFID regime is to be created for the uniform handling of crypto-assets. The focus is on regulating the future supervision of issuers and crypto-asset service providers by the European Banking Authority (EBA) or national authorities. For this purpose, the MiCA Regulation, similar to FINMA, categorises different types of crypto-assets, each with different legal consequences. Also at the centre are increased information obligations with the aim of ensuring consumer protection. Potential buyers should be informed about the characteristics, function and risks of crypto assets. The requirements for the information documents (so-called white papers) to be prepared for this purpose are regulated in detail in Art. 5 MiCA Regulation.
II. differentiation from MiFID
The MiCA Regulation does not cover tokens that qualify as financial instruments. These are regulated in the Markets in Financial Instruments Directive (“MiFID”). MiFID is an EU directive for the harmonisation of financial markets within the European single market, the aim of which is to improve investor protection and transparency on the financial markets.
III. token categorisation
This refers to a crypto-value where different nominal currencies that are legal tender or one or more commodities or one or more crypto-values or a combination of such values are used as a reference basis to achieve value stability(Art. 3 para. 1 No. 3 MiCA Regulation). Value-referenced tokens are often also referred to as so-called “stablecoin”.
The MiCA Regulation defines an e-money token as a crypto-value whose main purpose is to serve as a medium of exchange and where a nominal currency, which is legal tender, is used as a reference basis to achieve value stability(Art. 3 para. 1 item 4 MiCA Regulation). These are also often referred to as “stablecoin”. The EU consequently subdivides the common term “stablecoin”.
A utility token within the meaning of the MiCA Regulation is a crypto value that is intended to provide digital access to a good or service that is available via DLT and is only accepted by the issuer of that token(Art. 3 (1) (5) MiCA Regulation). Consequently, they fulfil non-financial purposes in connection with the operation of a digital platform and digital services.
Significant and non-significant tokens
The EU further distinguishes between significant and non-significant value-referenced tokens or e-money tokens. Article 39 of the MiCA Regulation specifies the criteria by which the EBA determines whether a significant value-referenced to ken exists. The decisive factors are the size of the customer base of the bearers of the value-referenced token, the value of the issued value-referenced tokens or the market capitalisation, the number and value of the transactions conducted with the tokens, the size of the asset reserve, the significance of the cross-border activities of the issuer and the interconnectedness with the financial system. For the assessment of e-money tokens, Art. 50 MiCA Regulation is relevant, which, however, refers to Art. 39 MiCA Regulation. If the crypto value is significant, authorisation must be granted by the EBA, while the national authorities decide on authorisation for non-significant crypto values.
Special case: NFT
Non-fungible tokens do not fall into any of the above categories, as these are only intended as a subdivision for fungible tokens. In Art. 3 (1) No. 2 MiCA Regulation, however, the proposal for the regulation defines the general term crypto value. For the purposes of the regulation, this is a digital representation of values or rights that can be transmitted or stored electronically using distributed ledger technology or a similar technology. This term was deliberately defined broadly in order to cover as many types of tokens as possible in a technology-neutral and forward-looking manner, which are currently not subject to harmonised legislation. NFTs could be included under the term crypto value, which would have the consequence that the provisions under Title II “Other crypto values than value-referenced tokens and e-money tokens” in Art. 4 ff. MiCA Regulation would apply to them. It is noteworthy in this context that issuers of NFTs would not be obliged to prepare a white paper (cf. Art. 4 para. 1 MiCA Regulation in conjunction with Art. 4 para. 2 lit. c MiCA Regulation).
IV. Differences to the FINMA categories
FINMA has made the following categorisation in its guidance on ICOs:
- Payment token
- Investment tokens
- Usage tokens
More information regarding FINMA’s categorisation and the assessment of NFTs under financial market law can be found here. According to FINMA’s classification, a utility token corresponds to a usage token. The e-money token is identical to the payment token introduced by FINMA, thus addressing the “simple” cryptocurrencies. Depending on the design of the value-referenced token, it represents an investment token or a payment token according to the FINMA guidelines. Unlike in Switzerland, the MiCA Ordinance does not cover tokens that qualify as financial instruments.
V. Significance for Swiss issuers
In the case of cross-border issuances, the MiCA Regulation will also be relevant for Swiss issuers, as its scope of application extends to crypto-tokens issued in the EU or services related to crypto-tokens (cf . Art. 2 para. 1 MiCA Regulation).
- Rolf H. Weber/Rainer Baisch, DLT-based financial products, SZW 2021, p. 683 ff.
- Guidance for subordination requests regarding Initial Coin Offerings (ICOs) Edition of 16 February 2018
- Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending Directive (EU) 2019/1937
- Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directives 2002/92/EC and 2011/61/EU
- Article: NFT – An assessment under financial market law