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MiCa Regulation Explained by Consulting24

The Markets in Crypto-Assets (MiCA) regulation is a pivotal framework in the European Union, aiming to standardize the regulation of crypto-assets, including cryptocurrencies and tokens. This article, inspired by Consulting24, delves into the purpose of MiCA, the process for issuing tokens, and its implications for crypto businesses.

MiCa Regulation Explained by Consulting24
MiCa Regulation Explained by Consulting24

Purpose of MiCa Regulation

MiCa's objective is to create a cohesive regulatory environment for crypto-assets in the EU. It focuses on protecting investors, fostering innovation, and ensuring the financial stability of the cryptocurrency market. The regulation covers various crypto-assets, excluding those under existing EU financial services laws.

Issuing Tokens under MiCa

Issuers of crypto-assets, other than asset-referenced tokens or e-money tokens, have specific obligations under MiCA. They must notify their crypto-asset white paper to the competent authority of their home Member State at least 20 working days before its publication. This notification is crucial for transparency and regulatory compliance.

Small and medium-sized enterprises (SMEs) are exempt from this requirement for offerings below €1,000,000 over 12 months. Additionally, issuers of stablecoins are not required to obtain authorization from a National Competent Authority (NCA) if the total amount of outstanding stablecoins is less than €5,000,000.

Issuers of asset-referenced tokens (stablecoins) shall as soon as possible and in a clear, accurate and transparent manner, disclose on their website the outcome of the audit of the reserve assets. Audits have to be conducted by independent auditors every six months.

Crypto Wallets and Exchanges under MiCa Regulation

Launching custodial or non-custodial wallets and crypto exchanges under MiCA requires adherence to stringent regulations. These include comprehensive operational and security measures, and compliance with AML and CTF regulations, ensuring the protection of clients' assets and data.

Main Requirements

  1. Registration and Authorization: Crypto-asset service providers must obtain authorization and comply with MiCA regulations.

  2. Operational Resilience: Implementing risk management systems and conducting regular audits are mandatory.

  3. Consumer Protection: Providers are obliged to disclose risks and costs transparently.

  4. Market Integrity: Preventing market abuse and manipulation is a key focus.

  5. Segregation of Assets: Keep clients' crypto-assets segregated from the provider's assets.

  6. Anonymous coins: The trading rules for crypto-asset platforms mandate the exclusion of crypto-assets with built-in anonymization features. However, exceptions are allowed if crypto-asset service providers, who must be authorized, can identify the holders of these assets and their transaction history.

  7. Market making: Trading platform for crypto-assets shall not deal on own account on the trading platform for crypto-assets they operate.

  8. Transparency: Trading platform for crypto-assets shall make public the price, volume and time of the transactions executed in respect of crypto-assets traded on their trading platforms.

  9. Reporting: Crypto-asset service providers that are authorised for the operation of a trading platform for crypto-assets shall maintain resources and have back-up facilities in place to be capable of reporting to their competent authority at all times.

Key Differences in Crypto Licensing: Lithuania vs. Post-MiCA EU

Scope of Regulated Activities:

  • Lithuania: Traditionally focused on crypto exchanges and wallet services.

  • Post-MiCA EU: MiCA expands the scope of clear regulation to include a broader range of services like ICOs, stablecoins, and other crypto assets not previously regulated at the EU level or in Lithuania

Current Lithuanian Regulations: Prior to MiCA, Lithuania’s approach to cryptocurrency regulation has been somewhat liberal, and it has become a hub for fintech and crypto businesses. Obtaining a crypto license in Lithuania didn't strictly necessitate maintaining a physical office. With the upcoming implementation of MiCA, it remains to be seen whether the new regulation will introduce a requirement for physical office establishments for crypto-licensed businesses.

Transition Period Duration: Typically, EU regulations like MiCA provide a transition period to allow member states and businesses time to adapt to the new rules. This period can vary based on the complexity and scope of the regulation. For MiCA, the transition period is expected to be around 18 months, but this could vary depending on the final text of the regulation.

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