The first phase of the EU’s Markets in Crypto-Assets Regulation (MiCA) goes into effect

Implementation of the Markets in Crypto-Assets Regulation (“MiCA”) in the European Union is progressing, but it still faces several challenges. The first phase, which went into effect on June 30, 2024, focuses on regulating stablecoins (specifically, what the Regulation calls “asset-referenced tokens” and “electronic money tokens”). With this first phase, issuers of these tokens must now obtain authorization from competent authorities within their member nation in the EU and comply with rigorous disclosure, transparency, and capital requirements.

This initial phase of the Regulation is intended to ensure issuers maintain adequate reserves and provide comprehensive information to users, holders, and investors. The European Securities and Markets Authority (“ESMA”) has issued clarifications and guidance to aid in the transition, but many have expressed concerns about the readiness of market participants and national regulators.

The full protections and rights under MiCA do not vest until what is expected to be December 2024, with further delays possible while covered entities go through a transitional period that could extend this until July 2026 in some cases. This extended timeline has sparked criticism, with some arguing that it could create regulatory uncertainty and delay the intended benefits of MiCA. ESMA has highlighted potential risks during this implementation phase, urging firms to align their practices with the upcoming requirements and to ensure that clients are well-informed about the regulatory status of their tokens.