MiCA Regulation in Poland: Overview of new EU Law on Crypto-Assets

I invite you to read this article, which provides an overview of the MiCA Regulation, a landmark regulatory framework for crypto assets in the EU, describes the most important aspects and the impact it will have on the Polish and EU crypto market. This is the beginning of a series of articles in which we go into the details of this comprehensive document.

Key Highlights

• MiCA Regulation and the Travel Rule for Crypto-Assets Regulation have been officially published in the European Official Journal, establishing a comprehensive framework for the regulation of crypto-assets in the EU.

• MiCA Regulation aims to harmonize the regulation of crypto-asset markets across the EU and applies to the issuance, offering, and trading of crypto-assets as well as the provision of crypto-asset services.

• The regulation classifies crypto-assets into four types: e-money tokens (EMT), asset-referenced tokens (ART), utility tokens and a catch-all category for other types of crypto-assets. It is important to note that the MiCA Regulation does not apply to cryptocurrencies that qualify as ‘financial instruments’, highlighting the need for clear legal guidelines to distinguish between different types of crypto-assets.

• It sets out requirements for issuers and offerors of crypto-assets, including the publication of a white paper containing mandatory disclosures, and introduces prudential requirements for crypto-asset service providers.

• The Travel Rule for Crypto-Assets Regulation extends the obligation to provide information on the originators and beneficiaries of transfers to include transfers of crypto-assets, in line with the EBA’s (European Banking Authority) and FATF’s (Financial Action Task Force) recommendations on virtual assets.

Introduction

With the rise of digital assets, the European Union has taken proactive steps to regulate the crypto market through the Regulation (EU) 2023/1114 of the European Parliament and of the Council of May 31, 2023 on markets in crypto-assets (MiCA Regulation).

The MiCA Regulation came into effect on 29.06.2023, however, the first regulations directly affecting the crypto market are not yet binding. Regulations on asset-referenced tokens (ART) and e-money tokends (EMT) come into effect on 30.06.2024, and the rest (including regulations on cryptocurrency exchanges) come into effect on 30.12.2024.

Poland, like other EU Member States, is gearing up to align its laws with this comprehensive regulatory framework. The MiCA Regulation aims to bring clarity and oversight to the crypto assets sphere, impacting various entities from crypto exchanges to crypto asset issuers. By implementing licensing standards and AML protocols, MiCA seeks to enhance market stability while ensuring consumer protection.

Nevertheless, the changes come as somewhat of a shock to the market, as they introduce a very high threshold of entry for entities new to the virtual currency industry. Understanding the nuances of MiCA is crucial for anyone operating within the crypto landscape.

Understanding MiCA: The Foundation of Crypto-Asset Regulation in the EU

MiCA serves as the pillar of crypto-asset regulation within the European Union. This regulatory framework aims to create a harmonized market for crypto-assets across EU member states. With a focus on digital assets, MiCA sets out to regulate various aspects including tokens’ issuance, registration, and supervision of crypto assets and service providers.

By providing a comprehensive regulatory framework, MiCA empowers competent authorities to oversee the crypto market efficiently, ensuring compliance with regulatory technical standards and imposing financial penalties for non-compliance.

Key Objectives and Scope of MiCA Regulation

The Markets in Crypto-Assets Regulation aims to establish a comprehensive regulatory framework for crypto assets within the EU. Its key objectives include enhancing consumer protection, promoting market integrity, and mitigating financial risks associated with digital assets. MiCA sets out rules for:

• issuers of asset-referenced tokens,

• issuers of e-money tokens, who must be authorized as electronic money institutions or credit institutions, with specific requirements outlined for the issuance and redeemability of e-money tokens,

• entities making offers to the public and applying for admission to trading crypto-assets on a trading platform for cryptocurrencies,

• crypto asset service providers (CASPs), including crypto exchanges, wallet providers, and other virtual asset service providers to operate in accordance with the new regulations.

Definitions “Crypto-Assets” Introduced by MiCA

The MiCA defines “crypto-asset” as a digital representation of value or right that can be transferred and stored electronically using distributed ledger technology or similar technology. Within this definition, it distinguishes between the following types of crypto-assets:

• Asset-referenced token (ART) – a crypto-asset that is not a token that is e-money and that is intended to maintain a stable value by being linked to another value or right or a combination thereof, including at least one official currency,

• Electronic money token (EMT, stable coins) – a crypto-asset that is supposed to maintain a stable value due to the fact that it is pegged to one official currency,

• Utility token – a cryptocurrency that is intended only to provide access to a particular good or service provided by its issuer.

Additionally, the regulatory framework for ‘other crypto-assets’ that do not qualify as ARTs or EMTs includes specific notification and publication requirements for their public offering and issuance, outlining the obligations for offerors and those seeking admission to trading of these assets.

Compliance Requirements under MiCA for Crypto Businesses

Compliance requirements under MiCA for crypto businesses encompass stringent licensing and operational standards for Crypto-Asset Service Providers (CASPs). These obligations include robust Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols to ensure enhanced security within the crypto market. To prevent terrorist financing, it is essential to emphasize the importance of traceability of crypto-assets and the obligation of crypto-asset service providers to accompany transfers of crypto-assets with information on the originator and the beneficiary. Adhering to the regulatory technical standards outlined by MiCA is crucial for maintaining compliance and avoiding financial penalties. Crypto businesses must navigate the registration process diligently, obtaining the necessary licenses and approvals to operate legally within the EU framework.

Licensing and Operational Standards for Crypto Asset Service Providers (CASPs)

The MiCA introduces new, very strict regulations primarily for CASPs. It will only be possible to provide crypto asset services after obtaining a license issued by the country’s competent supervisory authority. Operational requirements include implementing robust AML and KYC procedures, maintaining secure storage of crypto assets, and adhering to regulatory technical standards.

Once licensed, a CASP will be listed in a register maintained by the European Securities and Markets Authority (ESMA), for it will be a regulated activity. The license will entitle the CASP to passport its services to other EU countries.

It will be possible to obtain a CASP permit after meeting a number of stringent requirements, such as:

• Presentation of internal documents and procedures, such as:

  • program of activities, description of management principles,

  • description of internal controls,

  • Policies and procedures for identifying, assessing and managing risks,

  • business continuity plan,

  • Technical documentation of ICT systems and security solutions,

  • A description of the procedures for extracting crypto-assets and client funds,

• providing evidence that the members of the CASP’s governing body have no criminal record and are in good standing and have the appropriate knowledge, skills and experience needed to manage the CASP,

• providing the identity of any shareholders and stockholders of the CASP and providing evidence that these individuals have no criminal record and are in good standing,

• meeting capital requirements – having between EUR 50,000 and EUR 150,000 (depending on the type of services provided).

Transitional Period

Importantly, the MiCA provides for a transitional period – entities with CASP/VASP status under the current national regulations obtained before 30.12.2024 will be able to continue operating without a license until 01.07.2026.

From 01.01.2025 CASPs will have to go through the entire licensing procedure. So there is very little time left to obtain a CASP/VASP license – if you need help in obtaining Polish crypto licenses get back to us, we will be happy to help.

If you’re interested in the process of obtaining crypto license under current regime check our article here: LINK.

Travel Rule for Crypto-Assets Transfers

In addition to embracing MiCA, the European Parliament ratified the “Regulation on information accompanying transfers of funds and specific crypto-assets”. This legislation mandates that cryptographic transactions within the EU must incorporate identification details, irrespective of the transaction amount. Crypto Asset Service Providers (CASPs), including currency exchanges, stock markets, and similar entities, will be obliged to gather personal information regarding the recipients of cryptocurrency transfers.

The data to be transferred must contain (applies to both originator and beneficiary of the transfer):

• name;

• distributed ledger address and/or the crypto-asset account number;

• address, including the name of the country, official personal document number and customer identification number, or, alternatively the date and place of birth; and

• current LEI or, in its absence, any other available equivalent official identifier.

The Impact of MiCA on Poland’s Crypto Landscape

Currently, there are no specific regulations for the crypto market in Poland. Singular provisions from various laws apply to the market, such as the Polish AML Act, the Polish Personal Income Tax Act, and the Polish VAT Act. Nevertheless, this will soon change.

The MiCA is an EU regulation, so it applies directly in every EU member state – including Poland, in other words, the Union countries do not have to introduce their national regulations for the MiCA to apply to domestic entities, and it still applies to European entities. However, Member States can introduce national regulations that will detail how the MiCA will affect their national market, such as identifying the entity responsible for market surveillance. Poland took this approach and is currently working on a Draft law on crypto-assets.

The adoption of MiCA in Poland will significantly shape the local crypto landscape. By aligning with the EU standards, Poland aims to create a conducive environment for crypto businesses. Poland’s adaptation to the MiCA requirements showcases a commitment to compliance and a forward-looking approach to the evolving crypto market landscape.

MiCA Implementation in Poland: Status and Timeline

So far, only MiCA regulations governing technical issues, i.e. requiring EU institutions to issue technical standards and recommendations for cryptocurrency market players, have entered into force (in July 2023).

The first set of MiCA regulations directly affecting market participants goes into effect on June 30, 2024, and applies to asset-referenced token (ART) issuers and e-money token (EMT) issuers.

MiCA regulations for crypto-asset service providers (CASP) take effect December 30, 2024.

Separately from MiCA, the Polish government recently published a Draft Law on Crypto-Assets, which designates the Polish Financial Supervision Authority (KNF) as the market regulator. The KNF is to be empowered to:

• issuing licenses for CASP,

• supervision and control of market participants in terms of compliance with the law, including AML,

• imposing administrative penalties and fines on violators.

The Draft Polish law introduces very strict penalties for MiCA violations, for example:

• A breach of the duty to act honestly, fairly and professionally (Article 59 of MiCA) may result in:

  • revocation of the license,

  • prohibition of crypto-asset services;

  • a fine for the person responsible for the infringement in the amount of up to PLN 3,119,700,

  • a fine on the CASP in the amount of PLN 22,284,000 or 5% of the total revenue,

• Providing false information or concealing true information in an information document (white paper) relating to asset-linked tokens or e-money tokens may result in:

  • fine of up to 5,000,000 PLN,

  • imprisonment for up to 5 years.

It should be remembered that the Draft of the Polish law has not yet been approved, and its final shape and content is still unknown, and the regulations discussed above may change.

The Future of Blockchain and Smart Contracts in Poland

Blockchain technology and smart contracts have the potential to revolutionize various industries, including finance, supply chain management, and healthcare. In the context of Poland, the adoption of blockchain and smart contracts is expected to bring numerous benefits to the Polish market. These technologies can enhance transparency, security, and efficiency in business processes, reduce costs, and facilitate trust between parties. As MiCA regulation provides a comprehensive and harmonized framework for Crypto-assets, including those based on blockchain technology, it is anticipated that Poland will see increased interest and adoption of blockchain-based solutions, further driving innovation and growth in the country.

Legal Recognition and Use Cases in the Polish Market

The Polish market is witnessing increased recognition and adoption of blockchain technology and smart contracts. The legal framework surrounding these technologies is evolving to accommodate their use in various sectors. For example, blockchain can enhance the traceability and transparency of supply chains, ensuring the authenticity and integrity of products. Smart contracts can automate and streamline contractual processes, reducing administrative burdens and improving efficiency. The Polish government and the Polish Financial Supervision Authority (PFSA) have been actively promoting the use of blockchain technology in the country, providing support and guidance for businesses and startups exploring these innovative solutions.

Exploring the Role of Digital Assets Beyond Cryptocurrencies

Digital assets play a significant role in the financial landscape, extending beyond cryptocurrencies. Tokenization, the process of converting physical assets into digital tokens, has gained traction in various industries. It allows for the fractional ownership and transfer of assets, such as real estate, artwork, and intellectual property. Furthermore, non-fungible tokens (NFTs) have emerged as a unique form of digital asset, representing ownership or proof of authenticity of digital collectibles, art, and other digital assets. These advancements in digital assets have opened up new opportunities for investors, creators, and businesses, transforming the traditional concept of asset ownership and value exchange.

Tokenization of Assets and Its Regulatory Framework

The tokenization of assets refers to the process of converting physical assets into digital tokens. This digital representation allows for fractional ownership, transferability, and increased liquidity of assets. Under the MiCA regulation tokenization of assets falls within the scope of the regulatory framework for Crypto-assets. The Regulation provides specific rules and requirements for the issuance, offering, and trading of tokenized assets. This includes the need for issuers to provide a white paper containing mandatory disclosures about the project, the rights and obligations attached to the tokens, and the underlying technology used. By establishing a regulatory framework for tokenized assets, MiCA aims to ensure transparency, investor protection, and market integrity in this emerging field.

NFTs under MiCA: An Emerging Asset Class

Non-fungible tokens (NFTs) have gained significant attention as an emerging asset class within the Crypto-assets market. NFTs represent unique digital assets and have been used to tokenize digital artwork, collectibles, and other digital creations. Under the MiCA regulation, NFTs are excluded from its scope, including digital art and collectibles. However, if the de facto features of the tokens or features linked to their actual users make them either fungible or not unique, such NFTs could still fall under the scope of MiCA. As the NFT market continues to evolve, it will be important to closely monitor regulatory developments and ensure compliance with applicable regulations to foster trust, transparency, and investor confidence in this emerging asset class.

Conclusion

MiCA will definitely revolutionize the crypto-asset market in Europe, and will certainly be a benchmark for legislation on other continents.

The stringent requirements will certainly reduce the number of cryptocurrency operators. However, entities that start operations before 30/12/2024 should be free to continue operating for another 18 months. Entrepreneurs must align with these standards, focusing on compliance, licensing, and operational protocols to navigate the evolving regulatory environment effectively.

Poland is aiming to introduce national legislation to regulate the crypto-asset market, but its final shape is still unknown.

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