The European Securities and Markets Authority (ESMA) is preparing the implementation of the Markets in Crypto-Assets Regulation (MiCA), which aims to enhance safeguards for holders of crypto-assets and clients of crypto-asset service providers, financial stability, and integrity of markets in crypto-assets.

During the ‘implementation phase’ of MiCA (from entry into force until the date of full application in December 2024), ESMA, together with the National Competent Authorities (NCAs) of the Member States and the other European Supervisory Authorities (ESAs), is preparing the technical standards and guidelines that specify how the new rules will apply to issuers, offerors, and service providers of crypto-assets.

The first public consultations on these regulatory measures (in two major packages published in July and October) are important milestones for ESMA in the implementation of the MiCA framework.

It is important for holders of crypto-assets and current or prospective clients of crypto-asset services in the EU to be aware that in addition to the risks inherent to crypto-assets, MiCA rules on the provision of crypto-asset services will not enter into application until December 2024. As such, holders of crypto-assets and clients of crypto-asset service providers will not benefit during that period from any EU-level regulatory and supervisory safeguards or recourse mechanisms built into the Regulation, such as the ability to file formal complaints with their NCAs against crypto-asset service providers.

Given this timeline, holders of crypto-assets and clients of crypto-asset services should be aware of the recourse mechanisms and protections currently available in their jurisdiction (or lack thereof). In addition, if they are thinking about buying crypto-assets or related products and services, they should always ask themselves the following:

• can you afford to lose all the money you are planning to invest?
• are you ready to take on high risks to earn the advertised returns?
• do you understand the features of the crypto-asset or related products and services?
• are the firms/parties you are dealing with reputable?
• are the firms/parties you are dealing with blacklisted by the relevant national authorities?
• are you able to effectively protect the devices you use to buy, store or transfer crypto- assets, including your private keys?

In addition, even after MiCA becomes applicable to crypto-asset service providers, Member States have the option of granting entities already providing crypto-asset services in their jurisdictions up to an additional 18-month “transitional period” during which they may continue to operate without a MiCA license (also referred to as a ‘grand-fathering clause’). This means that holders of crypto-assets and clients of crypto-asset service providers may not benefit from full rights and protections afforded to them under MiCA until as late as 1 July 2026.

Beyond responding to the public consultations, market participants that would fall under the scope of MiCA can already begin taking actions to ensure a smooth transition and implementation. ESMA calls on entities currently providing crypto-asset services (including already authorised financial entities) to:

• Inform NCAs and clients of their transition plans as early as possible;
• Inform clients about the regulatory status of the crypto-assets and/or services they are offering, clarifying whether they are offering crypto-asset services using the grandfathering clause, the type of authorisation they hold, and the country from which they operate;
• If they are authorised under other sectoral Regulations, clarify the regulatory status of the products and/or services they are offering to avoid confusion with respect to their regulated offerings;
• Anticipate MiCA’s entry into application by aligning their practices to comply with incoming requirements under that Regulation.

Further, entities providing crypto-asset services who are active in more than one Member State under local applicable laws must continue complying with all applicable local laws until the end of the transitional period.

ESMA also underlines that the provision of crypto-asset services or activities by a third-country firm is strictly limited under MiCA to cases where such service is initiated at the own exclusive initiative of a client (the so called “reverse solicitation” exemption).

While this exemption will be subject to further guidance by ESMA, it should be understood as very narrowly framed and as such must be regarded as the exception; and it cannot be assumed, nor exploited to circumvent MiCA. ESMA, and NCAs through their supervisory and enforcement powers, will take all necessary measures to actively protect EU-based investors and MiCA-compliant crypto-asset service providers from undue incursions by non-EU and non- MiCA compliant entities under the European MiCA framework.