Balázs Bibók

On 20 April 2023, after a long wait, the European Parliament voted in favour of the so-called MiCA regulation on crypto asset markets, which will be the first comprehensive set of rules covering this area in the EU. However, it remains to be seen what impact the new regulation will have on the crypto market.

Why is it important?

Currently, most crypto assets are not covered by EU legislation on financial or investment services. Meanwhile, there is no uniform regulation of cryptoassets in Hungary either. Although some cryptoassets may qualify as "financial instruments" or "electronic money" under Hungarian financial legislation, these categories are difficult to capture the nature of cryptoassets, as they were created earlier and not with cryptoassets in mind.

Unsurprisingly, cryptoassets have consistently posed a challenge to both investor protection and financial stability, and the need for a single set of rules for cryptoassets has long been felt. The regulatory framework now adopted has the unhidden aim of protecting consumers and investors effectively while promoting innovation and fair competition in the financial sector.

What are the main orientations of the regulation?

One of the main novelties of the MiCA is that it attempts to categorise crypto-assets at EU level. On this basis, 3 main categories of cryptoassets will be created: asset-based tokens, electronic money tokens and utility tokens.

One of the main objectives of the Regulation is to make the provision of cryptoasset services subject to authorisation. The MiCA lists cryptoasset services, including, inter alia, the operation of a cryptoasset trading platform, the conversion of cryptoassets into legal tender fiat currency, cryptoasset consultancy, etc., which will be subject to authorisation and an appropriate institutional framework, from the entry into force of the Regulation. The authorisation to provide these activities will be granted by the competent national supervisory authorities. The licence will be valid throughout the EU, so that licensed cryptoasset providers will be able to provide the services specified in the licence on a cross-border basis throughout the EU without having to be physically present in the host state.

Companies based in Hungary planning to provide cryptoasset services should be prepared for a licensing procedure before the National Bank of Hungary as the competent supervisory authority that will be as complex and rigorous in nature as any other licensing procedure for money markets or capital markets. In this context, cryptoasset providers will be required to submit a number of documents to the licensing authority to demonstrate the adequacy of their activities, which will assess, within three months of receipt of a complete application, whether the applicant cryptoasset provider complies with the requirements of the MiCA and will decide whether to grant or refuse the licence accordingly.

Advantages or disadvantages of MiCA in the Hungarian market?

In view of the adoption of the MiCA, a new wave of legislation is expected to be introduced in Hungary. At the same time, the practice of the National Bank of Hungary will also have to adapt to the new regulation. In addition, the MiCA raises a number of exciting business issues for the future. These include the extent to which a level playing field will maintain the advantage and dominance in the European crypto markets of those Member States (e.g. Malta, Lithuania) that have already started to regulate and license crypto assets in their national legislation. Another interesting question is how users will view these instruments in the light of the new regulatory environment, whether there will be an increase in demand and confidence in crypto instruments, and to what extent this will bring a boost and a new direction for the Hungarian crypto market, which until now has been virtually non-existent.

When will MiCA apply?

The MiCA will enter into force on the 20th day following its publication in the EU's Official Journal (which is still pending) and will, in principle, apply from the 18th month after that date. An exception to this are the provisions on stablecoins, which will be binding from 12 months after entry into force.