MiCA (Markets in Crypto-Assets)

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MiCA: A New Legal Framework for Crypto-Assets

• EU Market Harmonization: MiCA Regulation revolutionizes the crypto landscape in the EU and European Economic Area. This section details MiCA’s comprehensive impact on ecrop as a crypto-asset service provider and its customers who issue and manage crypto securities through the white-label platform. Focus areas include licensing, custody, staking, governance, and ensuring MiCA compliance. It’s important to note that MiCA doesn’t apply to all crypto-assets, but only those that aren’t financial instruments under MiFID II. Link to MiCA Regulation
• Investor Protection (Transparency and Information): MiCA prioritizes investor protection and requires crypto-asset service providers to fulfill comprehensive transparency and information obligations. These include publishing a white paper, creating marketing materials, and providing information about crypto-assets’ risks and opportunities. Additionally, crypto-asset service providers must ensure all investor information is clear, comprehensible, and not misleading. This should enable investors to make informed investment decisions and minimize loss risk. Compliance with these requirements is monitored by competent national authorities, like BaFin in Germany.
• Financial Stability (Stablecoins and E-Money Tokens): MiCA regulates the issuance and trading of stablecoins and other e-money tokens pegged to fiat currencies or other assets. This regulation includes requirements for reserves, issuance transparency, and issuer governance. These rules should help ensure financial system stability and minimize systemic crisis risk triggered by volatile crypto-assets.
• Promoting Innovation (Legal Certainty): By creating a clear and comprehensive legal framework, MiCA promotes crypto sector innovation. The legal certainty MiCA provides encourages companies to invest in new technologies and business models, contributing to crypto market development. MiCA also creates legal certainty for asset tokenization and enables development of new financial products and services based on crypto-assets.

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Impact of MiCA on ecrop and its Customers

• Custody (High Security Requirements): MiCA sets high requirements for crypto-asset custody, particularly under Article 75 MiCA. ecrop meets these requirements through its robust security architecture based on “Security in Depth” principle. Cold storage custody in Hardware Security Modules (HSMs) and multi-level access control ensure crypto-asset protection against loss, theft, and unauthorized access. ecrop will offer crypto-asset custody according to Article 75 MiCA requirements once the necessary KWG license is granted.
• Staking (Optional Service, Additional Requirements): ecrop’s optional staking offering also falls under MiCA regulation, particularly Article 62 MiCA. ecrop must ensure staking is conducted transparently and in compliance with MiCA requirements.
• Governance (Clear Structures and Processes): MiCA requires clear and transparent governance structure for all crypto-asset service providers, particularly under Article 66 MiCA. ecrop has implemented such a structure that clearly defines company responsibilities and reporting lines and ensures compliance with fiduciary duties set in Article 66 MiCA. This ensures MiCA compliance and strengthens customer and supervisory authority trust.

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Specific MiCA Requirements and Implementation at ecrop

• Title III (Asset-Referenced Tokens - Relevant Requirements): Requirements for Asset-Referenced Tokens (ARTs) are particularly relevant for ecrop, as the platform enables tokenized securities issuance. Under Articles 3 and 4 of MiCA regulation, ART issuers must ensure tokens have clear reference to underlying assets, token holders have clear and enforceable rights, and token issuance and trading are processed transparently and securely. ecrop meets requirements for ART issuance, admission, trading, and custody.
• Title IV (E-Money Tokens - Relevance for Stablecoin Issuers): E-money token regulations are relevant for ecrop customers wanting to issue stablecoins or other e-money tokens. E-money tokens are crypto-assets that represent a claim for money repayment and are intended for use as payment means. Under Article 42 ff. MiCA, e-money token issuers must ensure tokens are backed by sufficient reserves, token holders have redemption rights, and token issuance and trading are processed transparently and securely. ecrop ensures the platform provides technical and organizational prerequisites for meeting MiCA requirements for e-money tokens.
• Title V (Crypto-Asset Service Providers): As a crypto securities registry manager under § 1 Para. 1a Sentence 2 No. 8 KWG and crypto custodian under § 1 Para. 1a Sentence 2 No. 6 KWG, ecrop is a crypto-asset service provider under MiCA and must meet Title V requirements. This includes compliance with requirements set in Article 51 ff. MiCA for business organization, reliable and prudent business management, customer due diligence, prevention of money laundering and terrorist financing, prevention of market abuse, and cooperation with competent authorities.
  • Article 59 (Authorization): ecrop holds required BaFin authorization for crypto securities registry management under § 1 Para. 1a Sentence 2 No. 8 KWG and has applied for crypto custody authorization under § 1 Para. 1a Sentence 2 No. 6 KWG. Transition to MiCA licenses will occur after crypto custody license is granted. During authorization process, ecrop demonstrated management reliability, staff expertise, financial soundness, and internal control system adequacy.
  • Article 66 (Fiduciary Duties): Under Article 66 MiCA, crypto-asset service providers must act in customers’ best interests. Customer fiduciary duties are anchored in ecrop’s terms and conditions and strictly observed. This includes duty to act in customers’ best interests, avoid conflicts of interest, communicate transparently, and inform customers about all relevant service aspects. ecrop has implemented a compliance management system ensuring fiduciary duty adherence.
  • Article 70 (Asset Protection): Under Article 70 MiCA, crypto-asset service providers must securely custody customer assets and protect against loss, theft, and misuse. ecrop ensures secure crypto-asset custody through cold storage architecture with HSMs and multi-level security architecture. Customer funds are held separately from ecrop’s assets to secure customer claims in case of ecrop’s insolvency. BaFin monitors compliance with these requirements.
  • Article 73 (Outsourcing): Function outsourcing to third parties, like using cloud services (AWS), is only permitted under Article 73 MiCA if certain conditions are met. ecrop has assessed outsourcing-related risks and concluded contracts with service providers ensuring MiCA compliance. Contracts include provisions on responsibilities, service levels, and security measures. Outsourcing critical or important functions requires prior BaFin approval.

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Converting KWG Custody Permission to MiCA License