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Understanding Mica Regulation: The Authorization Process for Crypto-Asset Service Providers Under MiCA

Apr 07 2025

The Markets in Crypto-Assets (MiCA) Regulation introduces a harmonized legal framework for crypto-asset service providers (CASPs) across the European Union. One of its central pillars is the authorization process, which mandates that CASPs obtain formal approval from their National Competent Authorities (NCAs) to legally provide crypto asset services within the EU. This article outlines the key steps and requirements involved in securing authorization under MiCA. It details the types of crypto asset services covered—such as custody, trading, exchange, and portfolio management—as well as the documentation and prudential standards needed for successful applications. These include capital requirements (own funds), robust internal controls, anti-money laundering (AML) measures, governance structures, and risk management systems. Applicants must also ensure transparency in their marketing communications, provide detailed information in a crypto asset white paper if issuing tokens, and demonstrate compliance with the broader regulatory framework governing financial instruments and distributed ledger technology. Additional scrutiny is applied to services involving asset-referenced tokens and e-money tokens, particularly when issued by credit institutions or electronic money institutions. MiCA’s authorization process aims to enhance financial stability, increase consumer protection, and prevent market abuse in the rapidly evolving crypto markets. By securing authorization, CASPs not only achieve legal certainty within the EU but also gain a competitive advantage by demonstrating commitment to regulatory compliance and operational excellence. In conclusion, MiCA marks a new era for crypto regulation in Europe. For CASPs, navigating the authorization process effectively is key to scaling responsibly in a more structured and transparent crypto ecosystem.

The European Union has introduced the Markets in Crypto-Assets (MiCA) regulation as part of a broader crypto assets regulation framework to provide a unified legal structure for the treatment of crypto assets and the businesses operating within the crypto economy. As part of this comprehensive regulatory framework, crypto asset service providers (CASPs) are required to undergo a formal authorization process before they can legally provide crypto asset services in the EU.

This blog post explores the key steps of the authorization process under the MiCA regulation and provides an in-depth look at what crypto asset service providers need to do to become compliant.

Table of Contents

Understanding the MiCA Crypto Assets Regulation and Its Scope

The MiCA regulation applies to a wide range of entities involved in the issuance, trading, and management of crypto assets. It encompasses crypto asset issuers, crypto asset trading platforms, custodian wallet providers, and other crypto businesses that provide crypto asset services, such as transfer services and portfolio management.

MiCA defines crypto assets as digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology (DLT). This includes asset-referenced tokens (ARTs), electronic money tokens (EMTs), and other types of crypto assets.

The regulation does not apply to crypto assets that qualify as financial instruments under MiFID II, which are instead governed by existing EU financial regulations.

Who Needs Authorization Under MiCA?

Crypto asset service providers are defined as legal persons or entities that provide one or more services related to crypto assets on a professional basis. These include:

  • Operating a crypto asset trading platform

  • Providing custody and administration of crypto assets

  • Exchanging crypto assets for fiat currency or other crypto assets

  • Executing orders for crypto assets on behalf of third parties

  • Providing portfolio management or investment advice in crypto assets

Entities providing services related to asset-referenced tokens or issuing e-money tokens must also adhere to specific MiCA requirements. Notably, only credit institutions and electronic money institutions can issue e money tokens.

Alternative investment fund managers, central banks, and other institutions under existing financial supervision frameworks are excluded from MiCA's scope.

The Authorization Process

To become authorized under MiCA, a crypto asset service provider must submit an application to the competent authority of the Member State in which it is established. This process is designed to ensure the applicant meets MiCA’s prudential, organizational, and conduct requirements.

Key steps in the authorization process include:

1. Preparing the Application

The application must include:

  • A detailed business plan outlining the crypto asset services to be provided

  • Governance and internal control mechanisms

  • Measures for managing operational and security risks, including compliance with the Digital Operational Resilience Act (DORA)

  • Proof of sufficient own funds to meet prudential requirements

  • Anti-money laundering (AML) and counter-terrorism financing (CTF) controls

  • A description of marketing communications relating to such crypto assets

  • Security access protocols for customer data and digital assets

2. Submission to the Competent Authority

Once prepared, the application is submitted to the national competent authority (NCA) of the EU Member State where the service provider is based. This body will assess the application’s completeness and compliance with the MiCA regulation.

3. Review and Decision

The competent authority has up to 40 working days to review the application. It may request additional data or clarification during this time. If the authority is satisfied, it will grant the applicant authorization to operate as a CASP.

The authorized status will be valid across all EU member countries under the principle of passporting, allowing the service provider to offer crypto asset services throughout the European Union.

Stablecoins and E-Money Tokens

Stablecoins and e-money tokens are two distinct types of crypto assets that fall under specific regulatory scrutiny within the MiCA framework. Stablecoins, often referred to as asset-referenced tokens, are designed to maintain a stable value relative to a fiat currency. E-money tokens, on the other hand, represent a claim on a fiat currency and are subject to similar regulations as traditional e-money institutions.

Under MiCA, stablecoins must be backed by a reserve of assets sufficient to cover the value of the tokens in circulation. This reserve must be held by a credit institution or an electronic money institution and is subject to regular audits and inspections to ensure its adequacy and integrity. This requirement aims to provide transparency and stability, fostering trust among users and investors.

E-money tokens are regulated similarly to traditional e-money institutions. They must be issued by a credit institution or an electronic money institution and adhere to the same capital requirements and risk management rules. This ensures that e-money tokens are as secure and reliable as traditional electronic money, providing a familiar regulatory environment for issuers and users alike.

In addition to these foundational regulations, MiCA imposes specific requirements on the issuance and trading of stablecoins and e-money tokens. Issuers of stablecoins must publish a comprehensive whitepaper detailing the token’s underlying technology, governance structure, and risk management policies. This whitepaper serves as a critical tool for transparency and investor protection.

Trading platforms that list stablecoins and e-money tokens must comply with stringent rules and regulations, including those related to market abuse and investor protection. These platforms must implement robust systems to detect and prevent fraudulent activities, ensuring a fair and transparent trading environment for all participants.

Prevention of Market Abuse

The MiCA framework includes robust provisions designed to prevent market abuse in the crypto asset markets. These provisions address insider dealing, market manipulation, and unfair market practices, ensuring a fair and transparent market environment.

Insider dealing under MiCA is defined as the use of confidential information to trade in crypto assets. This includes trading based on non-public information about a company’s financial performance or future plans. Such practices undermine market integrity and are strictly prohibited.

Market manipulation involves using false or misleading information to influence the price of a crypto asset. This can include spreading fake news articles, misleading social media posts, or other forms of misinformation to manipulate market prices. MiCA’s rules aim to prevent such deceptive practices, ensuring that market prices reflect genuine supply and demand dynamics.

Unfair market practices, such as front-running and wash trading, are also addressed under MiCA. Front-running involves trading in a crypto asset ahead of a client’s order, while wash trading involves creating a false impression of market activity through pre-arranged trades. Both practices distort market prices and are prohibited under MiCA.

Trading platforms and other market participants must implement systems to detect and prevent market abuse. These systems should be capable of identifying suspicious activities and reporting them to the relevant authorities. By enforcing these rules, MiCA aims to create a level playing field for all market participants, enhancing trust and stability in the crypto asset markets.

Interaction with Other Legislative Measures

The MiCA framework interacts with several other EU legislative measures, creating a comprehensive regulatory environment for crypto asset service providers. One of the key interactions is with the EU’s Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations. These regulations require crypto asset service providers to implement measures such as know-your-customer (KYC) checks and transaction monitoring to prevent money laundering and terrorist financing.

MiCA also interacts with the EU’s General Data Protection Regulation (GDPR), which mandates specific measures to protect the personal data of clients. Crypto asset service providers must implement data encryption, access controls, and incident response plans to comply with GDPR requirements. This ensures that client data is protected, enhancing trust and security in the crypto asset markets.

Additionally, MiCA interacts with the EU’s Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR). These regulations impose specific capital requirements on credit institutions and investment firms, ensuring they have sufficient capital to cover their risks and prevent excessive risk-taking. By aligning with these regulations, MiCA ensures that crypto asset service providers operate within a robust and secure financial framework.

These interactions highlight the importance of a holistic approach to regulatory compliance. By adhering to MiCA and other relevant EU regulations, crypto asset service providers can ensure they meet all necessary requirements, fostering a secure and trustworthy market environment.

Timeline for Application

The implementation of the MiCA framework will occur in phases, with different provisions coming into effect at different times. This phased approach allows for a smooth transition to the new regulatory environment, providing ample time for crypto asset service providers to comply with the new rules.

The first phase, which includes provisions related to stablecoins and e-money tokens, will come into effect on June 30, 2024. This phase focuses on establishing the foundational regulations for these types of crypto assets, ensuring they are backed by sufficient reserves and subject to regular audits and inspections.

The second phase, which includes provisions related to crypto asset service providers, will come into effect on December 30, 2024. This phase introduces the authorization process for service providers, requiring them to meet prudential, organizational, and conduct requirements to operate legally within the EU.

The third phase, which includes provisions related to market abuse and investor protection, will come into effect on July 1, 2026. This phase also includes the provisions related to the authorization and supervision of crypto asset service providers, ensuring they operate within a fair and transparent market environment.

In addition to these phases, MiCA includes several transitional provisions designed to facilitate the transition to the new regulatory framework. These provisions include a grandfathering period for existing crypto asset service providers, allowing them to continue operating while they work towards full compliance with the new rules. The phased implementation and transitional provisions ensure a smooth and orderly transition to the MiCA framework, providing clarity and stability for all market participants.

Post-Authorization Requirements

Once authorized, crypto asset service providers must comply with ongoing obligations:

  • Transparency and Disclosure Requirements: CASPs must provide clear and non-misleading marketing communications and publish a crypto asset white paper for tokens intended for public offerings.

  • AML and CTF Compliance: Continued adherence to applicable national law on AML/CTF is mandatory.

  • Prudential Requirements: Providers must maintain sufficient own funds to ensure financial stability.

  • Incident Reporting and Consumer Protection: CASPs must report security breaches, implement complaint-handling procedures, and uphold consumer protection standards.

  • Prevent Market Abuse: Measures must be in place to detect and prevent market manipulation and insider trading.

Role of the European Supervisory Authorities

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) play crucial roles in developing the technical standards, guidelines, and supervisory practices necessary for implementing the MiCA regulation.

These authorities will work with national competent authorities to ensure consistent enforcement and provide clarification on technical standards.

Challenges and Considerations

  1. Regulatory Burden: For startups and smaller crypto businesses, the cost and complexity of compliance may be significant.

  2. Alignment with Other Frameworks: MiCA must be aligned with existing financial regulations, such as the Digital Operational Resilience Act and AML Directives.

  3. Evolving Market Conditions: Crypto asset markets evolve rapidly, requiring regulatory agility.

Conclusion

MiCA establishes the most comprehensive regulatory framework for crypto assets to date. The authorization process under MiCA aims to foster trust, financial stability, and investor protection across the European crypto ecosystem.

Crypto asset service providers looking to operate within the European Union must treat authorization not just as a legal hurdle but as an opportunity to build robust, scalable, and compliant business models.

As the regulation comes into full effect, early movers that invest in compliance and authorization will be well-positioned to thrive in Europe’s increasingly regulated crypto markets.

MarketGuard provides crypto businesses with RegTech tools to simplify authorization under MiCA, manage risk, automate compliance reporting, and build trust with regulators and customers alike.

For more information about how we can help reach out to us. We're here to help and answer any questions you may have.

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