Abstract
The EU has enacted its first, structured and complete legislation on crypto-assets, substantiated in the Markets in Crypto Assets Regulation, which has become fully effective as of the end of 2024. With this Regulation, which constitutes a new, large pillar of the Union’s financial legislation, the EU finds itself in a unique position, also on a geopolitical level, as it now constitutes the sole multi-state geographic area endowed with a homogeneous and uniform discipline (as directly applicable in the Member States) on markets in crypto-assets. This paper intends to provide an overall illustration of the structure of the MiCA Regulation and its rationale, highlighting some of its major interpretative issues, including taxonomy, definitions, and interplay with national legislations, also with the aim of stimulating further research.
Summary
1. Crypto-assets: the European Union’s response to a global phenomenon. 1.1. From the market . . . to regulation - 2. The objectives of MiCAR. - 2.1. Some reflections on what MiCAR does not regulate. 2.2. Taxonomy and objective scope of MiCAR. 2.3. The “internal” boundaries of MiCAR. - 3. The subjects governed by the Regulation. - The special regime for ARTs and EMTs issuers, between transparency and prudential supervision - 4.1. Specific obligations for issuers of ARTs. - 4.2. Reserve of assets and own funds. - 4.3. Issuers of significant ARTs. - 4.4. Issuers of EMTs (significant and non-significant) - 5. Crypto-asset service providers and the so-called ‘mifidization’ of MiCAR. - 5.1. The rules of conduct. - 6. MiCAR and market abuse. - 7. Concluding remarks.
I. Crypto-Assets: The European Union’s Response to a Global Phenomenon
Much has been written and said, in recent times, on the innovations induced, in various spheres, and in particular in the financial sector, by IT development and new technologies, and on the ethical, social, economic and legal issues they raise. In financial markets (understood in the broadest sense), full-bodied technological innovations—generically, and quite roughly, identified with the very broad term Fintech—manifest themselves in multiple and changing forms and structures. In a panorama of great complexity, two specific phenomena have recently polarized the debate on the relationship between technology and markets: on the one hand, artificial intelligence (AI) and on the other, Distributed Ledger Technology (DLT), or Blockchain.
Leaving aside the first phenomenon—now subject to a robust legislative intervention, of a horizontal nature, in Europe—in this paper we focus on the regime recently introduced in the Union concerning crypto-assets: a new legislation enacted a few years after the development—at times impetuous, even irrational—of a global crypto market, and that is now, at least in Europe, being brought back into the meshes of a regulatory approach marked by the features of (more traditional) financial regulation.
The purpose of these notes is to provide an overall illustration of the structure of the MiCA Regulation, highlighting some of what we believe to be its major interpretative issues, without, however, any claim to completeness. The complexity of the subject matter and the vastness of the fields affected by the Regulation, coupled with the very substantial Level 2 legislation to be adopted, certainly do not allow us to address all possible issues. The aim, therefore, is to provide a not entirely unqualified “guide to mariners,” also to indicate further possible avenues of research.
A. From the Market…to Regulation
In everyday language, and given the outspread of the phenomenon, colloquial terms such as ‘cryptocurrencies, digital currencies, Bitcoin,’ etc., are now widely used. However, in many legal systems, legislators, supervisory authorities, and even supranational bodies are still addressing the problems and challenges posed by crypto-assets with an attempt of hopefully providing a response that ought to be as coordinated as possible, and even based on common principles. The EU, less hesitant, is now moving ahead with a regulation designed to be comprehensive and organic.
The resounding (not entirely unexpected), failures that occurred between 2021 and 2023 showed the fragility of a market that—in stark contrast to the vaunted autonomy of technology (the well-known adage coined by Lawrence Lessing in 1999, “code is law”) and the alleged ability of markets to regulate themselves (a recurring blunder in the historical dynamics of financial markets)—is unable to develop in an orderly manner absent a structured robust, regulatory and supervisory framework. The expression ‘crypto-winter’ was coined to refer to a particularly dark phase in the development of these markets, after which the only possible solution is a legislative response that is as decisive and coordinated as possible, possibly even at transnational level.
The EU has now enacted its first, structured and complete legislation on crypto-assets, substantiated in the Markets in Crypto Assets Regulation (MiCAR or also MiCA, according to the acronyms now widespread in the literature). With this Regulation, which constitutes a new, large pillar of the Union’s financial legislation, the EU finds itself in a unique position, also on a geopolitical level, as it now constitutes the sole multi-state geographic area endowed with a homogeneous and uniform regime (as directly applicable in the Member States) on markets in crypto-assets.
In this evolution, one can read, on the one hand, the attention and care that EU institutions have devoted to a phenomenon that risks seriously affecting the interests, and therefore the protection, of users and consumers —defined, in MiCAR, by the term ‘retail holders’—as well as financial stability itself; on the other hand, the Union’s intention to become the standard-setter of the rules on crypto-assets at a global level, and to be at the forefront of their development, acting as a pole of attraction for operators in the sector: in short, a Brussels effect in crypto-assets markets.
It is, therefore, no coincidence that, unlike almost all other legislative texts that form the composite framework of EU financial law, the Regulation does not contain provisions that open up to cooperation, passporting, or even to some kind of ‘dialogue’ with third countries: a clear, fundamental choice, which, together with the speed of the legislative intervention (at least compared to other relevant jurisdictions, and even taking into account the timeframe—probably too long—for the entry into force of MiCAR, 30.12.2014) certainly does not go unnoticed.
II. The Objectives of MiCAR
Why is it necessary (and not only appropriate) to regulate crypto-assets and their markets? The question has been raised countless times, and this is not the place to re-frame the entire debate. But, to understand the reasons for the choices that moved the EU legislator, it might be useful to (very briefly) rewind the tape of history.
The birth of the crypto-asset phenomenon is famously traced back to the appearance of Bitcoin in 2009, which, at the time, presented itself as a project that was not only innovative from a technological point of view, but also in terms of its aims and objectives: in the white paper published by the promoter of the technology (the now mythical Satoshi Nakamoto, of uncertain origins and, perhaps, even existence) Bitcoin was singled out as a project whose main objective was the disintermediation of official currencies, giving rise to a means of payment issued and managed in a completely decentralized manner. Hence, also, the tendency to exhaust the entire phenomenon in that of the so-called ‘crypto-currencies’ according to a perspective that is now completely blurred, given that the phenomenon itself is certainly not limited to ‘tokenized’ means or instruments of payment. Against the backdrop of an ideological message centered on the democratization of global finance, the idea was that crypto-assets not only Bitcoin but all those emulating its design—would have freed the financial market from the burden and weight of intermediation, giving rise to much more efficient and less costly markets, without central authorities. This idea, accompanied by theorizations on smart contracts, which were initially entrusted with the ‘thaumaturgical’ mission of substituting law with computer codes, in essence vaticinated a free financial world, capable of self-regulating itself and achieving very high levels of efficiency, thanks to and by virtue of the use of distributed ledger technologies.
That utopia, however, soon turned out to be illusory because in the face of the impetuous development of these markets, in many regions of the world, risks and problems emerged that were not at all so different from those that characterize the more traditional financial industry: information opacity; protection of weak counterparties; asymmetries; market inefficiency and risks of manipulation; financial stability risks, even at systemic level; fraud and, as noted, the well-known risks related to money laundering. In fact, from the very beginning, market developments in a mostly deregulated environment were characterized by failures and even frauds. The attention of legislators and supervisory authorities was nonetheless particularly intense from the outset. The resounding defaults of the crypto winter, culminating in the failure of the ‘FTX’ exchange, were only the most obvious examples of a long series of pathological phenomena that, from the outset, should have prompted a regulatory response both in Europe and elsewhere.
The idea of moving towards regulating crypto-assets first appeared in Europe as part of the EU Commission’s ambitious Digital Finance Strategy project. In that context, on September 24, 2020, the Commission formulated the first proposal for the Regulation on markets in crypto-assets, to which two other seemingly ‘minor,’ but equally important regulations are linked: on the one hand, the satellite proposal ‘Pilot-Regime for DLT-based Market Infrastructures,’ focused on enabling the use of distributed ledger technology in capital markets, and, on the other hand, the ‘Digital Operational Resilience Act’ (so-called DORA), aimed to provide digital operational ‘robustness’ for the financial sector. After an articulated debate, and—in the meantime—the approval of the DLT Pilot Regime and DORA Regulations, in a context shaken by resounding global market failures, the pandemic, and an unstable geopolitical environment, the final text of the MiCA Regulation was published in the Official Journal on June 9, 2023, which as mentioned, became fully effective on December 30, 2024.
The reasons justifying this massive regulatory intervention from the EU are all well described and set out in the Recitals, and clearly reflected in the body of the text: legal certainty, support to innovation, users’ protection, market integrity, financial stability, risk mitigation also in terms of the transmission channels of monetary policy, and even protection of monetary sovereignty. A mix, in short, of macro- and micro-prudential objectives, but also of informational efficiency of markets and the protection of consumers. The reasons for which, today, it has been decided to regulate crypto-assets are, therefore, multiple, articulated, but strongly interconnected, in the awareness that it is not only a matter of managing and dealing with the risks involved, but also of not hindering the development of a technology that, to the contrary, may be the harbinger of developments in a positive sense.
Awareness of the multi-dimensionality of the phenomenon, and its extreme complexity, are therefore at the heart of the MiCA Regulation: a regulatory text that stands out for the courage of its choices and the clarity of its intentions, in an international context that, by contrast, is generally still characterized, despite some interesting national experiments (see inter alia, Malta, France, Singapore, Luxembourg, Germany) by many uncertainties as to what to do and how.
This is certainly not meant to conceal difficulties and problems. The MiCA Regulation is not free of shortcomings and uncertainties: one finds in it the typical huge gaps that often characterize the texts that compose the galaxy of the Union’s financial legislation; one can readily see the compromises, the short-term choices, the tendency to postpone, and to move further down the line the definitive solution to major issues (such as those that deal with “truly” decentralized finance). All of this, however, does not draw away the fact that MiCAR constitutes, as of today, the most complete, articulated and comprehensive regime in the world for markets in crypto-assets, which gives rise to a system of rules far more advanced than the uncertain and casuistic approaches that characterize the very markets from which the phenomenon originated, starting with the United States, where there are still attempts to govern the phenomenon through a form of harsh, but stuttering, regulation by enforcement.
A. Some Reflections on What MiCAR Does Not Regulate
A preliminary remark is necessary, also in order to clear the field from any misunderstandings. The Regulation is not able to regulate all matters gravitating around the universe of crypto-assets, let alone new technologies.
Firstly, despite what, at first glance, one might gather, the MiCA Regulation does not regulate crypto-assets as such, but only their markets, i.e., the phenomena comprising their offer, negotiation and exchange, as well as the provision of services related to the foregoing Nor does one find, in MiCAR, a regulation of smart contracts, which constitute the instrument that enables the conclusion of transactions on DLT, and which represent, so to speak, the lifeblood of trading on these systems.
The regulation of these matters is, therefore, left to national legislators, being, moreover, closely connected with topics that are mostly outside the competence of the European legislator: in particular, private law, contract law, private remedies, company law, or insolvency law, to name but a few. In this sense, MiCAR represents an (almost perfect) homologue, in the sphere under discussion, of the MiFID regime and, not by chance, shows affinities with the latter in its very title (and acronym): both, in fact, aim to regulate not products but their relevant markets. Ultimately, just as one does not expect to find in MiFID a regulation of individual financial instruments as such—specifically, shares, bonds, participative financial instruments, units of collective investment undertakings, emission allowances, derivatives, etc.—similarly, one does not find a regulation of crypto-assets as such in MiCAR. As was already the case in the context of MiFID, this approach naturally runs the risk of leading to misalignments and fragmentations between national legislations, also accentuating—given the global nature of the phenomenon of crypto-assets—the problems connected with international law: these are, however, limits that, in truth, cut across almost all areas of financial regulation in the Union, and which should not come as a surprise, even if it is necessary to point out the relative shortcomings.
At the same time, the MiCA Regulation is an experiment of considerable interest, not only because it aims to regulate a new market, which in fact has arisen from (or produced by, one might say) new technologies, but also because, in doing so, it makes use, in its various areas, of the vast array of concepts, notions, approaches and methods that can be found in the context of the broader EU financial discipline. Depending on the different matters at stake, one finds in MiCAR a kind of condensation of the main foundational texts of EU financial law, starting with those on credit institutions, investment services providers, market abuse, and several others. This leads to a true exercise of cross-sectoral regulation (albeit precipitated in a single area) that has no parallel in EU financial law. For instance, with regard to the issuance of crypto-assets and their offer on the market, the model followed by MiCAR is that of public offers and of the Prospectus Regulation, although adapted and simplified to take into account an already established market practice (the so-called white paper). As for the regime applicable to crypto-asset service providers, the most obvious reference model is, instead, MiFID, from which structures, notions, regulatory and supervisory approaches are directly imported.
Regarding trading platforms, the model is once again MiFID (with respect to trading venues), which is combined under MiCAR with an adapted version of the market abuse regime, as drawn from the Market Abuse Regulation (MAR). Finally, concerning crypto-assets with a payment function (i.e., as will be seen, asset-referenced tokens and e-money tokens), the reference is (again) the prudential regulation of credit institutions and electronic money institutions. All these approaches now converge in a single text, sometimes even applying cumulatively, as for instance in the case of entities both issuing payment tokens on the market (ARTs and EMTs) and offering related services.
But even in the above-mentioned context, MiCAR’s approach is not entirely complete. The Regulation, in fact, does not govern the phenomena falling within the realm of fully decentralized finance (the so-called DeFI): the reason is that in decentralized structures it is difficult, or even impossible to identify a subject, or potentially a group of subjects, which, in the capacity of ‘issuers’ or ‘service providers’ can be the addressees of the rules now introduced. What lacks, therefore, is the reference that has always underpinned the typical regulatory approach in EU financial law, still oriented towards regulating and supervising an identified subject (or group of subjects). This distancing from decentralized finance, however, risks creating difficulties, as it could lead certain organizations to offer crypto-asset services on the market without being authorized, for the mere fact of possessing, precisely, decentralized structures. In this regard, nonetheless, the Regulation provides for a closing rule: Article 59(3) states that ‘For the purposes of paragraph 1(a), other undertakings that are not legal persons shall only provide crypto-asset services if their legal form ensures a level of protection for third parties’ interests equivalent to that afforded by legal persons and if they are subject to equivalent prudential supervision appropriate to their legal form’. Clearly, the issue concerns the interpretation of the notion of ‘undertaking/enterprise’, which will have to be better defined, both by the supervisory authorities and, possibly, by the Courts, taking into account the actual degree of decentralisation of the phenomenon.
In light of the protean nature of crypto-assets, and the multiple functions they can perform, another fundamental choice that the European legislator had to make in the context of MiCAR relates to the rules applicable to those crypto-assets which, following a functional approach, coincide with products/assets already regulated by EU financial law: one might think, for example, of a share issued by a corporation, using DLT technology: financial instrument (at least potentially), on the one hand; crypto-asset, on the other. In such case, the choice is to follow an approach marked by the so-called principle of ‘technological neutrality’: beyond the form and manner used to issue the instrument, that share remains, to all intents and purposes, an “object” already known to, and regulated by, EU financial law and, therefore, is excluded from the MiCA Regulation. In this sense, all crypto-assets that, in substance, qualify as financial instruments as defined by MiFID do not fall within the scope of the MiCA Regulation, as they are, in fact, already regulated by MiFID itself, as also now clearly stated Art. 18 the DLT Pilot Regulation, that directly modified the relevant MiFID definitions to clarify that the term “financial instrument” includes instruments issued by means of distributed ledger technology.
This principle, however, is subject to some tempering: first of all, and in partial misalignment with what has been observed above, MiCAR regulates the issuance and circulation of electronic money issued in the form of tokens, despite the fact that EU law already provides for a specific, and substantial, regime (the E-Money Directive or EMD, now in its second version). On top of that legislation, however, MiCAR introduces its own, and additional, rules, according to an approach that, while justifiable in terms of rationale, calls into question the underlying logic of the Regulation, reducing the principle of technology neutrality to a simulacrum. Secondly, it is not entirely true that the (technological) form of an instrument is (tendentially) irrelevant in terms of regulation, as the DLT raises new and complex issues that were ignored in the pivotal texts of EU financial markets law. In this sense, MiCAR is accompanied, inter alia, by the DLT Pilot Regulation, which formulates a sandbox, providing for a transitional and derogatory regime of the MiFID, MiFIR, and CSDR rules, motivated precisely by the technological peculiarities of the new phenomena.
B. Taxonomy and Objective Scope of MiCAR
It is pertinent to first approach MiCAR by identifying its scope of application, in particular starting from its objective scope and from the issues of taxonomy that arise therefrom.
On this point, the Regulation takes advantage of the broad debate that, also at an international level, preceded its enactment, and of the standards adopted by some jurisdictions that, in this field, were real first movers in imagining a taxonomy of crypto-assets, most notably Switzerland. In fact, Article 3 MiCAR identifies the crypto-assets subject to its scope by adopting, as a first approximation, an approach generally in line with established practices and opinions.
First, the Regulation sets forth a general definition of crypto-assets, meaning ‘a digital representation of a value or right that can be transferred and stored electronically, using distributed ledger or similar technology’. The wording is notably very broad, as it evokes not only DLT, but also similar technologies, which may obscure the exact content of the definition and make its approach uncertain. But such a term should be viewed under a positive lens: on the one hand, in fact, the definition is not open to any technologies other than DLT, but only to those that are ‘analogous’ to it; on the other hand, it is a more than opportune, if not even necessary, provision to allow for adequate regulatory flexibility, in the face of (often unexpected and unforeseeable) evolutions of technology. Where, on the other hand, the Regulation had limited its scope of application only to a specific technological form, it would have conferred on the DLT a general legitimacy and a sort of consecration at the European level that would have been entirely undesirable and would have made itself impervious to future innovations.
Secondly, and downstream from this initial definition, MiCAR expressly defines three types of tokens, namely:
- tokens with a payment function, named asset-referenced tokens (ART), in fact similar to the so-called stablecoins well known in the practice and specialized literature;
- e-money tokens (EMT); and
- utility tokens, which refer to a type of crypto-asset designed solely to provide access to a good or service supplied by its issuer.
This seemingly simple list should be approached with two major caveats: (i.) it could seem, at first, that MiCAR applies exclusively to these three types of crypto-assets, but, in fact, this is not the case (see below); (ii.) the exact scope of MiCAR must be construed primarily in the negative, i.e., by subtracting what is already covered by other EU financial law regimes.
In this last perspective, Art. 2(4) formulates a long list of assets excluded from MiCAR, specifying that MiCAR does not apply in relation to them, namely:
(i.) financial instruments; (ii.) bank deposits, including structured deposits; (iii.) funds, except where they qualify as e-money tokens; (iv.) securitization positions in the context of a securitization; (v.) non-life or life insurance products falling within the classes of insurance listed in Annexes I and II of Directive No. 2009/138/EC of the European Parliament and of the Council or reinsurance and retrocession contracts referred to in the same Directive; (vi.) pension products and schemes, as defined in subparagraphs (f.), (g.), (h.), (i.) of Article 2(4), MiCAR; and (vii.) social security schemes.
In addition to the above, MiCAR does not cover the digital euro project, which is still in the process of being developed by the ECB and the EU Commission and on which, moreover, no conclusive indications have yet emerged as to the type of technological infrastructure that will support its introduction. Despite the affinity of certain objectives (the development of payment instruments in a natively digital form), the two projects therefore remain, for the time being, on parallel tracks, also in view of the very different nature of central bank digital currencies, compared to tokens issued by private individuals.
In light of the foregoing, it can therefore be understood that, beyond the three types of tokens expressly defined, MiCAR adopts a negative approach, in terms of defining its perimeter of application: ultimately, the Regulation identifies its scope by way of exclusion from what is already regulated by other texts of EU financial law.
Moreover, and while attempting to formulate its own definition of (some) crypto-assets, this too proceeds in a negative way. Although the Regulation positively defines ARTs and EMTs, as well as utility tokens, the Regulation then makes use of an open notion, identifying, from time to time, its scope of application not limited to those three categories, but extending it to an undefined universe of tokens ‘different’ from the first two: see, emblematically, Title II of the Regulation, and, in this context, already Art. 4 which opens it, and which applies to ‘crypto-assets other than asset-referenced tokens or electronic money tokens’.
Now, this definitional approach itself is notoriously fraught with pitfalls. A significant example of this, again with regard to EU financial law, is the Alternative Investment Fund Managers Directive (AIFMD), which, having identified its own scope of application also in a negative way, carving out what was already regulated by the earlier UCITS Directive, has raised, and continues to raise, countless questions of interpretation and application, which only an intervention by the legislator, or, perhaps, by the Court of Justice, may one day resolve. It is even more insidious in a field such as that of crypto-assets, in which the evolution of markets brings ever new phenomena to the attention of the interpreter: see, below, the problem of the classification of NFTs (among the latest in the universe of crypto-assets), where, moreover, the definitional framework is further complicated by the existence of national concepts and regimes which, at times, are added to and, in part, overlap with those of EU law (see, below, the issue related to the notion of financial product in the Italian Consolidated Law on Finance, or to similar cases in other Member States).
But what decisively brings uncertainty to the current MiCAR are the definitional ambiguities that characterize some fundamental notions of EU financial market law, most especially the concept of financial instrument in MiFID.
In truth, while the boundary between MiCAR and MiFID is fundamental it is, at the same time, unclear. The reason for this, however, is not to be found in the Regulation, but in the MiFID framework itself (and before MiFID II or MiFID I, even the ISD of 1993). Central elements of this notion, in particular the ‘negotiability’ of the financial instrument, or the fact that it must be ascribable to a class of securities are, to say the least, problematic, as also emerges from a well-known ESMA report of 2019, which reconstituted, so to speak, the cultural background that, at the European level, underpinned the preparation of the proposal for the MiCA Regulation.
The complexity and breadth of the issues underlying these definitional problems, all—as should be stressed—related to MiFID, not MiCAR, cannot be fully addressed in this paper: it suffices, for our purposes, to shed light on their existence. It appears, however, evident that it is precisely the problem of the MiCAR taxonomy that constitutes the main fragility of the new regulatory system, which may render its application uncertain with respect to the other texts of EU law, in particular MiFID: indeed, a significant shortcoming. While ESMA issued interesting ‘Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments’, as mandated by Article 2(5) MiCAR, precisely to address the interplay between MiCAR and MiFID, challenges still persist.
Without belaboring the point, suffice it to add that the fact that a given crypto-asset falls, for instance, under MiFID or MiCAR has radically different consequences in terms of the applicable regulations, supervisory tools and even the supervisory architecture applicable to it. The differences are so many and such that they cannot be diminished by the observation, as some believe, that the MiCAR and/or MiFID regimes would not, on balance, present substantial differences, or such as to raise serious concerns. This is, in fact, not the case at all and, not surprisingly, MiCAR attempts to fill the gap by providing a number of different tools to streamline definitions and taxonomy, including the mandatory submission of legal opinions in the context of the various authorization regimes, the exchange of information between the NCAs and ESMA, and a rich menu of guidelines from the European Authorities. Will this articulated armory of soft law tools be sufficient to overcome the shortcomings of an insufficient legal approach to taxonomy? Will it have a thaumaturgical effect? It will take a long time to answer this question, because the very instruments relied upon by the regulation will inevitably be problematic and in turn raise new questions of interpretation. For the time being, allow me to observe that, in some cases, these indications assign tasks to the European Authorities that directly pertain to other regulatory strains of EU financial law: in particular, to MiFID, with a solution that is, to say the least, quite original.
C. The “Internal” Boundaries of MiCAR
The relationship of mutual exclusion between MiCAR and the other founding texts of EU financial markets legislation represents what we would call the ‘external’ boundaries of the Regulation. There are, however, also ‘internal’ boundaries, which involve several elements, including the basic concept of crypto-assets adopted by MiCAR, as well as specific regulatory choices which, albeit not without uncertainty, have matured in the course of the preparatory work.
1. Bitcoin and Decentralized Crypto-assets:
It has already been mentioned that the Regulation does not apply to crypto-assets that are fully decentralized, as expressly stated in Recital (22). It follows that MiCAR, in particular, does not apply to Bitcoin, which still represents the crypto-asset with the highest capitalization in the world and whose nature remains uncertain: means of payment, investment product, hybrid token or other.
2. Non-Fungible Tokens (NFTs):
Non-Fungible Tokens (NFTs) do not fall within the scope of MiCAR. This is stated, apparently clearly, in Article 2(3): “This Regulation does not apply to crypto assets that are unique and non-fungible with other crypto assets.”
The decision whether or not to include NFTs in the Regulation was subject of a troubled process, in which all (or almost all) possible options were examined. This is reflected in the final structure of the text that is, to say the least, unstable. The point is well illustrated by the (lengthy) Recitals 10 and 11 which can be briefly summarized as follows: (i.) fractions of a unique and non-fungible crypto-asset should not be considered unique and non-fungible; (ii.) the issuance of crypto-assets as non-fungible tokens in a large series or collection should be considered an indicator of their fungibility. The mere attribution of a unique identifier to a crypto-asset is not in itself sufficient to classify it as unique and non-fungible; (iii.) for the crypto-asset to be considered unique and non-fungible, the assets or rights represented should also be unique and non-fungible; (iv.) in any event, the exclusion of unique and non-fungible crypto-assets “from [this] scope of the Regulation is without prejudice to the qualification of such crypto-assets as financial instruments”; (v.) the Regulation should also apply to crypto-assets which appear to be unique and non-fungible, but whose de facto characteristics or features which are linked to their de facto uses would make them fungible or non-unique.
The reasons for such a complex approach are to be found in the fact that NFTs (generally) exhibit features that make them unsuitable for circulation, or exchange, on a widespread market. The two fundamental parameters that the Regulation identifies are, to this end, the uniqueness of the instrument, in conjunction with the underlying assets. A further discretional criterion consists of the (alleged) unsuitability of the NFT to perform an investment function (e.g., to the extent that the holder of the NFT is not entitled to receive a remuneration deriving from its ownership, similarly to what would be the case for a typical financial product). Where, however, that investment function is discernible, or where the non-fungibility is only apparent (because, for instance, the underlying asset is fungible), the NFT falls back into the scope of regulation, either as a crypto-asset, or as a financial instrument (or even, as a financial product within the meaning of the national laws—see below).
That said, the boundaries between NFTs and utility tokens remain uncertain, to say the least. In particular, the Regulation does not provide its own definition of “fungibility,” thus leaving the notion open to different interpretations on the basis also of the multiple national criteria—deriving mainly from private law—applicable from time to time depending on the specific instrument. We believe, in any case, that the notion must be construed as an autonomous concept of EU law, being formulated by a directly applicable Regulation, even if, inevitably, its meaning should be interpreted through a solid exercise of comparative law, aimed to identify a common ground between the traditions of the different Member States.
3. Financial Products Other Than Financial Instruments:
Considering MiCAR’s external borders, one must ask whether ‘investment products’—excluded from MiFID but issued in the form of tokens—while falling outside the scope of the Regulation may nonetheless fall under national regimes that, in certain Member States, are found in addition to EU laws. The question is, to say the least, a complex one, and the investigation would merit a breadth incompatible with the present study, not least because of its necessarily comparative slant. In order to understand the issue, it may be useful to refer, as a first approximation, to the notion of “financial product”, as set forth in Article 1(1)(u) of the Italian Consolidated Law on Finance, which defines it as “financial instruments and any other form of investment of a financial nature:” a domestic notion, used in order to apply national prospectus rules to assets that are not included in the scope of the EU regime, and which must be clearly distinguished from other concepts analyzed in the preceding sections (in particular, from the notion of financial instrument).
If the relationship between financial instrument (as per MiFID) and crypto-assets is already, in itself, complex, that between crypto-assets and financial products is even more so. This is due to the fact that the notion of financial product under Article 1(u) of the Consolidated Law on Finance is based on an exquisitely functional criterion: ultimately, it captures the economic purpose underlying the investment transaction, in order to apply national rules on public offerings and prospectuses. This concept differs from the EU notion of financial instrument, which tends to be (but is not entirely) closed, as it is pegged to a descriptive list.
Although, over time, the notion of a financial product (and its archetype, that of ‘securities’ introduced in Italy in 1983) has always raised interpretative difficulties, these difficulties are aggravated even further by MiCAR.
To clarify such a statement, a few examples should be given. Let us take the case of a crypto-asset that presents the characteristics of an equity instrument, even of a real share, but lacks one of the elements qualifying the notion of a financial instrument, for instance because it is not negotiable. Such an instrument could certainly not be covered by MiFID-derived rules, nor by EU rules on public offerings and prospectuses, because it does not qualify as a financial instrument (more precisely, as a ‘transferable security,’ a sub-category of the broader notion of the former). If, in the example at hand, the instrument was issued in cryptographic form on a DLT, one must ask what regime would be applicable to its being offered on the market and to the services possibly offered by service providers in relation to it (e.g., advisory, management, custody of the tokens, etc.). Theoretically, MiCAR itself could—or, perhaps, should—deal with this, as this particular token would then fall under the residual category of crypto-assets other than ARTs and EMTs (see above). But, one might consider that the MiCAR definition of crypto-assets is too narrow to encompass the example under discussion, and it would therefore follow that such token would not be included in the objective scope of the Regulation.
And it is here, however, that national laws, with their own, autonomous notions, could regain ground: if, in fact, a given crypto-asset is included within the scope of MiCAR, national rules can no longer have any place, because MiCAR is directly applicable throughout the EU. If, on the other hand, a crypto-asset falls outside the scope of the Regulation, domestic regimes might potentially apply: in Italy, for example, one would then have to question whether the instrument could be qualified as a financial product.
The consequences are not insignificant. To return to the example, if that tokenized share were to be considered a crypto-asset within the meaning of MiCAR, its offer to the public would be subject to the comparatively lighter regime of the white paper, instead of the stringent prospectus rules and, above all, it would not require prior authorization. A similar argument could also be made, for instance, regarding debt securities issued by corporations, lacking the elements proper to the notion of a financial instrument, as well as for shares in limited liability companies, where their issuance in the form of tokens is envisaged in the future.
These problems are not only exclusively found in the Italian legal system. Rather, similar issues can also be identified in other EU Member States: for example, and to limit ourselves to a few cases only, in Germany, with reference to the so-called Vermögensanlage; in Austria, with regard to the notion of Veranlagung; or in Belgium, where there is a complex, and articulated, regime applicable to investment products other than MiFID-like financial instruments, i.e., the so-called “beleggingsinstrument” (“instrument de placement”), referred to in Article 3(§1) of the Law of July 11, 2018 on public offers of investment instruments and the admission of investment instruments to trading on regulated markets.
In our opinion, and while acknowledging the extreme complexity of the issue, the absorbing scope of MiCAR, and its suitability to regulate, in fact, any crypto-asset that is not already subject to other EU legislative regimes, allow to conclude that national regimes ought to be disapplied in cases similar to those described. Therefore—for instance, with regard to the Italian legal system—any instrument for the raising of capital, issued in cryptographic form using DLT, shall be regulated by MiCAR, unless it qualifies as a MiFID financial instrument, in which case the latter regime will apply in conjunction with EU prospectus rules. National categories, such as the “financial product” one, should therefore no longer have place in the context under discussion. Problems, however, do not stop there, because concepts under domestic law add further complexity to the landscape in other aspects as well. Consider, for example, NFTs: a non-fungible token that falls within MiCAR’s cases of exemption would not be regulated under the Regulation but, on the other hand, could be qualified as a financial product under national regimes. For instance, and referring again to the Italian case, where the NFT is neither subject to MiFID nor MiCAR, the notion of financial product could be applicable.
These divergences between different interpretations of the notion of financial instrument, financial products (and the like), and crypto-assets demonstrate how central the issue of taxonomy is to the correct application of these regimes.
The above examples are, however, only the most immediate and obvious, as it is almost inevitable that far more complex and difficult cases will arise in practice.
This is not, moreover, an entirely new concern, although it is now exacerbated by MiCAR. For example, in Italy, both the supervisory practice of Consob and the jurisprudence of the Corte Suprema di Cassazione have already concluded that, under certain circumstances, Bitcoin (which, with reference to its placing on the market, is certainly excluded from MiCAR, because it is issued in a fully decentralized form) may qualify as a financial product (not a financial instrument), subject to the relevant regulation of public offerings. Although the arguments to reach this conclusion are not, in our view, agreeable, they are precedents that cannot be avoided, expressing the tensions of a system which, as a result of the dissemination of crypto-assets, struggles to find solid criteria for their classification and consequent subjection to the applicable regimes.
4. Certain Utility Tokens:
As seen above, according to the MiCAR definition, utility tokens are those which only grant the right to access a good or service. In this regard, it has long been debated whether tokens that give access to already available goods or services should be treated differently from tokens that, on the other hand, serve to collect resources for the development of new projects. Generally speaking, the main argument for excluding tokens from the rules governing their issuance in the first case has been based on the fact that, in such a hypothesis, the purchase of the utility token would constitute a situation analogous to that of the purchase of a good or service, without any ‘financial’ component to justify the application of special rules.
MiCAR only partly follows this logic: utility tokens that ‘provide access to an existing or operated good or service’ are exempt from the rules contained in Title II on public offerings, but not from the entire regime. But the exception does not apply where the offeror makes known in any communication its intention to seek admission to trading on a trading platform. The Regulation therefore addresses the matter by adopting a middle-ground solution, considering the various positions proposed in literature.
