Impact of MiCAR on Swiss Crypto Asset Providers

The Markets in Crypto-Assets Regulation (MiCAR) introduces significant regulatory changes that affect Swiss issuers and Crypto Asset Service Providers (CASPs). Although MiCAR is an EU regulation, it has far-reaching implications for Swiss entities involved in issuing or offering crypto-assets to EU customers. This article explores who is affected, the primary and secondary market obligations, and the implications of MiCAR on Swiss CASPs and issuers.

Who is Affected by MiCAR from Switzerland?

MiCAR applies to all natural and legal persons involved in the issuance, public offering, and trading of crypto-assets in the EU. This includes crypto-asset issuers, service providers, and CASPs operating or intending to operate within the EU.

Swiss issuers and CASPs must follow MiCAR’s requirements when offering crypto-assets to customers based in the EU. Even if the activities are conducted from outside the EU, the regulation's broad scope necessitates compliance from entities that target the EU market. This means Swiss companies need to be aware of and adhere to MiCAR requirements to avoid legal and financial repercussions.

Which Crypto Assets Are Not Covered by MiCAR?

MiCAR does not encompass all crypto-assets and supplements existing regulations. Certain entities are also not covered, such as companies providing crypto-asset services solely to their group entities. Key exclusions under MiCAR include:

Crypto-assets classified as financial instruments under MiFID II
Crypto-assets subject to existing financial regulation
Unique, non-fungible crypto-assets (NFTs): These are excluded unless their actual design classifies them differently under regulatory scrutiny.
Crypto-assets without an identifiable issuer (e.g., Bitcoins): These are excluded from certain titles of MiCAR but not from the regulation of service providers concerning these assets.

When Are CASPs Not Affected by MiCAR?

CASPs are only affected by MiCAR if they offer their services beyond Switzerland and to non-Swiss customers. If crypto-asset services are provided exclusively within Switzerland and to Swiss customers, MiCAR provisions do not impact service design.

Primary and Secondary Market Obligations

MiCAR introduces new obligations for both primary and secondary markets for cryptoservices.

Primary Market

Issuers on the primary market must publish a whitepaper detailing the issuer andthe crypto-asset being issued. This requirement aims to provide transparency and protect investors.

The Whitepaper

The creation of the MiCAR Whitepaper is one of the central obligations prescribed by MiCAR. Detailed specifications on the content of the Whitepaper for each category can be found in MiCAR and its annexes. Here is an overview of the content requirements and the process.

Content

If crypto assets are to be publicly offered or admitted to trading on a platform, a Whitepaper must be prepared. This rule applies to all issuers of crypto assets in the EU, meaning companies that publicly offer cryptocurrencies of any kind or apply for their admission to trading.

The MiCAR Whitepaper is an information document similar to a securities prospectus according to MiFID II. The exact requirements are specified in MiCAR.

A crypto asset Whitepaper must include the following information:

The provider or the person applying for trading admission
The issuer, if different from the provider or the applicant for trading admission
The operator of the trading platform, if they prepare the Whitepaper
The crypto asset project
The public offer or trading admission
The crypto assets themselves
The associated rights and obligations
The underlying technology
The risks
The main negative impacts of the consensus mechanism on the climate and other environmental consequences

Additional requirements depend on whether the crypto assets are classified as ARTs, EMTs, or other crypto assets. All necessary information must be clear, fair, and not misleading. Breaches of this duty can lead to claims for damages, hence particular care is required.

Process

After the Whitepaper is prepared, it must be submitted to and approved by the competent national authority of the targeted EU state before publication. The competent authority reviews the Whitepaper for completeness and compliance with all requirements.

Once the competent authority has granted approval, the Whitepaper must be made publicly accessible. This can be done, for example, via the issuer's website. The competent authority may also publish the Whitepaper on its own website.

If there is a significant change to the Whitepaper, it must be reported to the competent authority within seven days and made public as well.

Secondary Market

For the secondary market involving crypto trading, MiCAR mandates authorization across the EU. While this is not new for all EU states, some had only registration and anti-money laundering measures before MiCAR. Authorization entails fulfilling and maintaining specific requirements.

MiCAR does not explicitly regulate existing customer relationships. Typically, regulatory measures target new services introduced after the regulation's enactment. However, MiCAR specifies transition periods for services and offerings initiated before December 30, 2024, allowing them to continue under certain conditions until authorization is obtained.

Practical Examination: Example

Consider a Swiss association operating a decentralized platform for trading digital artworks, issuing various types of tokens:

Utility Token (ARTY): Grants access to exclusive platform features such as special art auctions and transaction fee discounts.
Payment Token (PAYCOIN): Used as a payment method on the platform for buying and selling artworks.

Classification under MiCAR

Utility Token (ARTY): MiCAR applies if these tokens are tradable and offered on crypto exchanges. As ARTY provides special platform access and can be traded, MiCAR may apply. The association must therefore comply with MiCAR, including registration and publication of a white paper detailing the functionality and risks of the token.

Payment Token (PAYCOIN): MiCAR covers payment tokens used as a means of payment. PAYCOIN would therefore be subject to MiCAR. The association will therefore have to ensure that PAYCOIN meets security standards, consumer protection and AML requirements and register with the relevant authorities.

In this example, the Swiss association must carefully evaluate their tokens under MiCAR’s classification guidelines. They must prepare detailed documentation and possibly adjust their operations to meet EU regulatory standards.

Conclusion

MiCAR introduces new obligations for Swiss CASPs and issuers engaging with EU customers. Adherence to these regulations ensures legal operation within the EU market, highlighting the importance of understanding and complying with MiCAR's requirements. Swiss entities must carefully assess their activities and ensure that they meet MiCAR’s regulatory standards to avoid penalties and ensure smooth operations in the EU. The regulation underscores the need for transparency, security, and consumer protection in the evolving crypto-asset market, setting a high bar for market participants.