How Ukraine is adapting MiCA and what it means for the cryptocurrency market

The significant use of cryptocurrencies plays an important role in shaping economic and innovative processes at both national and international levels and stimulates the authorities to develop effective mechanisms for their regulation.

As of the beginning of 2024, the EU did not have unified legislation to regulate the use of virtual assets. Each member state established its own internal requirements for crypto asset providers and the areas of their activity.

This has caused a number of problems. Firstly, the absence of unified norms contributed to the emergence of a so-called gray area, complicating the development of innovations and attracting investments. Secondly, a significant number of crypto companies registered in jurisdictions with the least requirements. For example, almost half of all European providers are currently located in Poland, where minimal requirements for the company's charter capital are established, a fast registration procedure is ensured, and low tax rates are applied.

In order to create a transparent market for virtual assets, the European Parliament adopted the Regulation on Markets in Crypto-Assets (MiCA), which aims to provide a comprehensive regulatory mechanism for the circulation of virtual assets in the EU, establish clear rules for service providers, and guarantee the protection of investors' and consumers' interests.

The provisions of MiCA will gradually come into force starting from June 2024 and will become fully applicable from December 30, 2024.

Although the Regulation will not have direct legal force in Ukraine, the Verkhovna Rada is currently considering draft law No. 10225 on amendments to the Tax Code of Ukraine and other legislative acts of Ukraine regarding the regulation of the circulation of virtual assets in Ukraine, which has been developed based on MiCA.

Similar to MiCA, draft law No. 10225 defines three main types of virtual assets that will be subject to legislative regulation:

• e-money tokens are a type of virtual asset that maintains a stable value by being pegged to only one official currency

• asset-referenced tokens are virtual assets that maintain value stability by being pegged to any other object of civil rights, including combinations of one or more official currencies

• crypto assets that are not asset-referenced tokens or e-money tokens are all other types of virtual assets except those explicitly excluded from regulation

The legislator also highlights a separate category of crypto assets, NFTs. At the same time, the MiCA framework explicitly excludes such tokens from the scope of its regulation.

The draft law stipulates that service providers in the field of virtual assets must be established in the form of a joint-stock company, limited liability company, or additional liability company, have a location in Ukraine, and at least one director who is a resident of Ukraine.

In addition, the legislator establishes requirements for members of management bodies, including

• good business reputation in accordance with the requirements of the National Securities and Stock Market Commission
• the presence of relevant knowledge, skills, and management experience of the applicant

Although these conditions generally correspond to MiCA, the absence in the national draft law of a requirement for a clean criminal history of the founders regarding money laundering, terrorism financing, fraud, or professional liability appears controversial, as such a requirement is mandatory in the EU.

An important innovation will be the mandatory preparation of a white paper for virtual assets, which must contain, among other things, information about

• the person applying for admission to trading
• the project for which the virtual asset is issued
• the public offering of virtual assets
• a description of the relevant assets
• risks associated with the circulation of the asset

The white paper must be published on the official websites of providers and will serve as a source of information for investors, consumers, and regulators.

The preparation of a white paper will be sufficient for the commencement of activities for crypto asset providers that are not asset-referenced tokens or e-money tokens. In contrast, providers of asset-referenced tokens will have to undergo state registration with the National Securities and Stock Market Commission. The issuance of e-money tokens will only be available to banks, electronic money institutions, and accredited branches of foreign electronic money institutions.

Draft law No. 10225 does not establish minimum capital requirements for service providers in the field of virtual assets. At the same time, MiCA requires a minimum of 50,000 euros to enter the market.

Considering the above, it can be concluded that the adoption of a special law to regulate the circulation of virtual assets is a necessary step for Ukraine, which is moving along the path of Euro-integration and actively implementing the most effective European standards. Moreover, Ukraine's entry into the world top 10 in terms of cryptocurrency usage by the population underscores the importance of introducing such legal mechanisms.