Bogdan Rotaru - Crypto in the Age of MiCA: Are You Ready?

We are going to discuss a little bit uh in a very short time about Mika and the implication implications in Romania and also in um in the European Union. Uh I am Bogdan. I'm partner at Vid Law Group. Um mainly a big part of my activity is um advising clients in crypto related matters and we do it also uh internationally and nationally. Uh so uh what is Mika?

This is somehow a graphic representation of how we see it. So it's basically um a fight of uh innovation and what Mika brings financial stability, investor protection and market integrity. Uh before Mika uh came into force and um was uh adopted. It was um it was really a bad time in the market because um in in on an institutional level um the adoption was really low. uh everyone feared Mika and feared crypto and they um they avoided doing business and with Mika uh the the things are a little bit better now.

They are more open to uh to to the idea of having crypto in businesses and also for individuals that uh are going into crypto they are they are feeling more secure now. So um when uh it was u when it entered into force it was in June but it was not applicable uh right uh right right then. Uh it became applicable in uh in June 2023 and became applicable uh partially in June 2024 when uh it became in relation to the uh electronic money tokens which is the stable coins. uh you already know about about the sable coins and uh became fully applicable in December uh last year when um uh when became applicable in relation to all matters including the utility tokens which is main part of our discussion today. Okay.

So it is uh right now when it comes to that transitional uh phase it is a thing that is called grandfathering period and I think we have it here. Okay. So um the grandfathering period basically uh is applicable to the crypto asset service providers. Uh when it comes uh so Mika uh I didn't say this Mika is structured on two layers. The first one is the uh issuance of tokens and the second one is the uh the services cryptoreated services.

So the grandfathering period applies only uh in relation to to the crypto services and u basically it is a transitional period for states to implement all the procedures internally for Mika to to become applicable. So what you can see here is a list of all the of all the member states and the transitional period that they opted for. So you can see Romania has the longest uh it it the the option was between six or uh no it was between five or uh uh 18 months and we opted obviously for the longest period possible because that's how things work and um uh right now uh it is after they they they knew about this regulation for some time now. But like three weeks ago, they came with a proposal for um governance ordinance and it is not adopted. It's still in public consultation period.

And basically uh what we needed to do and every state needed to do was to appoint the public authorities that are going to have responsibilities under Mika. So in Romania it will be uh like this. Uh when it comes to utility tokens and I mean um notifying the white papers it will be the financial supervisory authority and when it comes to the uh issuance of stable coins let's say then is the national bank of Romania. This is the rule in all member states they are doing something like this. the financial authorities are supervising the uh the utility tokens and the national banks are going for the stable coins and asset reference tokens.

Okay. So what uh does Mika has a lot of terms and also brings some definitions so we can understand those terms. So what is a crypto asset? Mika says it's a digital representation of a value of a right that is able to be transferred and stored electronically electronically using distributed ledger technology or similar technology. So basically everything.

So it's a pretty broad definition. You can you can put there any any asset that is using uh DT technology. Util what is a utility token? A type of crypto asset that is intended to provide access to a good or service supplies by supplied by its issuer. So it's not that different uh from before.

It was uh that's the definition of the utility token before Mika. It was meant to provide access to some services or products. What is an electronic money token? And this is this is a quite interesting one. uh because electronic money token is basically the stable coin and the interesting part is that as Mika um um regulates imposes some conditions it's basically uh emani token so you will need a proper electronic institution license to issue a stable coin okay and asset reference token it's that crypto asset that um purports to maintain a stable value value by reference to an asset.

So um let's say um some building or some some assets some I don't know oil something like that. Okay. So um this is the uh these are the services that crypto assets can provide and what they can uh what are some requirements let's say you can see there are for some activities there for class one there are some activities that require capital of 50,000 euros 125,000 and 150,000 Okay. So, uh this is the Immani token which is the Immani directive what I was uh uh telling you two minutes ago. Uh asset reference token which can be a security token and uh utility token and nonfgeible tokens.

U NFTs are not really covered under Mika. I don't know if you if you knew this by now, but they are usually not covered. It depends it for some in some specific cases it can they cannot fall under Mika but uh as a general rule no. Okay. Um there are some cases where Mika does not apply and one of the cases would be uh the crypto asset is offered for free.

But there is a catch here. It say okay you if you offer it for free then you you don't have to comply with Mika. But if you are requesting from uh the person that persons that you are offering them for free requesting some personal data then you you will fall under Mika. So this is uh it sounds good but it's not that good because we've had the case and one of our our clients said okay we're offering them for free but they were requesting them to do some KYC or something like that and then you must uh obey Mika if you are requesting personal data. Um another exemption would be is uh when the crypto asset is created as a reward for the maintenance of the DT um basically some sort of staking.

So if you are if you are giving um the validators uh crypto assets as a reward then you might not fall under Mika but it's not the case because I I I I haven't met anyone who wants to issue a token only to offer them as a reward for staking and not being listed on an exchange or something like that. So in in most cases this is uh this is how it happens. The person that issues the token wants to have it on an exchange. If you want to have it on on an exchange then you have to obey Mika. Um you the offer concern utility token providing access to a good or service that exist or busy in operation.

Okay. So basically I don't know. I think it could be the case where let's say Calfand uh launches a token to have some value internally in the in the stores or something like that. It could be the case. Okay.

So, uh what do you need to to have when uh you are uh when you are working with with crypto assets under Mika? So almost as you can see here are the issuers uh asset reference token, electronic money token, other tokens which is mostly utility tokens. So they need to have all of them need to have a legal form and a location. So you must have a company. You can't issue a token without a company without a legal form.

And is the same with CASP which is the uh the abbreviation for crypto asset service provider. Licensing in case of art yes EMT electronic money token yes utility token no. So you don't need a license to issue a utility token under Mika. The the only obligation for utility tokens is to have a white paper to have a white paper that contains all the information required by Mika which you can see here. It's uh it's checked for a white paper and um to notify it to the competent authority.

So this is basically all you need to do to have the white paper notified. The authority will not approve in any way. It's not something that they will approve. It's uh basically to know that you are having a project to have the the white paper and that's all. Uh and also for the crypto asset service providers yes you need a license any any services related to to crypto assets um is required by Mika uh to have a license.

Uh the white paper is not for for crypto asset service providers is not the case. They don't have a token. they don't have they don't they don't need the white paper. Consumer protection it's applicable for everyone. Um it is well known uh legislation in the European Union with the consumer protection with the uh withdrawal right for consumers of 14 days and um uh the the governance.

Okay. So utility tokens what should you do under uh Mika if you want to uh to be compliant. So basically you need to have a white paper. The white paper needs I think I have it on okay uh this is more relevant uh for what I'm going to say. So uh the white paper what needs to contain?

So it's b basically has to have information about the issuer. So until now until mika the white paper was drafted according to the projects project initi initiators will so basically contained whatever they wanted. Right now it's not the case. you have to fully comply and the white paper needs to contain all this information if you if it does if it does not have something related to say to to the issuer. So basically if you have a company that issues the token and you have another company that offers the token to the public basically sells the token you need to have both of them including in the white paper.

the the people need to know which company is behind the project, which company uh what are the contact details of that companies so they know how to reach out if anything happens. They need to know the management of the companies. They need to the white paper. This this is a a pretty interesting one. The manage management body statement.

So basically it is a statement that the management gives in the white paper and they they are saying okay uh our what we are offering and what we have included in in the white paper as far as we know is not misleading. So if you are going to try and deceive people in some way then you are going to be liable with your own goods. So the thing with the uh limited liability companies does not really apply now because the the idea most of the businesses start with a limited liability because it's limited to the what the company has. If things go wrong then you can go after the shareholders of that company because that's how the how the things work. But with Mika if and only in this case if the project goes wrong for let's say objective reason or maybe some mistakes let's say didn't the uh the shareholders did not take the best decision it could happen it can happen they are not liable in that case but in case they are doing something wrong on purpose they are trying to deceive people they are trying to mislead them in some way only in that case they would be personally liable or any damages that the uh that those person that the holder suffered.

So uh it must have a summary, it must have really uh essential u information about the project, what the project does and what the token does, what are the main characteristics and in some cases uh when it's um let's say in case of uh stable coins a a redemption procedure. So basically how they can change the tokens with real money. Okay. Uh the risks you know you you need to inform them about everything in um uh in the white paper. The the risk of liquidity, the risk of loss of value, everything uh and climate impacts as the European Union has used us with.

Okay. So let's get back a little bit. So in case of asset reference tokens as uh I was saying you need a license to issue it. So uh you need the white paper but in this case the white paper uh must be uh notified and must be approved and a license must be issued. So you can uh uh so you can issue such uh such token.

Uh that's what I was saying. This is the case with all the tokens not not only the utility tokens. This is the this must be included in the white paper of any type of tokens. Okay. uh it's based mo the same with every token almost uh in case of a you have to you need to have a reserve of assets.

So basically you need to it is a warranty for the holders that if something goes wrong they can go to that reserve of assets and and get their try to get their damages uh repaired. So uh with the uh electronic money token is the same. So you need um an an license. First thing you need to have the white paper, you need to notify you need to obtain the the license to um to issue them. right now um I think there is in the European Union I think it's only one stable coin that has one company that has obtain the proper licenses for um for having a stable coin on um on exchanges and I I I think yeah exactly uh with the USDT was uh an entire discussion and I don't know where when it will be it will be settled okay so uh this is um basically this has these are the type of services that you can provide in relation to crypto assets and one of the most interesting discussions that we are having with our clients in uh in practice it's about the staking.

So it's about the staking. Um basically if you are offering staking service to if you're allowing staking to uh to your users then you might need a license. Um before Mika it was not the case. It was not that clear. But now if you have the custody of those assets which in most cases you will have because you will have in a smart contract you will have the the assets of the of the stakers then you might need a license and that's the interpretation uh also uh was given officially that this kind of activity if you have custody of the assets then you might need a a license.

It's an important part because the most projects want to offer staking. Staking there is also a difference is staking and it's locking and staking basically of it participates in the validation process the with the with the assets and in case of locking you just lock them and somehow try to control the uh the flow and the liquidity in the market. For both of them the discussion remain the same. you might need a license to to offer those uh those features to your holders. Okay.

Uh and yeah, one uh important thing. Okay. You have the white paper. You need to have it in a in a form. You need to have it uh clear.

You you don't you don't uh you don't uh you're not allowed to have misleading information. But this is the same with the marketing communication. And this happens a lot be because often the PE people want to to promote to have a marketing on the project and you can't have a white paper which is okay it's compliant and you but the marketing communication is okay come with us you will have a lot of money but if you invest now you will have or or 10 you will do a lot of money with us if you do it like this then you are in breach of Mika and you will be also liable what I was uh telling you about misleading and with your personal wealth. Uh also in uh I don't think fits on this page. It's about the consumer protection and you must offer them the right of withdrawal.

So if you are selling them the the tokens, they can in 14 days they can come and say, "Okay, give me the money back. I changed my mind." Okay. So basically the se sanctions are there. They are really important.

Any any breach of the of of Mika will uh bring uh only troubles and u the the fines are pretty big greater than two times any profits made. So basically you are giving the profit and you need to do to to give it double. Okay. And uh the limits for uh uh for sanctions as uh it is the case with competition regulation and with GDPR some uh percentage applicable to the turnover. So it's uh is not something to to mess with.

Uh okay. So it will be um these are uh something for uh licensing. So basically how you can uh if you have a license obtained in Malta let's say how you can provide services in Belgium. So it's about passporting. You just need to uh notify the authority with the okay I have a license and that's all you need to do.

So basically any license that you have to provide uh crypto services uh is um in in a in a member state you are allowed to uh um provide services in any member state. Okay. So uh this is how basically how a project works how how we are doing uh things with our clients. validation of the idea. Uh have a corporate structure.

As I said, we need a legal form. White paper review to comply with Mika Soft, which is the uh which is the the agreement to sell the tokens. Terms and conditions for the white paper and terms and conditions for the uh for the use of the tokens and legal opinion because it will be requested by almost every exchange and serious exchange. Okay. Uh this uh was it uh if you have any questions.

Yes. Yeah.

Yeah. It is a pretty gray area from from my point of view. Um, if we are talking about full decentralization, then it's pretty pretty hard to to hold someone accountable for not complying with Mika. Um, it is um the decentralized exchanges it how you Yeah. Yeah.

If if they are fully decentralized, yes. If not then mika will apply. It's not a rule. Mika does not apply to decentralized uh activities in blockchain. But uh if it is uh something that is someone that is controlling even a little bit then then might then they might be responsible.

Yeah.

Yeah. That it's a pretty interesting conversation here. Yes. And um I think we will find out how things fall in place in the in the future after uh we have some even there are like six months since Mikab became fully applicable. We will see the grandfathering period didn't end in most cases.

We will see how things fall in place. But uh yeah it's an interesting conversation and I I think in some cases even if they are saying is decentralized they might need to comply with

Mika I have a question about how does the

the issue only only the issue. Yeah.

Okay. So basically the whole European people shouldn't

uh yes you need you need to have a structure. You need to have a legal form. You need to have a company to issue and the person that is if I issue a token just for myself obviously I don't have to comply with Mika.

If I want to offer it to the public then I need to comply with all the conditions legal form uh white paper and everything. So

yeah yeah yeah everyone who issues a token and offers to the public must comply.

Yes.

Uh No.

Mhm. Yeah, I know.

Yeah.

Yeah, I know. And I understand the concern. Uh the main thing I would like to clarify here, Mika is a a regulation. So in the European Union regulation apply directly in each member state comparing to the directive which must be implemented by a national law. Uh so Mika is fully applicable now in the European Union and the question and about the grandfathering period it's only applicable let's say in a discussion with the crypto asset service providers because that is the the issue because as of now if I issue a token today I must comply with Mika there is no discussion in any member state of the European Union and with the grandfathering period yes we had the same issue here in Romania right now if I want to issue a token in Romania and I want to notify it.

I don't have any authority to notify it too. We were having uh uh some jokes between us at the office. We were say okay where do we notify? We don't know. We don't know.

Every authority in Romania will get our white paper notify. They will receive it and they will ask what is this? We don't know where to notify it. Yeah. But this is uh yes this is um the grandfather the grandfathering period which is maximum 18 months.

So they have this this u this deadline to comply with. There are some states that opted for a shorter period. You can look up uh there and uh go obtain the the licenses there. It can be an idea. Uh but yeah I depends on the state.

In Romania is u is the same as in Poland. discussion that there's no place as you are liable in case you can say I wanted to be proven Yeah, that's true.

Of course, I could have waited until I got that, but then I lose like the momentum or whatever.

Yeah. Yeah.

So, will people be like persecuted for this like period where there was no authority

there? It's a tricky question. It can be yes because it is not like um an exemption from liability if you don't have an authority to notify it too. How we manage this mitigate this risk we are looking at other member states

and we are working with some colleagues around Europe and notify the the the white papers to the states that are serious and that have in place all the procedures and they they did everything right now. One of them is Malta for example. You can do it do it in Malta with the white papers. Uh but in Romania the same in Poland.

Very easy after it's easy to justify the license.

Uh

like transfer the license.

Yeah. Yeah. You just need to notify you obtain it in one minute.

Sorry guys. I think I'm going to have to wrap up the organic discussion which is great to see. Um but can we all give Bogdan a big round of applause for that? Thank you so much.