Understanding MiCAR Licenses: An Overview of Key Requirements

The Markets in Crypto Assets Regulation (MiCAR) is introducing a comprehensive regulatory framework for the crypto industry across the European Union (EU). One of MiCAR’s most impactful changes is the requirement for businesses involved in crypto-related activities to obtain the appropriate licenses to operate legally in the EU. With different licenses available based on the type of services your company provides, understanding which license applies to your business is critical to staying compliant.

This guide will walk you through the various licenses available under MiCAR, who needs them, and what requirements must likely be met to ensure your business is prepared for this regulatory shift.

The Importance of MiCAR Licenses

Before MiCAR, crypto regulations across the EU were fragmented, with each member state having its own rules. MiCAR aims to unify the regulatory landscape by introducing standardized licensing requirements for Crypto Asset Service Providers (CASPs). These licenses are necessary for businesses offering a wide range of services, from operating exchanges to providing crypto custody.

Starting December 30, 2024, MiCAR and the Transfer of Funds Regulation (TFR) will be mandatory throughout the EU. This affects all financial service providers that offer crypto-related services to their customers. By securing the proper license, your business will not only comply with MiCAR but also gain access to the entire EU market through MiCAR’s passporting system, which allows you to operate in all EU countries with just one license.

If you want more details on critical MiCAR deadlines and upcoming changes, check out our article: MiCAR’s Timeline: Critical Deadlines for Compliance.

1. Crypto Asset Service Provider (CASP) License

The Crypto Asset Service Provider (CASP) license is one of the central licenses introduced by MiCAR. It applies to any business providing a variety of crypto-related services. This license ensures that companies meet strict regulatory standards for transparency, security, and consumer protection.

Who needs a CASP license?*

A CASP license is required for businesses involved in:

• Crypto-asset exchanges (both centralized and decentralized): Platforms that facilitate the buying, selling, or trading of digital assets between users.

• Wallet providers that hold or manage crypto assets on behalf of clients: Services that offer secure digital wallets for storing and managing cryptocurrencies, often handling private keys for users.

• Crypto-asset trading platforms: Businesses that operate systems where crypto assets are traded, including matching buyers with sellers or facilitating automated trading.

• Crypto custody services: Companies that securely store and protect digital assets on behalf of clients, ensuring the safekeeping of their funds.

• Providing advice or portfolio management for crypto assets: Firms that offer investment advice or manage portfolios of crypto assets for their clients, helping them make informed financial decisions.

• Offering transfer services for crypto-assets: Businesses that facilitate the transfer of digital assets between parties, ensuring secure and efficient transactions.

*Source: BaFin Website

Requirements for CASP license:

• Capital adequacy: Businesses must maintain a minimum level of financial reserves to ensure stability and security.

• Governance and risk management: Companies must demonstrate strong internal governance structures and effective risk management protocols.

• Compliance with AML/KYC regulations: Businesses must have robust Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols in place to prevent fraud and illicit activities.

2. Asset-Referenced Tokens (ARTs) 

There is no specific license for issuing Asset-Referenced Tokens (ARTs) under MiCAR. However, companies that issue ARTs, which are tokens backed by a basket of assets like fiat currencies, commodities, or other crypto assets, must adhere to stringent requirements. These tokens are designed to maintain a stable value, and due to their potential impact on the financial system, MiCAR introduces specific regulatory obligations for ART issuers.

Who needs to comply with ART requirements

If your company issues tokens that derive value from multiple assets or a combination of traditional financial instruments and crypto assets, you will likely need to meet MiCAR's requirements for ARTs. These tokens are often referred to as stablecoins, though they differ from e-money tokens (EMTs), which we’ll discuss below.

Key requirements for ARTs:

• Reserve requirements: Issuers must maintain adequate reserves to cover the total value of the tokens they issue. These reserves should be held in highly liquid, low-risk assets like government bonds or fiat currency.

• Transparency: Issuers are required to provide detailed transparency reports on reserves, ensuring that the tokens are fully backed at all times.

• Governance and risk management: Strong risk management policies and governance structures must be implemented to ensure stability and consumer protection.

3. E-Money Tokens (EMTs)

Similar to ARTs, there is no separate license for E-money Tokens (EMTs) under MiCAR. Instead, companies issuing EMTs—tokens specifically pegged to a single fiat currency, such as the Euro—must comply with a set of strict regulatory requirements. These tokens are used primarily for payments and are designed to have a stable value directly linked to the currency they are pegged to.

Who needs to comply with EMT requirements?

If your business issues stablecoins that are linked to one specific fiat currency, you will need to meet MiCAR's requirements for EMTs. This includes tokens used for payments or as a store of value where the issuer promises to redeem the tokens for their fiat equivalent.

Key requirements for EMTs:

• Full backing: EMT issuers must maintain 100% fiat reserves, meaning that for every token issued, there must be an equivalent amount of fiat currency held in reserve.

• Redeemability: Holders of EMTs must have the right to redeem their tokens for the fiat currency at any time, ensuring liquidity.

• Regulatory oversight: Issuers will be subject to strict oversight by their NCA to ensure ongoing compliance with reserve and liquidity requirements.

4. Crypto Custody License

Crypto custodians, who manage and store crypto-assets on behalf of clients, must obtain a Crypto Custody License under MiCAR. Custodians play a critical role in protecting clients' assets, and MiCAR introduces stricter rules around how these assets should be managed.

Who needs a custody license?

Businesses that store, safeguard, or manage crypto-assets on behalf of customers will require a Crypto Custody License. This includes centralized exchanges offering wallet services and standalone custody providers.

Requirements for a crypto custody license:

• Segregation of client assets: MiCAR mandates that customer assets must be kept separate from company-owned assets to prevent conflicts of interest.

• Enhanced security: Custodians must adopt industry-leading security measures, including multi-signature wallets, encryption, and cold storage.

• Transparency and reporting: Custodians are required to provide regular reports on the assets they manage and undergo frequent audits to ensure compliance.

• Insurance: Custodians must ensure a proper safety net either based on a broad insurance coverage as defined in MiCAR or by having sufficient liquidity.

• Customer reports: Each customer shall get a quarterly report in regards to balances and activities.

The list of requirements is significantly longer than the short breakdown here. We at Tangany take care of this service and requirements for more than 60 B2B partners and their customers in the EU. If you want to learn more, please visit https://tangany.com.

5. Passporting: A Key Benefit of MiCAR Licensing

One of the major advantages of obtaining a MiCAR license is passporting. Once your business secures a license in one EU member state, you will be able to operate in all other EU countries without needing to apply for additional licenses in each jurisdiction. This creates enormous growth opportunities for crypto businesses looking to expand across Europe.

How to leverage passporting:

• Streamline your expansion: With passporting, your business can enter new European Union markets quickly and efficiently. Whether you're launching a new exchange or offering wallet services, passporting simplifies cross-border operations.

• Unified regulatory environment: MiCAR ensures that the regulatory framework remains consistent across all EU member states, reducing the complexity of navigating different national laws.

• Registering with BaFin or local authority: To fully utilize passporting, businesses must register the relevant EU countries with BaFin (in Germany) or its related authority in other member states before market entry. This process requires adherence to local conditions, such as providing information in the national language of the target country.

Secure the Right License for Your Business

Securing the appropriate license under MiCAR is essential for any crypto business looking to operate legally and successfully within the EU. Whether you’re a crypto exchange, a stablecoin issuer, or a custody provider, understanding the requirements and application processes for each license will ensure your business is prepared for MiCAR’s full implementation.

If your business lacks the time, resources, or capacity to meet MiCAR's regulatory requirements, partnering with Tangany can provide a seamless solution. Our compliant and fully-regulated digital asset custody services ensure that you meet MiCAR standards efficiently, allowing you to focus on growing your business.

Contact us today to learn more about how we can support your MiCAR compliance needs.

Disclaimer

This content is for informational purposes only and does not constitute legal advice. Tangany is not a law firm and is not liable for any decisions or actions taken based on this article. Always consult with a qualified legal professional for specific advice regarding regulatory compliance.