MiCA Regulation: Insights from Lietuvos bankas’ expert

2024 08 01 · 7 min read

The Markets in Crypto-Assets (MiCA) Regulation establishes rules for the issuance, public offering, trading, and related services of crypto-assets. As MiCA will take effect this year – 2024, it is essential to understand its core objectives and regulatory details.  

In this interview, we speak with Rosvaldas Krušna, Adviser to the Board Member of Lietuvos bankas, about the various aspects of the MiCA Regulation. This conversation delves into regulatory preparedness of the MiCA Regulation, market impacts, the role of Lietuvos bankas, technical aspects of compliance, and more. You are welcome to learn more! 

Understanding MiCA Regulation 

The European Securities and Markets Authority (ESMA) explains MiCA as a set of rules for crypto-assetsacross the EU. The MiCA Regulation aims to standardise rules for crypto-asset issuers and service providers not previously covered by other EU financial services legislation. According to the Official Journal of the European Union, the objectives of the MiCA Regulation include: 

The MiCA Regulation will come into action this year in two main phases: on 30 June and 30 December, 2024. Rosvaldas explains that the timeline is divided into phases for different crypto-asset companies:        

“One phase is focused on crypto-asset issuers or, economically speaking, stablecoin issuers. Essentially, there are two types of issuers, i.e. issuers of e-money tokens and issuers of asset-linked tokens. The MiCA requirements for these token issuers come into force in June, and the rest of the requirements for crypto-asset service providers come into force in December.” 

Current regulatory environment for crypto-asset companies 

Data from Lietuvos bankas show that Lithuania has experienced a sharp increase in crypto-asset companies, growing from 9 in 2020 to 850 by 2022. To address related risks, anti-money laundering laws were strengthened in 2022. 

With over 500 registered crypto exchange and wallet operators, Lithuania boasts one of the highest numbers in the EU. This highlights the challenges in ensuring compliance with regulatory standards, especially concerning the reporting of suspicious transactions, as noted by Lietuvos bankas.  

Commenting on the current regulatory environment, Rosvaldas mentions:  

“There is no formal licensing process for crypto-asset companies. Also, the oversight by the Financial Crime Investigation Service (hereinafter, the FCIS) is narrow in scope, as mandated by law. This lenient regulatory environment has contributed to the proliferation of crypto-asset companies.”   

Today’s regulatory environment for crypto-asset companies faces several challenges. The governance of Virtual Asset Service Providers (VASPs) and Crypto Asset Service Providers (CASPs) in Lithuania is weak. The anonymity of these companies increases the risk of money laundering and terrorist financing. With insufficient oversight, there is a higher chance of fraud and financial crime. An expert from Lietuvos bankas adds up by saying:  

“To bridge these gaps, amendments to strengthen money laundering laws are already underway, even before the MiCA Regulation takes effect. Once MiCA is implemented, significant changes will occur. This means that crypto-asset companies will need licenses issued by Lietuvos bankas, which will become the licensing authority.”   

Once MiCA is fully in effect, crypto-assets will be treated as a distinct asset class. They will be subject to broader financial regulations, like traditional financial instruments and services, beyond just anti-money laundering and terrorism financing rules. 

Lietuvos bankas’ role in MiCA implementation 

Implementing a regulation demands significant effort and preparation. In this case, Lietuvos bankas diligently prepared to undertake the MiCA Regulation. Rosvaldas outlines the proactive measures already taken by Lietuvos bankas: 

“I think the initial phase constitutes a thorough analysis. Specifically, we’ve examined market structures and dissected various markets. We’ve scrutinised business models and service intentions.” 

Rosvaldas notes that the MiCA Regulation is essentially a bifurcating regulation and discusses another aspect of our analytical efforts made by Lietuvos bankas: 

“Another segment includes traditional financial market participants (such as banks and e-money institutions) that might offer crypto-asset services. We’ve investigated to see if there’s interest in providing crypto-asset services in this area. Then we focused on crypto service providers, a new type of entity in Lithuania. Once again, we analysed market dynamics, identified players, reviewed services offered, and examined business models. We’ve encountered innovative applications, like the use of short-term securities settlement, but also discovered some illicit activities.” 

The expert from Lietuvos bankas highlights the importance of cooperating with other institutions to prepare for the enactment of the MiCA Regulation: 

“We continue to work with other institutions. For instance, in Lithuania, we cooperate with the FCIS. Lietuvos bankas has initiated specific legislative changes in the past, and we have been collaborating with other institutions and ministries. We have discussed resources and structure at Lietuvos bankas with the Ministry of Finance and the Ministry of the Interior. We considered whether structural changes would be needed in Lietuvos bankas. We have allocated resources, accordingly, estimating how much we think will be needed, including human resources. At the same time, we are paying close attention to competence development. We are also analysing the technologies and business models related to crypto-assets.” 

Technical aspects of MiCA compliance 

Crypto-asset companies that must comply with the MiCA Regulation should also consider its technical aspects. Although technical requirements are similar to the DORA regulation, Lietuvos bankas’ expert comments that every company’s case is different:  

“Each company will approach IT compliance differently, based on their service profile, maturity, and scale. The key areas to focus on include identifying critical functions, managing risks, maintaining thorough documentation, and monitoring processes, especially when outsourcing IT services. Companies should carefully assess their internal capabilities and determine which IT services can be managed in-house and which may need to be outsourced. When outsourcing, it’s crucial to make sure that external partners meet the same standards.”  

Highlighting the focus on cyber security measures, Rosvaldas comments:  

“Cyber security will be a major focus, with particular attention to reporting incidents and threats. Companies must implement robust risk management processes to safeguard against potential cyber threats. Comprehensive documentation and continuous monitoring will be essential to ensure compliance and maintain operational integrity. In general, companies need to adopt a tailored approach to IT compliance.” 

Anti-money laundering and consumer protection measures 

Anti-money laundering is an essential aspect of the MiCA Regulation. For this case, two authorities will oversee anti-money laundering: Lietuvos bankas and the FCIS. Each institution has distinct powers, necessitating close cooperation.  

When discussing anti-money laundering measures, Rosvaldas highlights the nuances of blockchain technology, essential to cryptocurrency systems: 

“Blockchain adds another layer of complexity. Financial transfers on the blockchain are, in principle, public. Therefore, specific tools and techniques will be applied to monitor these transactions. The same anti-money laundering laws that apply to traditional financial institutions will also govern crypto-asset service providers, eliminating major exceptions.” 

Another crucial aspect is consumers who directly use the services from the VASPs and CASPs. Rosvaldas underscores the importance of financial education: 

“Addressing certain risks that consumers might face, Lietuvos bankas focuses on promoting financial education and literacy. New initiatives will inform consumers about crypto-asset services, helping them understand the assets and services they invest in.” 

With the implementation of MiCA, Lietuvos bankas will handle complaints, resolve disputes, and issue clarifications. Consumers will have the opportunity to address their concerns directly to Lietuvos bankas. To ensure high-quality services, the bank will conduct inspections and continuously seek improvements in the market. 

Thank you for the interview, Rosvaldas!