How to prepare to make
the transition to MiCA easier

First and foremost, the most important step is to prepare a gap analysis evaluating where you are on the scale of total compliance with the Regulation. This is crucial whether you are just starting out or you have an operating business that has earned authorization in the related host Member State. To see your chances realistically, you must assess your current status and then the new obligations and requirements the legislation mandates of the market participants. Do not worry; we have already made some arrangements for this, so keep an eye out for our series about MiCA. In one of our next issues, we will present the various obligations crypto-asset service providers (CASPs) must handle to achieve compliance!   With this MiCA due diligence, you will be able to see effectively what still needs to be organized, fixed, or scheduled before the implementation periods end. Luckily, the Regulation has taken into account the time this task requires and made an exception: all the documents that are already available to the Competent Authority and are content-wise up to date do not have to be resubmitted.

When it comes to any transition — legal, financial, or even marketing-related — the most important factor is to have a good strategy in place. To have adequate preparations and avoid possible difficulties during the implementation period, you should create a thorough transition plan. Make sure to consider what information you should provide to your clients, and it is also useful to open an early dialogue with your national Competent Authority so the transition can go as smoothly as possible. Keep in mind that MiCA is a complementary regulation, and make sure to clarify whether some of your products and services fall under other regulatory frameworks. It is also necessary to note that entities providing crypto-asset services that are active in more than one Member State under local laws must comply with all applicable local laws until the end of the transitional period.

The Regulation has been developed bearing in mind that, in reliance on this market, there is already an existing sphere of practice to take into account. Based on this, we can sort the elements into two categories:

1. Elements that are already compliant because they meet the specifications.
2. Elements that are new specifications and need to be prepared.

The first category includes elements needed for compliance that are already in a state corresponding to the requirements set by MiCA. This could include, for example, a well-written White Paper, a clean connection system, and/or clarified transaction lists. Of course, this depends on your business as well, as an offeror, issuer, and crypto-asset service provider will have different documentation that they are required to submit.

The second category contains papers and documents that need to be prepared or updated to reach compliance. Many could be mentioned, but one aspect that MiCA strongly emphasizes is communicating information and notifying clients so they have a clear idea about what they are getting into. If you do not have a precise and detailed information relay system in place, you will most likely need to implement one before the implementation period ends.

Communication is important for a business in any part of its operation, whether internal or external. But when it comes to a transition, if possible, it is perhaps even more important.

4.1. Communication with the competent authority of the Home Member State 

Based on the Member State the business resides in, MiCA calls for an authority to be designated for this purpose in accordance with the rules in the Regulation. The competent authority will play a significant role in authorization, supervision, and operational support when it comes to compliance with the requirements. You, as a business owner, can start communicating your current status and plans to the authority, which – for example, in Sweden – is the FI (Finansinspektionen). By initiating and maintaining a conversation about your plans in relation to the transition to the new legal environment, you may unlock many advantages.

By notifying the Competent Authority about your current status, you can provide insight into the market, helping the authority with its assessment, which is a necessary step in preparing for the change. This also benefits you, because if the authority understands the real-life environment, it can make better decisions. A great example is the Swedish FI, as this authority is very active and open to communication and consultation with market participants.

Additionally, MiCA has granted Member States the option to decide whether they want to opt-in or opt-out of the grandfathering clause, which the regulation offers as an option. If the Member State opts in, then the grandfathering clause allows already authorized entities to continue their activities up until as late as June 2026. This means, in practice, that entities can keep operating as they have been under the Member States’ ‘pre-MiCA’ rules. Thanks to the grandfathering clause, achieving total compliance with the regulation can be postponed until this clause expires. But this is only applicable if the host Member State opts in – Member States have until June 30, 2024, to decide – so keep an eye out for the competent authority to know how your home Member State has decided regarding this option.

As some have already decided about opting-in or opting-out, the following list contains a few of them: 

4.2. Communication with clients 

Communication is key, not just with the Competent Authority, but with customers and clients as well. MiCA has a direct effect on issuers, offerors, and crypto-asset service providers, but it indirectly affects clients and customers too. A new legal environment can cause uncertainty and discomfort in clients, which could result in them making unwise decisions based on misconceptions or fear. This can be easily avoided by clear-cut communication from the business, ensuring that the times ahead become clearer.

 By communicating:  

• Your plans for the transitional period as soon as possible, including areas where you are already compliant with MiCA or which you have updated earlier. This way, customers can rest assured that they are in good hands and can assess the situation and progress with more certainty.
• The classification of your business: if you are an issuer or offeror, specify the tokens you deal with and whether they qualify as one of the three tokens designated by the regulation. As a crypto-asset service provider, clarify which crypto-asset services you provide under MiCA.
• Regarding the grandfathering clause: if the home Member State opted in, explain what it means for your customers and whether you plan to take advantage of it or start the authorization process sooner.
• About the Member State you provide your services from: provide information about the home Member State’s approach to MiCA and highlight the differences from the current legislation. Make sure to include the type of authorization you currently hold and mention the authorization the business will most likely hold in the future.

Important note! If other sectoral regulations apply to your business, make sure to clarify the regulatory status of services and/or products to avoid any confusion.

It would be advisable to start communicating as soon as possible and inform your customers about any new developments or news relevant to them.

The ‘better sooner rather than later’ idiom is truer than ever when it comes to aligning with compliance. It is important to bear in mind that such a transition — depending on your existing practices and your readiness as it stands now — usually takes up to 3-6 months to prepare internally before you can submit your application. It might even take longer for the national Competent Authority to process it. It is safe to say that you should make your business plans and strategies considering approximately a year for the full transition of your business. 

Under MiCA, when we take the case of crypto-asset service providers applying for authorization, the Competent Authority will have 25 working days from receipt of an application to assess its completeness. If the application is deemed complete, the authority will notify the CASP. Within 40 working days from the date of receipt of a complete application, they will assess whether authorization can be granted or refused. The authority must inform the CASP of the decision within five working days. So, even without counting any errors or deficiencies the application might have — which would hinder the process — roughly 70 days, or about 2.5 months, pass before authorization is granted. It shows how important it is to take the first steps as early as possible. 

A good way for you to accelerate things in the transitional period is to start arrangements to prepare your present operational practice to comply with the Regulation. Under MiCA, many requirements and obligations have been formulated based on the token or service one provides, and compliance with many of those can already be started now. Beyond those parts of the Regulation that require further clarification from the authorities, there are several that are more or less clear by now. Therefore, your internal transition can happen parallel to the conversations still ongoing on the European level regarding MiCA. Taking steps one by one, you can make assessments that will help your practice get closer and closer to compliance. 

For this, we suggest that based on your transition plan relying on your gap analysis, you should find the elements in your current setup that can already be rearranged. For example, if MiCA obliges the type of service you provide to have an advanced communication system in place, you can start building it now, either just in theory or by taking the first steps. 

Although because of the grandfathering clause, authorization might become necessary at a later stage — depending on the home Member State’s decision — starting the application as soon as possible is highly advisable, especially considering the time necessary for the authority to process it and grant you the license. As several documents might be required for the acquisition of the license, it is highly recommended to start gathering these or apply for their preparation.

We also cannot rule out the possibility that a Member State may not opt in for the grandfathering clause—in which case, the application of the Regulation in December 2024 will take effect. For this reason, also, the sooner you get your company ready for authorization, the better, and you also save yourself some unwanted headaches.

Another good way for you to spend the transitional period and start the preparations is to take part in the consultations held by ESMA and EBA. As mandated by MiCA, these two bodies have to consult with market participants about the Regulatory Technical Standards (RTS), Implementing Technical Standards (ITS), and Guidelines they develop.

The feedback is advantageous for both the authorities and for you. By providing your comments, you can have an effect on the final drafts and also have a say in the provisions they establish, and the authorities will see the market’s opinion.

EBA has decided—in order to create more viable and practical recommendations—to engage in public hearings regarding the consultations, where market participants have the opportunity to talk to the very people who create these papers, and state their questions and opinions virtually or sometimes face-to-face. Most of these have passed, but we can assess the situation by them a little.

Although most hearings had a steady 30-50 attendees—sometimes close to 100—a few of them seemed to be more popular than others, making the live debates vary in degree of intensity. In some public hearings, the feedback was scarce, while in others, the discussions even exceeded the allotted time. In most cases, CASPs (crypto-asset service providers) were more likely to ask operational and practical questions; on the other hand, issuers and offerors weren’t as active. This can still change, as by writing the answers to the consultations, you can still shape the topics that will be later thoroughly discussed and finalized.