Crypto

The rise of cryptoassets, ranging from well-known digital currencies such as Bitcoin and Ethereum to more sophisticated token structures such as stablecoins and non-fungible tokens (NFTs), has led to a veritable revolution in the financial sector. Despite these technological advances and the increasing use of crypto assets for both speculative and utilitarian purposes, a harmonized legal framework within the European Union was lacking until recently.

To better manage the risks of crypto asset markets and ensure market integrity, the European Union has adopted the Regulation No. 2023/1114 on crypto asset markets (MiCAR) promulgated. MiCAR provides comprehensive regulation for crypto assets outside the scope of existing financial legislation, such as asset-based tokens, e-money tokens (EMTs) and utility tokens.

Below we discuss the legal framework of MiCAR and its impact on the Belgian crypto asset markets. By the way, our website also provides more information on another page about crypto and taxation in Belgium.

1. The situation before MiCAR

1.1. General

Prior to the introduction of MiCAR, there was no comprehensive legal framework in the European Union that specifically addressed the regulation of crypto assets. This led to considerable uncertainty as crypto assets were not clearly covered by existing legislation and therefore often operated in a legal gray area. Although the general rules of contract and consumer law applied in some cases, this did not fully protect against the risks inherent in crypto assets.

A key feature of the situation before MiCAR was the lack of harmonization among member states. Some member states introduced their own legislation around crypto assets, leading to a fragmented legal landscape within the EU. For example, countries such as Malta and France introduced specific regulations for Initial Coin Offerings (ICOs), while others, such as Belgium, relied mainly on the application of existing legislation.

This fragmentation made it difficult for companies and investors to operate with confidence, as they could face different requirements in each country. This lack of uniformity also posed risks to market integrity, such as the potential for market abuse and the use of crypto assets for money laundering and terrorist financing.

1.2. Electronic money and payment services

Crypto assets often fell outside existing legislation on electronic money and payment services before MiCAR because they did not meet traditional definitions of money or money assets.

The Second Electronic Money Directive (2009/110/EC) (EMD2). defined electronic money as an electronically stored monetary value that is issued against receipt of funds and can be used for payments. This definition did not fit many cryptoassets, such as Bitcoin and Ether, because these assets did not have a clear issuer and there was no obligation to receive funds in exchange for issuing them. Many cryptoassets were generated through algorithmic processes such as mining, with no monetary consideration. This meant that cryptoassets were not considered electronic money before MiCAR.

Regarding payment services, the Second Payment Services Directive (PSD2) (2015/2366) "money assets" as banknotes, coins, scriptural money or electronic money. Since crypto assets were not covered by this definition, PSD2 did not apply to transactions involving crypto assets, such as the exchange of Bitcoin for goods or services. This meant that crypto asset services such as cryptowallets or payment processors fell outside the oversight of PSD2, resulting in a significant lack of consumer protection.

Overlap between payment services and crypto asset services: Although PSD2 did not apply to crypto transactions, there was sometimes overlap in practice. Certain services, such as exchanges that traded both crypto assets and traditional currencies, were partially covered by PSD2 for the part of their activities that involved the exchange of fiat currency. These hybrid services created further legal uncertainty as they were regulated based on the specific components of their service, leading to inconsistent arrangements between different countries.

1.3. Financial instruments

In addition to the question of whether crypto assets could be considered electronic money or means of payment, the question was also raised as to whether certain crypto assets could qualify as financial instruments under existing EU regulations. Specifically, this involved the Directive 2014/65/EU on markets in financial instruments (MiFID II), which applies to a wide range of investment products.

Crypto assets, such as security tokens or tokens issued during Initial Coin Offerings (ICOs), often exhibited characteristics of traditional investment products, such as stocks or bonds. These tokens were issued as a way to raise capital for new projects, and holders of these tokens could often claim profit sharing, voting rights or other benefits. The question was whether such tokens could qualify as securities or financial instruments under MiFID II.

The Belgian regulator, the FSMA, published in 2022 a roadmap for qualifying crypto assets as financial instruments. This roadmap stated that a crypto asset could be considered a financial instrument if (i) there is an instrument in the sense that the rights are interchangeable or fungible, (ii) there is an identifiable issuer, and (iii) the rights associated with the crypto asset were similar to investment rights, such as the right to dividends or voting rights.

Crypto assets meeting these criteria fell under the strict rules of MiFID II, meaning that issuers and service providers who worked with these assets were subject to the strict requirements of prospectuses, market transparency and investor protection. This created a complex situation, as some crypto assets were considered financial instruments (and thus fall under MFID II), while others were outside the scope of MiFID II (these will now fall under MiCAR).

1.4. Anti-Money Laundering Legislation

The Fifth Anti-Money Laundering Directive (AMLD5) (2018/843) was the first step by the European legislator to include crypto assets in the existing money laundering and terrorist financing prevention framework. AMLD5 introduced the definition of "virtual currency" as "a digital representation of value not issued or guaranteed by a central bank or public authority, not necessarily linked to a legally defined currency, but accepted by natural or legal persons as a medium of exchange."

Under AMLD5, two specific groups of crypto service providers were regulated:

1. Providers of services for exchanging between virtual currency and fiat currency: These exchanges had to register with national regulators and were subject to strict customer due diligence (KYC - Know Your Customer) and monitoring obligations.
2. Storage wallet providers (wallets).: Service providers who managed virtual wallets, in which customers could store their crypto coins, had to meet the same obligations as traditional financial institutions, such as reporting suspicious transactions and adopting risk-based policies.

In Belgium, AMLD5 was converted in 2022 via a law and an royal decree. Belgian lawmakers introduced additional requirements for crypto service providers, such as the obligation to apply for a license from the FSMA and adhere to strict reporting requirements. Providers based outside the European Union are prohibited from offering their services in Belgium without a local office.

This anti-money laundering legislation was an important step in the regulation of crypto assets, as it was the first time that crypto assets were explicitly subject to the same rules as traditional financial institutions. The main goal was to limit the anonymity of crypto transactions and prevent crypto assets from being used for illegal activities, such as money laundering or terrorist financing.

1.5. Advertising of cryptoassets

In Belgium, specific rules were also introduced to protect consumers from misleading advertising of crypto assets. In January 2023, the FSMA approved a regulations good that imposed restrictions on the commercialization of virtual coins. These regulations were ratified by royal decree of january 5, 2023. These regulations are applicable from May 17, 2023 provide strict rules on how crypto assets can be presented to the public, with the aim of protecting consumers from false or misleading information.

The main elements of these regulations are:

• Transparency requirements: Advertising for crypto assets should clearly state the risks of investing in virtual currencies. Positive claims should be balanced with honest information about volatility and potential losses.
• Prior approval of mass advertising: Advertising campaigns capable of reaching more than 25,000 consumers must be notified to the FSMA at least 10 days in advance. This gives the regulator the opportunity to assess the content of the campaign and ensure that it complies with legal requirements.
• Advertising through influencers: When social media influencers are used to promote crypto assets, it had to be clearly stated who pays them to do so and they must meet the same transparency requirements as traditional advertising channels.

These rules are important to ensure that consumers were not exposed to overly rosy or misleading promotions around crypto assets, especially given the high volatility and risks of the market.

2. MiCAR

2.1. Origins

MiCAR was introduced as part of the broader Digital Finance package from the European Commission, which aims to harness the potential of digital technologies in the financial sector while mitigating risk. After years of discussions between various European institutions, a political agreement was reached on June 30, 2022, on a European Commission proposal for MiCAR. The final version of MiCAR was published in the Official Journal of the European Union on June 9, 2023.

The provisions around asset-related tokens and e-money tokens became applicable on June 30, 2024. The remaining provisions of MiCAR become applicable on December 30, 2024.

2.2. Scope

The MiCAR Regulation applies to a wide range of natural and legal persons engaged in issuing crypto assets, offering them to the public or providing services related to crypto assets within the EU. This includes both crypto asset issuers and service providers such as trading platforms, custody wallets and exchange service providers.

There are some exceptions to the MiCAR regulation, such as for central banks and other public entities, and for cryptoassets offered in limited networks, such as loyalty programs. However, MiCAR aims for broad application to ensure that most crypto assets are covered by a coherent regulatory framework.

2.3. Classification of cryptoassets.

MiCAR defines a "crypto asset" as a digital representation of value or a right that can be transferred or stored electronically, using distributed-ledger technology (DLT) or similar technology.

MiCAR introduces a comprehensive classification of cryptoassets, distinguishing different types based on their characteristics and functions. The purpose of this classification is to establish clear rules for the issuance and use of different cryptoassets.

2.3.1. E-money tokens (EMTs).

E-money tokens (or stablecoins) are a subcategory of cryptoassets that aim to stabilize their value by referencing a single official currency, such as the euro or the U.S. dollar. These tokens are primarily used as a means of payment and are intended as an electronic alternative to fiat money. The idea behind e-money tokens is that their value always remains the same as the underlying currency, making them more stable than other crypto assets that are subject to volatility.

According to MiCAR, e-money tokens are considered a type of electronic money, and fall under the rules of the Second Electronic Money Directive (EMD2). This means that only licensed institutions, such as credit or electronic money institutions, may issue e-money tokens. In addition, e-money tokens must always be issued at face value against payment of fiat money, and a right of redemption for holders must be guaranteed. This right of redemption means that the issuer is obliged to exchange the e-money tokens at the value of the underlying fiat currency at the holder's request.

Because these tokens are very similar to electronic money, EMD2 rules also largely apply to EMTs. For example, issuers must adopt a strict investment policy whereby funds received are invested in liquid and risk-averse assets, and at least 30% of these funds must be held in accounts with credit institutions. Supervision of e-money tokens can be exercised by the European Banking Authority (EBA). be acquired if they are considered significant, which happens when, for example, they have a large market capitalization or user base. In this case, stricter rules apply, such as holding additional reserves to cover risks.

2.3.2. Asset-referenced tokens (ARTs).

Asset-referenced tokens are cryptoassets that seek to stabilize their value by referencing another asset, such as a basket of fiat currencies, commodities, or other cryptoassets. They differ from e-money tokens in that they are not limited to a single official currency as a reference point. Instead, ARTs can be linked to a mix of different assets to maintain a stable value.

A good example of asset-referenced tokens is stablecoin, which stabilizes its value by referring to a combination of fiat money and other commodities, such as gold. These tokens are often used as a store of value, similar to traditional currencies, but with more flexibility in terms of underlying value.

Under MiCAR, issuers of asset-referenced tokens must comply with strict rules regarding transparency, governance and risk management. For example, they must maintain sufficient reserves to cover the value of the tokens issued, and these reserves must be held by reliable financial institutions. Again, the EBA can intervene when an asset-referenced token is deemed significant, which is done based on criteria such as the number of users, transaction volume or market capitalization. In that case, stricter rules are imposed, such as additional capital reserves and stricter supervision by supervisory authorities.

2.3.3. Other crypto assets: Utility tokens and NFTs.

Utility tokens are another category of crypto assets under MiCAR and are a very diverse group. Utility tokens give the holder access to specific products or services offered by the issuer. They are not intended as a means of payment or storage of value, but rather as a way to access a particular service or platform. An example of a utility token would be one that provides access to an event or can be used within a specific platform ecosystem, such as a decentralized network for providing digital services.

MiCAR distinguishes between utility tokens that are already functional at the time of issuance and utility tokens that are not yet functional. When the goods or services for which the token provides access are already available, the obligations related to the offering of the token are limited. However, when the services are still under development, the duration of the offering of the utility token may not exceed 12 months from the date of the publication of the crypto asset white paper.

In addition, MiCAR does not apply to non-fungible tokens (NFTs), which are defined as unique, non-exchangeable cryptoassets specific to a particular object, such as digital artwork or collectibles. NFTs are unique because they are not interchangeable, and MiCAR explicitly does not apply to such unique cryptoassets. Recital 10 of the MiCAR regulation clarifies that unique cryptoassets, such as digital collectibles or works of art, are outside the scope of the regulation. The value of an NFT is usually based on the unique characteristics of the underlying object, such as its rarity or usefulness to the holder.

MiCAR does propose an important limitation: if an NFT is split into fractional parts, so that it is traded in smaller pieces that are interchangeable, it can still be considered a fungible crypto asset and fall under MiCAR's rules. This is an important nuance because some NFT platforms offer fractional ownership of expensive NFTs, blurring the line between fungible and non-fungible assets.

2.3.4. Algorithmic stablecoins

Algorithmic stablecoins are a subcategory of cryptoassets that seek to maintain a stable value through algorithmic adjustments to the supply of the tokens, rather than by linking them to a specific value or basket of assets. The stabilization mechanism relies on automating the supply and demand side, increasing or decreasing the supply of the token based on market conditions, with the aim of keeping the price stable.

Under MiCAR, algorithmic stablecoins are regulated as asset-related tokens or e-money tokens, depending on their underlying structure and the mechanism used to stabilize the value. These tokens are considered particularly risky because reliance on the algorithms is essential to maintaining their value. If the market loses the stabilization mechanism, algorithmic stablecoins can quickly lose their value.

MiCAR argues that providers of algorithmic stablecoins must meet the same strict requirements as other types of stablecoins, including the obligation to maintain adequate reserves and to implement robust risk management systems.

2.3.5. Crypto assets outside the scope of MiCAR

Although MiCAR regulates a wide range of cryptoassets, there are also certain cryptoassets that fall outside the scope of the regulation:

• Financial instruments: Crypto assets that can be classified as financial instruments under MiFID II, such as security tokens, remain subject to the rules of existing financial legislation and thus do not fall under MiCAR.
• Deposits and cash: Crypto assets classified as deposits or cash, except when considered as e-money tokens, are outside MiCAR. These assets are regulated under other existing European regulations, such as the Deposit Guarantee Schemes Directive.
• Securitization positions and insurance products: MiCAR does not apply to crypto assets that take the form of securitization positions or to assets that are considered insurance or life insurance products. These are regulated separately under the guidelines specific to these financial products.
• Crypto assets with no identifiable issuer: Importantly, MiCAR does not apply to cryptoassets that do not have an identifiable issuer, such as Bitcoin or Ethereum. This is because there is no entity that controls the creation of new units. Although the issuance of such assets is not regulated, providers of services related to these assets, such as exchanges and wallet providers, are covered by MiCAR.

2.4. Special obligations for crypto asset issuance

MiCAR imposes strict rules on the issuance of cryptoassets to both protect investors and ensure market integrity. Depending on the type of crypto asset and the nature of the offering, different obligations apply to crypto asset issuers. These obligations relate to issuer transparency and accountability, the publication of a crypto asset white paper, and specific requirements for the issuance of e-money tokens and asset-related tokens.

2.4.1. Offering a crypto asset other than an asset-related token or e-money token

Crypto assets that are not asset-related tokens or e-money tokens, such as utility tokens and other forms of digital assets, are subject to MiCAR's general rules. These issues are subject to different obligations depending on the size and nature of the offering.

a. Non-exempt offers

Non-exempt offerings are crypto asset offerings that do not meet the criteria for an exemption under MiCAR. These offerings are subject to the strictest obligations. The issuer must publish a crypto asset white paper that complies with MiCAR rules. This white paper acts as an informational document for investors, similar to a prospectus for equity offerings.

Important requirements for non-exempt offers are:

• Publication of a white paper: The issuer is required to publish a white paper containing comprehensive information about the crypto asset being offered. This document must describe, among other things, the characteristics of the crypto asset, the rights of the holder, the risks and the technology behind the crypto asset.
• Notification to the competent autoriteit: The white paper must be reported to the competent authority. However, no prior approval is required; the focus is on ex-post control, where regulators can act if they find that the white paper is misleading or non-compliant.
• Right of Withdrawal: The buyers of the crypto asset have the right to revoke their purchase within 14 calendar days. This provides additional protection for investors and ensures that they have time to review their decision.
• Advertising obligations: Any advertisements for the crypto asset must comply with MiCAR rules and must not be misleading. Advertisements must also be consistent with the information in the white paper.

b. Partially exempt offers

For smaller offerings or offerings directed to a specific group of investors, MiCAR offers partial exemptions from the money laundering requirements. These exemptions are intended to ease the administrative burden for providers operating on a limited scale. Partial exemptions apply in the following cases:

1. Offers to fewer than 150 people per state: If the offer is addressed to fewer than 150 natural or legal persons per Member State, the issuer is exempt from the obligation to prepare a complete white paper.
2. Offers with a total value of less than €1,000,000: If the total value of the offering in a 12-month period is less than €1,000,000, the publisher does not have to publish a full white paper.
3. Offers addressed only to qualified investors: If the offering is addressed exclusively to qualified investors, such as institutional investors, there is no white paper requirement. This is similar to the exemptions in the prospectus laws.

c. Requirements applicable to non-exempt and partially exempt offers

While partially exempt offerings do not have to meet all white paper requirements, there are some basic obligations that apply to both non-exempt and partially exempt offerings:

• Advertising obligations: Advertising for the crypto asset must always comply with MiCAR's requirements, which means it must be fair, clear and non-misleading. Advertisements must be in line with the information provided in the white paper or other documentation.
• Legal entity: The provider must be a legal entity. This means that natural persons cannot offer crypto assets under MiCAR without doing so through a registered legal entity.
• Publication of results: The offeror must publish the outcome of the offer within 20 business days after the end of the subscription period. If no subscription period is established, the offeror must report monthly on the number of units of the crypto asset in circulation.
• Security and retention requirements: Providers must make effective arrangements to keep the funds or crypto assets raised safe. This can be through a third party, such as a credit institution, authorized to manage the funds or by a crypto asset service provider licensed to provide custodial and management services.

d. Fully exempt offers

MiCAR also provides a number of complete exemptions for certain crypto asset offerings. These exemptions apply to crypto asset offerings that are not commercial in nature or are not intended for broader market sales.

Full exemptions apply in the following situations:

• Bel rewards for maintaining a distributed ledger: When crypto assets are automatically created as rewards for validating transactions on a distributed ledger (as in mining or staking), they are also exempt from MiCAR rules.
• Free offers: Offers where the crypto asset is distributed free of charge are completely exempt from the white paper requirements. This applies, for example, to so-called "airdrops," where cryptoassets are distributed free of charge to users.
• Offers of utility tokens: If the crypto asset is a usage token that only provides access to a good or service that is already available, and is not intended as an investment vehicle, a full exemption also applies.

2.4.2. Issuance of e-money tokens (EMTs).

The issuance of e-money tokens (EMTs) falls under the stricter rules of both MiCAR and the Second Electronic Money Directive (EMD2). This means that e-money tokens are considered a form of electronic money and therefore must comply with the existing rules for electronic money institutions.

Important obligations for the issuance of e-money tokens are:

• Permit requirement: Only credit and electronic money institutions may issue e-money tokens. This means that an e-money token issuer must have a license that allows it to conduct electronic money activities.
• Cryptoactivawitbook: As with other cryptoassets, the issuer must prepare a white paper describing the characteristics of the e-money tokens being offered. However, the white paper must only be notified to the competent authority and does not require prior approval. This provides some flexibility, but at the same time imposes strict transparency and investor information requirements.
• Recovery and repayment plan: Issuers of e-money tokens must provide a recovery and redemption plan. This plan describes the procedures that the issuer follows in case of severe market fluctuations or in case of imminent bankruptcy of the issuer. The recovery plan should ensure that holders of the e-money tokens retain their value even in unforeseen circumstances.
• Investment Policy: The funds received in exchange for e-money tokens must be securely invested in liquid and risk-free instruments. At least 30% of these funds must be held in accounts with approved credit institutions. This strict investment policy is designed to ensure that the issuer is always able to meet its repayment obligations.

When an e-money token has a large user base or high market capitalization, the EBA may decide to classify the token as significant. In this case, additional requirements apply, such as holding larger reserves, more stringent supervisory requirements and possibly even additional risk management obligations.

2.4.3. Issuance of asset-related tokens (ARTs).

The issuance of asset-related tokens is subject to strict rules under MiCAR, mainly because of the potential impact they can have on financial stability. The main obligations for the issuance of asset-related tokens are:

• Permit and white paper requirement: The issuance of asset-related tokens requires a license from the competent authority in the issuer's member state. Issuers must publish a detailed white paper disclosing all relevant information about the crypto asset, including the nature of the underlying assets, the stabilization mechanism and the risks to holders of the tokens.
• Statutory seat within the EU: Issuers of asset-related tokens must have a registered office within the European Union. This is intended to ensure that supervisory authorities can exercise effective control over the issuer.
• Managing risk and reserve requirements: Issuers of asset-related tokens must maintain an asset reserve sufficient to cover all tokens issued. This reserve must be held by an approved custodian and must only be invested in highly liquid and risk-averse assets. This investment policy should ensure that the value of tokens remains stable at all times and that holders can exchange their assets for their face value.
• Providing information to holders: Issuers are required to regularly inform holders of asset-related tokens about the composition and value of the asset reserve. This includes information about significant events that may affect the value of the reserve, such as fluctuations in the price of the underlying assets.

If an asset-related token is classified as significant, additional requirements apply, including higher capital buffers, increased transparency requirements and stricter supervision by the EBA.

2.5. Providers of crypto asset services.

Under MiCAR, providers of crypto asset-related services are strictly regulated to ensure that they operate in a fair, transparent and secure manner. These providers play a key role in the functioning of crypto asset markets, as they provide services such as holding crypto assets, facilitating trading on platforms, and exchanging crypto assets into fiat money or other crypto assets. To ensure adequate investor protection and market integrity, MiCAR sets strict requirements for these service providers.

2.5.1. Introductory provisions

MiCAR introduces for the first time in the EU a comprehensive regulatory framework for crypto asset service providers. These providers must comply with numerous operational, organizational and prudential requirements. The legislation aims to ensure the safety and reliability of crypto asset markets and place crypto asset service providers under the same stringent standards as providers of traditional financial services.

A crypto asset service provider is defined in MiCAR as a legal entity or company that professionally provides one or more crypto asset services to customers within the European Union. This includes custody wallets, trading platforms, exchange services and order execution services.

The main obligations for these service providers are:

• Permit requirement: Providers of crypto asset services must apply for an authorization from the competent authority in the Member State where their registered office is located. This authorization is essential for the operation of the services within the EU and also allows them to offer services in other member states under a "passport regime" without additional authorizations.
• Statutory seat within the EU: To obtain a license, the crypto asset service provider must have its registered office in an EU member state. This requirement ensures that the service provider's activities can be supervised, ensuring investor protection.
• Reverse solicitation: Service providers based outside the EU may only provide their services on the basis of reverse solicitation, meaning that the customer actively requests the services without the service provider conducting marketing activities within the EU. This prevents non-EU service providers from operating freely without complying with European rules.

2.5.2. Common provisions

MiCAR contains a number of common obligations that apply to every crypto asset service provider, regardless of the type of service they offer.

All crypto asset service providers must act honestly, fairly and professionally toward their clients. This includes being transparent about their services, the costs and risks associated with transactions in crypto assets. The information they provide to their clients must be accurate, clear and non-misleading. This is essential to ensure that customers can make informed decisions.

Depending on the type of services the provider provides, there are minimum capital requirements. These capital requirements range from €50,000 to €150,000, depending on the size and nature of the services. The capital requirements can be met by holding Tier 1 core capital items (such as share capital and retained earnings) or an insurance policy that provides coverage in all EU member states where the services are offered.

MiCAR has strict governance requirements and internal organization of crypto asset service providers. Members of the management body and holders of qualifying holdings must comply with fit & proper standards, which means they must have sufficient expertise, experience and integrity to perform their duties.

Crypto asset service providers are responsible for the security of their systems and the continuity of their operations, and are subject to DORA. They must have adequate security infrastructure in place to protect their clients from data breaches, cyber attacks and asset loss. This includes implementing advanced technologies and regularly testing their systems to mitigate operational risks.

Providers holding client assets, such as custodial wallets, must ensure that their clients' property rights are protected. Client assets should be separated from the provider's own assets to prevent client losses in the event of provider bankruptcy or insolvency.

Providers of crypto asset services should implement an effective complaints procedure that allows customers to file complaints quickly and efficiently and have them resolved. This complaints procedure should be transparent and accessible to all customers.

2.5.3. Specific provisions

MiCAR recognizes that different types of crypto asset services present different risks and operational challenges. Therefore, in addition to the common provisions, there are specific obligations for each type of crypto asset service.

Providers engaged in the custody and management of crypto assets for their customers (such as wallet providers), must comply with strict rules to ensure that their customers' assets are protected from loss, theft and cyber threats. Crypto assets and their keys must be kept in a secure manner, with robust security protocols implemented to prevent theft or loss of assets. Custodians are liable for the loss of crypto assets (limited to the market value at the time) due to error or negligence on their part. However, they are not responsible for losses beyond their control, such as market volatility or technical failures resulting from underlying blockchains.

Crypto asset trading platforms, which operate multilateral systems where buy and sell orders of crypto assets are brought together, must establish clear operating rules including for the approval process of new crypto assets traded on the platform. They should establish a due diligence perform to ensure that crypto assets traded meet regulatory requirements. Platforms must also ensure that orders are executed in a transparent and fair manner and that no preferential treatment is given to certain parties. Finally, the platform must not trade on its own account on the platform to avoid conflicts of interest and ensure fair market conditions.

Service providers who cryptoassets exchange for fiat money or other crypto assets, such as exchanges, should have clear rules for executing exchanges. They should ensure that customers always get the best execution conditions and that exchange prices are transparent and non-discriminatory.

Service providers who Conduct transactions in crypto assets on behalf of their clients, such as brokers, must act in the best interests of their clients and ensure that transactions are executed on the best terms. They must have an order execution policy that ensures transactions are executed quickly, efficiently and fairly.

Providers of advice services on cryptoassets, such as investment advisors, should prepare a detailed client profile, taking into account the client's financial situation, risk tolerance and knowledge. They should advise the client based on a careful analysis of the relevant crypto assets and ensure that their advice is in the client's best interest.

Service providers engaged in the managing portfolios of crypto assets for their clients, must regularly report on portfolio performance and keep the client informed of significant changes in the market. They must act in accordance with the client's risk profile and ensure that the portfolio is managed in a diversified and safe manner.

2.6. Decentralized Finance (DeFi).

DeFi, short for Decentralized Finance, refers to a new approach to financial services that uses blockchain technology to eliminate intermediaries. Traditional financial activities, such as lending, borrowing, trading and saving, can take place within DeFi platforms without the involvement of traditional banks or other financial institutions. Most DeFi platforms use smart contracts, automated programs run on blockchains such as Ethereum.

A major point of discussion was whether MiCAR would also apply to Decentralized Finance (DeFi). While MiCAR does not apply to fully decentralized systems without intermediaries, as is the case with some DeFi platforms, some aspects of DeFi platforms may still fall within the scope of MiCAR if any form of central entity or intermediary is involved.

MiCAR recognizes that regulation will need to evolve to adequately regulate fully decentralized financial systems. For now, depending on the further development of DeFi, the EU intends to evaluate the legal feasibility of a possible separate regulatory framework for Decentralized Finance.

2.7. Liability and penalties

2.7.1 Liability for information provided in the crypto asset white paper

To further protect investors, MiCAR imposes civil liability on crypto asset providers and persons requesting admission to crypto asset trading for the information they provide in their crypto asset white papers. If a white paper contains inaccurate, unclear or misleading information, the issuers and their executives can be held liable for losses incurred by investors. This liability also applies to the operator of the trading platform. This liability cannot be contractually excluded or limited.

2.7.2 Powers of the FMSA.

National authorities, such as the Belgian FSMA, will have extensive powers to monitor MiCAR compliance. They will have the right to:

• Suspend or prohibit certain crypto asset offerings.
• Require disclosure of inaccurate or incomplete information.
• Impose penalties for violations of MiCAR obligations.

Failure to comply may result in administrative fines ranging from €700,000 for natural persons to €5,000,000 or 3%, 5% or 12.5% of annual turnover for legal entities.

The FSMA may also take more far-reaching measures, such as prohibiting responsible executives from holding management positions in the industry for a certain period of time.

Misuse of inside information and market manipulation in the context of crypto assets is severely punished under MiCAR. Violators may face fines of up to €5,000,000 for natural persons and €15,000,000 for legal entities or 15% of their total annual turnover. In addition, administrative fines can be imposed that are three times the profits generated by the violation, which can result in significant financial penalties.

2.7.3 Powers of the EBA.

The European Banking Authority (EBA) has been given important powers under MiCAR, especially with respect to the regulation and control of significant asset-related tokens and significant e-money tokens. The EBA has the power to investigate issuers of these tokens, including conducting on-site inspections at the business premises of the parties involved. This is part of the EBA's broader supervision of these tokens, which pose a heightened risk due to their size or importance to financial stability.

In addition, the EBA can also take a wide range of measures when determining violations, as described in Article 130 of the MiCAR Regulation. These measures include imposing fines, restricting activities, and even revoking licenses in serious cases. The EBA works closely with national supervisors and other European bodies, such as ESMA (European Securities and Markets Authority), to ensure consistent compliance and effective information exchange between the relevant authorities.

Furthermore, the EBA can exercise temporary intervention powers to correct market irregularities and establish partnerships with other regulators, such as tax authorities, to ensure broader compliance within European crypto asset markets.

3. The impact on Belgian practice

3.1. Strengthening consumer protection

One of MiCAR's main goals is to improve investor and consumer protection in the crypto asset market. Through the introduction of white paper requirements, transparency requirements and strict advertising rules, MiCAR provides a higher level of consumer protection than was previously available. Belgian consumers will be better protected from deceptive marketing and fraud, while still maintaining access to innovative digital assets.

3.2. Harmonized legal framework

MiCAR provides a harmonized legal framework across the European Union, which significantly increases legal certainty and predictability for Belgian market participants. This makes it easier for Belgian companies to engage in cross-border activities and contributes to the further integration of European crypto asset markets.

3.3. Compliance requirements for Belgian companies

Belgian companies engaged in issuing crypto assets or offering crypto asset services will have to comply with the new MiCAR rules. This means they will have to invest in compliance and risk management systems to meet the moneybook obligations, capital requirements and other regulatory requirements. For smaller firms, this may be a significant financial and administrative burden, but it will also help professionalize the industry.

3.4. Enforcement and sanctions

MiCAR provides for significant penalties for non-compliance, including large fines and the possibility of license revocation. FSMA will play an important role in enforcing MiCAR in Belgium, and firms should ensure that they take their compliance obligations seriously to avoid fines and reputational damage.

3.5. Importance of legal support

The introduction of MiCAR marks an important milestone in the regulation of crypto assets in the European Union. It provides a solid and harmonized regulatory framework that enables market participants to operate with greater confidence and clarity. For Belgium, MiCAR is expected to lead to further professionalization of crypto asset markets, while better protecting consumers from the risks associated with this rapidly evolving sector.

Belgian law firms will play a crucial role in advising clients on MiCAR compliance and navigating the complex legal and compliance requirements arising from this new regulation. It is vital that companies operating in the crypto asset sector prepare for the implementation of MiCAR in a timely manner, as the enforcement of these rules will involve strict controls and severe penalties.