an article written by Elizaveta Palaznik, Markets in Crypto-Assets (MiCA) business consultant, speaker at Banking 4.0 – international blockchain conference
The evolving landscape of digital finance has given rise to innovative concepts such as e-money tokens (EMTs). As these tokens gain prominence, questions arise regarding their classification and the regulatory frameworks that govern them. In particular, understanding the relationship between Directive 2009/110/EC, the Electronic Money Directive (EMD), which defines e-money, and the Markets in Crypto Assets Regulation (MiCA), becomes crucial for entities issuing EMTs.
This article explores the potential confusion surrounding the definitions of e-money and e-money tokens, the compliance obligations imposed by both directives, and the implications for Electronic Money Institutions (EMIs).
MiCA (Markets in Crypto-Assets Regulation) and EMD2 (Electronic Money Directive 2) are both regulatory frameworks that apply to electronic money, but they have different scopes and objectives.
EMD2 is a European Union Directive that provides a legal framework for electronic money institutions (EMIs). It regulates the issuance, distribution, and redemption of electronic money, which is a digital representation of fiat currency.
MiCA, on the other hand, is a proposed regulation that aims to regulate the markets for crypto-assets in the European Union. It covers crypto-assets service providers and a broad range of crypto-assets, including tokens that do not represent traditional fiat currencies.
To give an example, if a company wants to issue electronic money that represents a fiat currency, it would need to comply with EMD2 regulations. However, if the company wants to issue a token that represents a commodity, such as gold or silver, it would need to comply with MiCA regulations as an ART issuer.
These two directives could have an intersection when an e-money token is considered as e-money. But first, what is e-money?
MiCA introduces the term „crypto-asset” as a digital representation of value or rights transferable and storable using distributed ledger technology. Within this framework, e-money tokens (EMTs) represent a specific category of crypto-assets that aim to maintain a stable value by referencing an official currency.
In addition, strict conditions on the issuance of e-money tokens should be laid down, including an obligation for e-money tokens to be issued either by:
A credit institution authorized under the Capital Requirements Directive (CRD), or
. An electronic money institution authorized under Electronic Money Directive 2 (EMD2).
. According to MiCA, to issue EMTs, EMTs shall be deemed to be electronic money (art.48).
E-money is an ‘electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions, and which is accepted by a natural or legal person other than the electronic money issuer.’
Yes, EMTs bear similarities to traditional e-money as defined under the Electronic Money Directive (EMD) of 2009/110/EC. According to MiCA, the function of an EMT is very similar to the function of electronic money (e-money) as defined in the Electronic Money Directive. Like electronic money, such crypto-assets are electronic surrogates for coins and banknotes and are likely to be used for making payments. Those crypto-assets should be defined in MiCA as ‘e-money tokens’.
Yes, EMTs issuers should, unless specified otherwise in the MiCA regulation, comply with the relevant requirements set out in EMD about:
(1) Requirements for the taking up, pursuit, and prudential supervision of the business of e-money institutions (EMIs) (Title II).
(2) Issuance and redeemability of electronic money provision (Title III).
The EMD, as indicated by Recital 8, encompasses electronic money stored on payment devices held by the e-money holder or remotely stored and managed through specific accounts. This broad definition ensures that technological innovation is not impeded and can accommodate current and future electronic money products, including potential e-money tokens.
Under the Electronic Money Directive, an e-money token may be considered as e-money if it meets the definition and requirements set forth in the directive. According to the directive, e-money refers to electronically stored monetary value, represented by a claim on the issuer, which is issued upon receipt of funds for the purpose of making payment transactions. The e-money should be accepted by entities other than the issuer.
If an e-money token meets these criteria and satisfies the definition of e-money as outlined in Directive 2009/110/EC, then it would be classified as e-money under that directive.
An e-money token is considered electronic money if it:
. Is electronically stored,
. Has monetary value,
. Represents a claim on the issuer,
. Is issued upon receipt of funds,
. Is issued to make payment transactions, and
. Is accepted by persons other than the issuer.
So, EMTs meeting this definition and requirements need to be considered as e-money, but not all e-money are EMTs, and not all EMIs issuing e-money issue crypto-assets.
EMD specifically addresses the regulation and supervision of electronic money institutions. If an EMI issues electronic money in the form of crypto-assets, it would need to comply with the requirements and obligations outlined in this directive. This includes maintaining appropriate prudential standards, ensuring robust governance and risk management frameworks, and providing consumer protection measures.
On the other hand, the MiCA regulation focuses specifically on the regulation of crypto-assets and related services. If an EMI engages in activities such as the issuance, trading, or exchange of crypto-assets, it would also need to adhere to the provisions set forth in the MiCA regulation. This includes complying with requirements related to registration, transparency, conduct of business rules, custody of assets, and investor protection.
In cases where an EMI is subject to both directives, it would need to ensure compliance with the relevant provisions of both frameworks. This entails meeting the requirements and obligations specific to electronic money institutions as outlined in Directive 2009/110/EC while also fulfilling the obligations related to crypto-assets under the MiCA regulation. It is important for EMIs to carefully assess their activities and the types of crypto-assets they deal with to determine their regulatory obligations.
MiCA states that if a natural or legal person is authorized to distribute electronic money under the Electronic Money Directive (EMD), they should also be allowed to distribute e-money tokens without needing additional authorization under MiCA for crypto-asset services. Therefore, these distributors do not need to seek authorization specifically for distributing crypto-assets under MiCA.
The three most widely used stablecoins, USDT, USDC, and BUSD, have a combined market capitalization of $120 billion. USDT is issued by Tether Limited, USDC is issued by Centre (a consortium including Coinbase and Circle), while BUSD is issued by Binance in partnership with Paxos.
Circle, the issuer of USDC, has applied for licenses to become a licensed Electronic Money Institution and a registered Digital Asset Service Provider in France, complying with MiCA regulations.
However, Binance and Tether Limited are not currently registered as authorized credit institutions or electronic money institutions, meaning they would need to obtain one of these two licenses to target the European market under MiCA.
While an e-money token may be considered electronic money under the EMD if it meets the directive’s definition and requirements, the emerging concept of e-money tokens under the MiCA regulation introduces new complexities. EMIs issuing e-money in the form of crypto-assets or engaging in activities related to crypto-assets must navigate compliance obligations from both the EMD and the forthcoming MiCA regulation. For stablecoin issuers already in operation, they may experience a longer MiCA compliance process due to the requirement of obtaining either an Electronic Money Institution (EMI) or a credit institution license before being able to issue any e-money tokens.
By understanding the relationship between Directive 2009/110/EC (EMD) and the Markets in Crypto Assets Regulation (MiCA), entities issuing e-money tokens can ensure compliance with the applicable regulatory frameworks. Clear definitions, proper classification, and adherence to the specific obligations outlined in both directives are essential for Electronic Money Institutions (EMIs) operating in the evolving landscape of digital finance.
→ Find out what are the requirements to apply for a MiCA license as a CASP
→ Find out more about MiCA in video
Banking 4.0 – „how was the experience for you”
„So many people are coming here to Bucharest, people that I see and interact on linkedin and now I get the change to meet them in person. It was like being to the Football World Cup but this was the World Cup on linkedin in payments and open banking.”
Many more interesting quotes in the video below:
