Why the Fashion Industry should care about MICA?

Paolo Maria Gangi, member of DAO MFC

Next month, on April 19th, the European Parliament is expected to hold the final vote on the Union Market of Crypto Assets Regulation (MICA) which will establish the first EU regulatory framework for (fungible) tokens issuers as well as for crypto asset service providers (CASPs). MICA will be then published into the EU’s Official Journal and enter into force 20 days later. After a transitional period of 18 months (12 months for the rules for stablecoins), i.e. not earlier than Q4 2024, MICA will be fully directly applicable in all 27 Member States.

MICA in Brief
MICA primarily establishes the tokens authorization regime in the EU and regulates the issuance and distribution of stablecoins which are defined as electronic money tokens (EMTs) or asset-referenced tokens (ARTs), as well as crypto-assets which are neither ARTs nor EMTs and which substantially and mostly coincide with utility tokens. MICA also establishes the authorization regime as well as the rules under which CASPs will be required to act in the Union.

MICA is somehow limited in scope as it doesn’t apply to tokens which fall under the scope of the EU financial legislation as well as it doesn’t regulate non-fungible tokens (NFTs). However, it is important to consider that in defining what falls under MICA and what is not covered by this piece of legislation a general substance over form approach should be adopted. From this point of view a ERC 721 token can be still considered a fungible token from EU national competent authorities (NCAs) if is de facto used as a fungible crypto asset: “the features of the asset in question should determine the qualification, not its designation by the issuer” and also “the sole attribution of a unique identifier to a crypto-asset is not sufficient to classify it as a unique or not fungible” (Recital 6c, MICA). Recital 6c of MICA, in particular, establishes that “the fractional parts of a unique and non-fungible crypto-asset” as well as “the issuance of crypto-assets as non-fungible tokens in a large series or collection” should be treated by NCAs as fungible tokens regulated by MICA itself and not as NFTs excluded by its scope.

MICA is a regulation (and not a directive) which means that the regulation, when entered into force, will be directly applicable in all 27 Member States and there will not be the necessity of an act of implementation in each Member State.
How MICA May Impact the Digital Fashion Industry?
The fashion industry should take note of MICA for a number of reasons. First, the creation of utility fungible tokens, like tokens incorporating the right to a discount or the right of participation to an event, will fall under the scope of MICA. Second, also the issuance of fungible tokens to create a system of reward for the use of gamification in fashion will still fall under the scope of MICA. Last but not least, it will be very much important to determine when “NFTs”, beyond their names or the fact that technically are ERC721, might substantially be considered under MICA as “fungible tokens which, as such, will require an authorization from a NCA. Under MICA, for example, the iconic Bored Apes Yacht Club project will most likely be considered a project of fungible tokens and, as such, subject to the MICA regulatory regime.

MICA is only for EU Based Projects?
MICA is primarily applicable to all EU based companies which will then have to make an initial regulatory analysis under MICA before starting a project involving the issuance of fungible or non-fungible tokens (in this latter case, to prior determine that the tokens at issue will be considered non-fungible also by NCAs under MICA). However, non-EU based companies as far as they will sell their tokens to EU clients (which is most likely, considering that the 27 Member States make the biggest world consumers market) will still be subject to MICA unless they can rely on the so-called reverse solicitation which means that the EU resident client has directly solicited the sale of the token. In other words, if non-EU based companies market their tokens in the EU (i.e. the solicit EU clients) will still be subject to MICA.
In conclusion, the digital fashion industry should take note of MICA and structure the current and future projects in order to comply with this important new regulatory regime which is probably deemed to be the new world standard for the regulation of tokens.

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