How is MiCA impacting fund managers?
This article was originally published in AGEFI Luxembourg, April 2025 and is reproduced with permission from the publisher.
In recent years, investors have shown increasing interest in crypto-assets, whose structure and economic characteristics differ significantly from those of traditional assets. This has led the European legislator to adopt Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets (MiCA). The regulation, which entered fully into force on 31 December 2024, aims to establish harmonised rules for crypto-asset players across the European Union and to enhance investor protection.
What is MiCA and why does it affect crypto-asset funds?
MiCA seeks to enhance investor protection and confidence in crypto-asset markets by creating a harmonised framework with rules similar to the Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (MiFID II). Due to their similarities and to avoid an overlap between the applicable regulations, the European legislator needed to clearly differentiate MiCA and MiFID II.
This was achieved by introducing a clear definition of a crypto-asset in MiCA, as "a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology" and by a clear exclusion of all crypto-assets qualifying as financial instruments from the scope of MiCA. Indeed, MiCA only focuses on the regulation of players providing crypto-asset services and these players encompass both traditional crypto-asset professionals, such as crypto exchanges, custodians or token issuers, and professionals of the financial sector already regulated under MiFID II, to the extent they are offering crypto-asset services to their clients on a professional basis.
Given the scope and purpose of MiCA, one might assume that the fund industry wouldn't fall within its scope. However, such an approach overlooks the recent trend of crypto-assets becoming a recognised asset class by many fund players, covering various strategies such as liquid funds focusing on crypto-assets like Bitcoin, baskets of coins or tokens, as well as VC funds investing in Web 3.0 start-ups using blockchain technology. Existing funds structured under the framework in place at the time of their launch, and new funds to be launched, may be impacted by MiCA through the regulation of professionals involved in such funds, even if those professionals are already regulated under MiFID II or Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on alternative investment fund managers (AIFMD).
While MiCA introduces a new regulatory framework for various professionals engaged with crypto-asset funds, we will focus on the treatment under MiCA of alternative investment fund managers (AIFMs) on the one hand, and portfolio managers and investment advisors on the other hand.
MiCA: A non-event for AIFMs?
AIFMs are in charge of the investment management (i.e. portfolio management and risk management) of the funds. Considering the crucial role of AIFMs in the fund industry, it could have been expected that MiCA would impose heavy regulation on AIFMs managing crypto-asset funds. However, the European legislator has decided not to add new obligations on AIFMs. This is in line with the approach taken under MiFID II. Indeed, AIFMs are already regulated under the AIFMD, which allows them to manage various types of funds, with crypto-asset funds which are funds focusing on a specific asset class. Accordingly, AIFMs are not subject to any authorisation by, nor notification to, the competent authority of their home Member State pursuant to MiCA.
AIFMs only fall within the scope of MiCA to the extent that they want to provide discretionary portfolio management to their clients with respect to crypto-assets, investment advice in relation to crypto-assets, or reception and transmission of orders for crypto-assets on behalf of clients. This is similar to the so-called "MiFID Top-Up" provided under AIFMD.
In this respect, an important point is that Luxembourg AIFMs will still have to request from the Luxembourg regulator an extension of their licences as AIFMs to be entitled to manage funds investing in crypto-assets (i.e. Other-Other Fund-Virtual assets), in accordance with the FAQ issued by the Luxembourg regulator. Such an approach is in line with Luxembourg’s practice of issuing specific licences to AIFMs to manage certain types of assets only (e.g. licence for real estate, licence for private equity), contrary to other European countries which authorise AIFMs to manage all asset classes upon their authorisation as AIFMs. While one may think that the impact of MiCA would be similar for AIFMs, portfolio managers and investment advisors, the treatment of portfolio managers and investment advisors is completely different.
Portfolio Managers and Investment Advisors under MiCA scrutiny?
It is common for investment funds to have AIFMs which delegate the portfolio management function to a portfolio manager, or to receive advice from an investment advisor. This structuring consideration is particularly relevant for Luxembourg funds as the investment teams are usually not based in Luxembourg, and MiCA does not change the existing rules under MiFID II. Indeed, portfolio management services on crypto-assets and investment advice services on crypto-assets under MiCA are defined in the same manner as portfolio management services on financial instruments and investment advice services on financial instruments under MiFID II, respectively. However, it means that both portfolio managers and investment advisors providing crypto-asset services will now have to notify or be authorised under MiCA to provide portfolio management or investment advisory services, respectively. While such change may seem minor, it is a game changer for certain players.
In practice, the application of MiCA will be easier for professionals of the financial sector already regulated under MiFID II, as they will be able to leverage their existing MiFID II licence regime applicable to investment firms providing and performing investment services and activities. They may provide crypto-asset services by way of notification to their competent authority, to the extent the crypto-asset services are deemed equivalent to the investment services and activities for which they already have a MiFID II licence. The MiCA licence should also be relatively straightforward for professionals of the financial sector regulated for other services than those to be provided in relation to crypto-assets, as they are already familiar with MiFID II requirements and will only be required to obtain an additional licence under MiCA (de facto resulting in two different licences for the same entity).
By contrast, for traditional crypto-asset professionals, the path created by MiCA could be more cumbersome, as it will require such professionals to obtain a MiCA licence (equivalent to a MiFID II licence) from scratch to provide portfolio management or investment advisory services. In particular, existing investment advisors benefiting from an exemption under MiFID II or local rules, or new professionals entering the market, could perceive MiCA as a step too far - leading to delays in their projects, given the potential difficulty and cost of obtaining the relevant licence. However, those who successfully navigate MiCA’s requirements stand to benefit from the expanding European crypto-asset market, similarly to professionals of the financial sector under MiFID II.
The uncertain impact of MiCA
MiCA removes the long-standing legal uncertainty surrounding crypto-assets and introduces investor protection measures for the European crypto-asset market, leading to a democratisation of crypto-assets long awaited by certain players by certain players (particularly in the fund industry, which is used to a highly regulated environment). While MiCA may not drastically change the regulatory framework for some professionals, such as AIFMs, it introduces new requirements for portfolio managers and investment advisors. Despite MiCA's positive impact, it should be assessed whether the increased regulatory obligations imposed by MiCA could reduce the competitiveness of the emerging European crypto-asset market.
