European Union: MiFID II and MiCA Classification

In the European Union, the regulatory classification of tokenized assets is primarily governed by two frameworks:

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MiFID II — Markets in Financial Instruments Directive II

Security tokens that meet the definition of a financial instrument (e.g., shares, bonds, derivatives, units in investment funds) fall under MiFID II. These tokens are treated like traditional securities and must comply with:

• Licensing and authorization requirements

• Investor protection and suitability rules

• Prospectus and disclosure obligations

• Reporting, custody, and market conduct standards

Issuers, brokers, and trading platforms dealing with security tokens must operate under appropriate regulatory permissions within the EU or via passporting across member states.

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MiCA — Markets in Crypto-Assets Regulation

The Markets in Crypto-Assets Regulation (MiCA), effective from 2024, provides a harmonized framework for non-security tokens, including:

• Utility tokens

• Stablecoins (asset-referenced and e-money tokens)

• Crypto-asset service providers (CASPs)

MiCA does not apply to crypto-assets already classified as financial instruments under MiFID II. Instead, it fills regulatory gaps for digital assets previously outside the scope of EU financial law.

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Classification Summary

• If a token represents ownership, profit rights, debt, or investment exposure, it is likely a security under MiFID II.

• If the token provides access to a product/service, functions as a means of payment, or does not meet financial instrument criteria, it may be regulated under MiCA.

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Key Insight for Issuers

A tokenized asset that qualifies as a security must comply with MiFID II obligations in full. Only non-security tokens fall under MiCA. Proper classification is essential for legal issuance, trading, and investor onboarding across the EU.

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