The Association for Financial Markets in Europe (AFME) has urged the European Commission to keep tokenized securities outside the MiCA crypto-asset framework, warning that folding DLT-based financial instruments into MiCA would create "significant legal uncertainty, costs, and negative consequences on market functioning (including liquidity, hedging, and collateral eligibility)."

The intervention comes in AFME's response to the Commission's consultation on updating MiCA, which opened in May. One of the central questions in that consultation is whether MiCA should cover distributed ledger-based financial instruments currently governed by MiFID II, MiFIR and the Prospectus Regulation — a shift critics argue would break the principle of technological neutrality.

Why does the MiFID boundary matter?

The overlap between the two regimes is sharpest around asset-referenced tokens (ARTs), particularly the dividing line between an ART and a tokenized money market fund. AFME argues the existing securities rulebook already handles these instruments and that re-homing them under MiCA would disrupt established market mechanics — collateral eligibility, hedging and liquidity among them.

Notably, no ARTs have received authorization since MiCA took effect, a record that makes overhauling the legislative perimeter look disproportionate to the problem. Dozens of confusing ARTs in issuance might justify concern; zero authorized tokens do not.

AFME also confirmed three further positions in its submission:

• Support for multi-issuance stablecoins
• A call to revise stablecoin concentration limits
• A request that the Commission confirm tokenized deposits fall under the existing banking framework rather than MiCA

Where does the EBA stand?

AFME is not alone. In its own consultation response, the European Banking Authority (EBA) was emphatic that tokenized securities should remain under MiFID II and even raised the question of whether ARTs should be absorbed into the definition of a financial instrument altogether.

The EBA flagged concrete operational risks if DLT-based securities moved to MiCA: uncertainty over regulated activity authorizations for banks, the eligibility of tokenized securities as financial collateral, the application of the Basel prudential framework and interactions with accounting rules.

What happens next?

The Commission will now weigh consultation responses from AFME, the EBA and other stakeholders as it drafts the MiCA revision. The core structural question — whether Europe regulates tokenized financial instruments by asset type under MiFID II or by technology under MiCA — will shape bank participation, collateral treatment and issuer economics across EU capital markets for years.