Regulation on markets in crypto-assets (MiCA)
Blockchain’s potential impact on energy company operations and business models can’t be overestimated. Many say that traditional roles of energy utility companies will soon be disrupted, unless major actors adapt to changing environment and apply new technology to the variety of processes.
27 November 2023
Deadline: 8 February 2024
Deadline: 6 December 2023
The European Banking Authority (EBA) published today a Consultation Paper on draft regulatory technical standards (RTS) on complaints handling procedures for issuers of asset-referenced tokens (ARTs) under the Markets in Crypto-Assets Regulation (MiCAR). These draft RTS aim at ensuring prompt, fair and consistent handling of complaints by holders of ARTs and other interested parties.
EBA consults on draft technical standards on EU market access of issuers of asset-referenced tokens under the Markets in Crypto-Assets Regulation
The European Banking Authority (EBA) today consulted on two sets of draft regulatory technical standards (RTS) and one set of implementing technical standards (ITS) relating to the authorisation as issuer of asset-referenced tokens (ARTs) and the assessment of acquisition of qualifying holdings in issuers of ARTs under the Markets in Crypto-assets Regulation (MiCAR). With these technical standards, the EBA aims to regulate access to the EU market of ARTs by applicant issuers and persons intending to exercise significant influence on these undertakings via the acquisition of qualifying holdings.
EBA encourages timely preparatory steps towards the application of MiCAR to asset-referenced and electronic money tokens
The European Banking Authority (EBA) today published a statement for the attention of financial institutions and other undertakings who intend to commence, or have commenced, asset-referenced token (ART) or electronic money token (EMT) activities prior to 30 June 2024 (the application date for the relevant provisions of the Markets in Crypto-assets Regulation - MiCAR) and for competent authorities. The statement is intended to encourage timely preparatory actions to MiCAR application, with the objectives to reduce the risks of potentially disruptive and sharp business model adjustments at a later stage, to foster supervisory convergence, and to facilitate the protection of consumers
Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 published in the EU Official Journal
16 May 2023
To identify the key regulatory requirements applicable in this field, it is necessary, firstly, to settle some fundamental terminology.
Blockchain is both a code, i.e. a communication protocol, and a public register, in which all transactions between network participants are recorded one after the other, with a high degree of transparency and in a way that cannot be altered” (Blockchain and the social economy, Blockchain and distributed ledger technology as an ideal infrastructure for the social economy, Opinion of the he European Economic and Social Committee, 9 July 2019, INT/880, point 3.2). The said Opinion of the European Economic and Social Committee of 9 July 2019 further refers to the following features of a blockchain:
- it represents the order of records, which comprises a set of "blocks" (parts of code) that are linked together cryptographically, making each part of the block that forms the chain traceable and unchangeable;
- these "chain-linked blocks" are simultaneously recorded on each of the devices through which the blockchain participants connect (each participant is a link in the chain, helping to validate and store the data that is being exchanged);
- in this way, the transactions take place horizontally and are validated by a number of participants, making it impossible for a single operator to alter or destroy the records.
Key definitions according to the ESMA’s Advice, Initial Coin Offerings and Crypto-Assets, 9 January 2019, ESMA50-157-139, p. 42
Blockchain: a form of distributed ledger in which details of transactions are held in the ledger in the form of blocks of information. A block of new information is attached into the chain of pre-existing blocks via a computerised process by which transactions are validated.
Crypto-asset - a type of private asset that depends primarily on cryptography and Distributed Ledger Technology (DLT) or similar technology as part of their perceived or inherent value. Unless otherwise stated, ESMA uses the term to refer to both so-called ‘virtual currencies’ and ‘digital tokens’. Crypto-asset additionally means an asset that is not issued by a central bank.
Digital token - any digital representation of an interest, which may be of value, a right to receive a benefit or perform specified functions or may not have a specified purpose or use.
Distributed ledger technology (DLT) - a means of saving information through a distributed ledger, i.e., a repeated digital copy of data available at multiple locations. DLT is built upon public-key cryptography, a cryptographic system that uses pairs of keys: public keys, which are publicly known and essential for identification, and private keys, which are kept secret and are used for authentication and encryption.
DLT (distributed ledger technology)
The term ‘blockchain’ is sometimes used interchangeably with a DLT (distributed ledger technology), but, as observed in the Final Report of October 2018 of the U.K. HM Treasury, Financial Conduct Authority and the Bank of England (Cryptoassets Taskforce), blockchain refers rather to a specific way of structuring data on a DLT platform.
DLT is in this context understood as “a type of technology that enables the sharing and updating of records in a distributed and decentralised way. Participants can securely propose, validate, and record updates to a synchronised ledger (a form of database), that is distributed across the participants”.
In turn, a cryptoasset is a “cryptographically secured digital representation of value or contractual rights that uses some type of DLT and can be transferred, stored or traded electronically”. Cryptoassets are also sometimes referred to as ‘tokens’.
The European Central Bank (ECB) does not regard virtual currencies, such as Bitcoin, as full forms of money as defined in economic literature, virtual currency is also not money or currency from a legal perspective (Virtual currency schemes – a further analysis, ECB, February 2015).
The ECB defines virtual currency as “a digital representation of value, not issued by a central bank, credit institution or e-money institution, which in some circumstances can be used as an alternative to money”.
Directive 2018/843 of the European Parliament and Council of 30 May 2018 amending the Anti-Money Laundering Directive (EU) 2015/849 includes a definition of “virtual currencies” as “virtual currencies” mean a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically.
The World Bank has classified cryptocurrencies as a subset of digital currencies, which it defines as digital representations of value that are denominated in their own unit of account, distinct from e-money, which is simply a digital payment mechanism, representing and denominated in fiat money (Distributed Ledger Technology (DLT) and Blockchain, World Bank, 2017).
Initial coin offering (ICO)
In the ESMA’s Advice of 9 January 2019 (Initial Coin Offerings and Crypto-Assets, ESMA50-157-139) ESMA defined an initial coin offering (ICO) as “an operation through which companies, entrepreneurs, developers or other promoters raise capital for their projects in exchange for crypto-assets (often referred to as ‘digital tokens’ or ‘coins’), that they create”.
Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (recast), Article 2(18)
‘peer-to-peer trading’ of renewable energy means the sale of renewable energy between market participants by means of a contract with pre-determined conditions governing the automated execution and settlement of the transaction, either directly between market participants or indirectly through a certified third-party market participant, such as an aggregator. The right to conduct peer-to-peer trading shall be without prejudice to the rights and obligations of the parties involved as final customers, producers, suppliers or aggregators
Regulatory approach to the use of blochchain’s technology in the energy market
In the context of energy market a utility tokens can play a particular role, as they can be redeemed for access to a specific product or service that is provided using a DLT platform. In the public warning of 13 November 2017 (ESMA alerts firms involved in Initial Coin Offerings (ICOs) to the need to meet relevant regulatory requirements, ESMA50-157-82) ESMA underlined:
“Firms involved in ICOs must give careful consideration as to whether their activities constitute regulated activities. If their activities constitute a regulated activity, firms have to comply with the relevant legislation and any failure to comply with the applicable rules would constitute a breach.
Depending on how they are structured, ICOs may fall outside of the scope of the existing rules and hence outside of the regulated space. However, where the coins or tokens qualify as financial instruments it is likely that the firms involved in ICOs conduct regulated investment activities, such as placing, dealing in or advising on financial instruments or managing or marketing collective investment schemes. Moreover, they may be involved in offering transferable securities to the public.”
Also ESMA’s Crypto Asset Advice of 12 July 2019 (ESMA’s Report, Licensing of FinTech business models, ESMA50-164-243, p. 3) is that “certain tokens are financial instruments and subject to the full attendant regulation, while those tokens that are not deemed financial instruments should be subject to some minimal level of regulation”. A precise case-by-case assessment of the specific design of the particular token is required to determine the token’s legal classification, particularly whether it qualifies as a financial instrument within the meaning of Section C of Annex I to MiFID II.
Depending on its features in the individual case a token may be classified as:
- a security (Article 4(1)(44) of MiFID II),
- a unit in a collective investment undertaking (point (3) of Section C of Annex I to MiFID II), or
- a capital investment.
In addition, a token can serve as the underlying asset for a derivative contract (point (4) and points (9) to (10) of Section C of Annex I to MiFID II).
In cases where a token is the underlying asset for a derivative contract, the derivative contract is to be classified as a financial instrument (see BaFin Advisory letter 20 February 2018 (Supervisory classification of tokens or cryptocurrencies underlying “initial coin offerings” (ICOs) as financial instruments in the field of securities supervision, Ref. no.: WA 11-QB 4100-2017/0010).
However, when referring to the legal nature of crypto-assets the said ESMA’s Report of 12 July 2019 mentions (p. 16, 17) that almost all EU National Competent Authorities (NCAs) “reported having difficulty in determining when crypto-assets are regulated and when they are not. NCAs raised the question on the legal nature of the crypto-assets and whether they fit into the definition of MiFID financial instruments, and, more specifically, transferrable securities. NCAs explained that where crypto-assets qualify as financial instruments, crypto-assets related activities are likely to fall within the scope of MiFID, the Prospectus Regulation, CSDR, EMIR, UCITs or AIFMD. Where crypto-assets do not qualify as financial instruments, they would likely fall outside of the existing regulatory scope, although general consumer protection rules may still apply. NCAs called for clarity at the EU level on whether specific rules, if any, would need to be adopted to bring them into regulated space.”
Other NCAs’ observations noted in the ESMA’s Report of 12 July 2019 are as follows:
- ICO issuers often qualify their crypto-assets as falling outside of the scope of financial regulation and define them as ‘utility tokens’, NCAs, however, consider that some of the current financial legislation is likely to be applicable, but they see practical difficulties in how to adapt regulations to these new financial instruments;
- depending on the qualification of crypto-assets as financial instruments, crypto-asset exchanges could fit into some type of MiFID trading venues, for platforms that fall outside of MiFID and MAR bespoke regimes need to be considered;
- exchanges offering exclusively crypto-to-crypto services do not fall under PSDII, because only the transfer of fiat-money falls under the regime of the PSDII.
The ESMA’s Advice of 9 January 2019 (Initial Coin Offerings and Crypto-Assets, ESMA50-157-139) observes:
“Where crypto-assets qualify as transferable securities or other types of MiFID financial instruments, a full set of rules is likely to apply to them and to firms providing investment services/activities in relation to those instruments [...] The vast majority of NCAs agree with this assessment [...]” (p. 36, 37), and
“There are a wide range of crypto-assets being issued and only a fraction of them are likely to qualify as MiFID financial instruments. Where crypto-assets do not qualify as MiFID financial instruments and unless they qualify as electronic money, they are likely to fall outside of the existing EU financial services rules, in which case investors will not benefit from the safeguards that these rules provide. Meanwhile, investors may not easily distinguish between those crypto-assets that are within the scope of EU financial services rules and those that are not, especially when they are available for trading on the same venues” (p. 39, 40).
According to the European Parliament’s Study of July 2018 (Cryptocurrencies and blockchain, Legal context and implications for financial crime, money laundering and tax evasion, Policy Department for Economic, Scientific and Quality of Life Policies Authors: Prof. Dr. Robby Houben, Alexander Snyers, Directorate-General for Internal Policies, PE 619.024, July 2018), although many token’s classifications exist, the most important is the one that draws a distinction between “security” or “investment tokens” on the one hand and “utility tokens” on the other hand. The said European Parliament’s Study of July 2018 acknowledges the fact that some tokens resemble traditional instruments such as shares or bonds and are commonly referred to as “asset tokens”, “security tokens” or “investment tokens”, while there are also tokens of different type, which grant their holders (future) access to specific products or services and are commonly referred to as “utility tokens”.
Utility tokens “can be used to acquire certain products or services, yet they do not constitute a general-purpose medium of exchange, simply because they can generally only be used on the token platform itself”.
ESMA in the aforementioned Advice of 9 January 2019 seems to refer to the said differentiation when saying that some crypto-assets “may be further away from traditional financial instruments than others and therefore not raise the same risks and issues, e.g., ‘pure’ utility-type crypto-assets, which appear to have little relation to financial markets and can only be redeemed for certain goods or services (e.g. non-tradable vouchers) and certain payment-type crypto-assets” (p. 40). Particularly, the later ESMA’s remark seems to be of particular importance for blockchain applications in the energy markets.
Conversely, as regards investment (asset) tokens, Securities and Markets Stakeholder Group (SMSG) in its Advice to ESMA of 19 October 2018 (Own Initiative Report on Initial Coin Offerings and Crypto-Assets, ESMA22-106-1338) said:
“Since asset tokens representing a monetary claim on the issuer resemble securities, they pose much the same risk, including counterparty risk and dilution risk if there’s not issuance control, as well as custody risk. At this stage the SMSG has not identified any societal advantage from the issuance of such asset tokens relative to the issuance of traditional securities. Using the term “ICO” rather than “IPO” in these situations seems motivated by seeking regulatory loopholes and avoiding investor protection regulation in situations not differing from regulated activity.”
To distinguish between those two main groups of crypto assets (which crucially influences on the applicability of financial legislation like MiFID II, the Prospectus Regulation and the Market Abuse Directive), the SMSG proposes the test consisting of the following questions as regards the particular token:
1. Does it give the owner an entitlement against the issuer? If so, is it an entitlement in kind or a monetary entitlement? If it is a monetary entitlement, is it profit sharing, a predetermined entitlement, or an undetermined other kind of entitlement?
2. Is it transferable?
3. Is it scarce, and how is scarcity controlled?
4. Does it give decision power on the project of the issuer?
Last but not least, the payment tokens must be differentiated - the most representative group of crypto assets, as it seems, due to Bitcoin, Ethereum, etc. visibility. SMSG in the aforementioned document of October 2018 refers to the fact of Germany’s including such payment tokens in the MiFID II list of financial instruments. The immediate consequence of such a qualification would be secondary markets in such payment tokens becomIng subiect to the MiFID II Multilateral Trading Facilities (MTFs) or Organised Trading Facilities (OTFs) regimes, with the subsequent application of the Market Abuse Regulation (MAR).
Given the above remarks, utility tokens may be an interesting alternative for non-financial counter-parties active in energy markets. E&Y in the “IFRS (#) Accounting for crypto-assets” indicates the following facets of utility tokens:
- the developer sells tokens in exchange for fiat currency or crypto currency,
- he may also earn commissions on transactions involving the tokens,
- there are no voting rights and legally the developer owes nothing to token holders,
- price discovery occurs through the secondary market (in particular crypto-exchanges).
The SMSG in its aforementioned Advice to ESMA of 19 October 2018 explicitly states that the utility tokens “are currently not covered by financial regulation” and indicates the following benefits of creating such schemes:
- utility tokens representing services may facilitate trading in such services and present an alternate source of early stage funding for innovative projects, they are comparable to a voucher and to crowdfunding by coupon,
- they allow prefunding of a future business without diluting ownership - in this respect they represent an alternative model to traditional venture capital funding, insofar as the project owner transfers a proportion of the project risk to future consumers without diluting ownership interests,
- apart from funding, utility tokens also have a business dimension: by issuing those tokens the issuer creates a network of users, which further increases the value of the business.
The participation in utility token’s schemes is also involved with risks, the main being that the token’s issuer may not deliver the service as expected, or may go out of business, making the token useless. In the secondary market for utility tokens there is a risk of market abuse.
When it comes to the issue of VAT taxation an important milestone is the judgment of the EU Court of Justice of 22 October 2015 (Case C‑264/14) stating that:
- the ‘bitcoin’ virtual currency “is neither a security conferring a property right nor a security of a comparable nature”;
- Article 135(1)(e) of the VAT Directive must be interpreted as meaning that the supply of services, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are transactions exempt from VAT, within the meaning of that provision;
- Article 135(1)(d) and (f) of the VAT Directive must be interpreted as meaning that such a supply of services does not fall within the scope of application of those provisions.
Providers engaged in exchange services between virtual currencies and fiat currencies as well as custodian wallet providers, are listed among the ‘obliged entities’ within the scope of the AMLD (the AMLD5 is required to be implemented in national law by 10 January 2020).
Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Anti-Money Laundering Directive - AML, Article 3(18) and (19)
(18) ‘virtual currencies’ means a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically
(19) ‘custodian wallet provider’ means an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies.
Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU, Recitals 8 and 9
(8) Providers engaged in exchange services between virtual currencies and fiat currencies (that is to say coins and banknotes that are designated as legal tender and electronic money, of a country, accepted as a medium of exchange in the issuing country) as well as custodian wallet providers are under no Union obligation to identify suspicious activity. Therefore, terrorist groups may be able to transfer money into the Union financial system or within virtual currency networks by concealing transfers or by benefiting from a certain degree of anonymity on those platforms. It is therefore essential to extend the scope of Directive (EU) 2015/849 so as to include providers engaged in exchange services between virtual currencies and fiat currencies as well as custodian wallet providers. For the purposes of anti-money laundering and countering the financing of terrorism (AML/CFT), competent authorities should be able, through obliged entities, to monitor the use of virtual currencies. Such monitoring would provide a balanced and proportional approach, safeguarding technical advances and the high degree of transparency attained in the field of alternative finance and social entrepreneurship.
(9) The anonymity of virtual currencies allows their potential misuse for criminal purposes. The inclusion of providers engaged in exchange services between virtual currencies and fiat currencies and custodian wallet providers will not entirely address the issue of anonymity attached to virtual currency transactions, as a large part of the virtual currency environment will remain anonymous because users can also transact without such providers. To combat the risks related to the anonymity, national Financial Intelligence Units (FIUs) should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency. In addition, the possibility to allow users to self-declare to designated authorities on a voluntary basis should be further assessed.
(10) Virtual currencies should not to be confused with electronic money as defined in point (2) of Article 2 of Directive 2009/110/EC of the European Parliament and of the Council (5), with the larger concept of ‘funds’ as defined in point (25) of Article 4 of Directive (EU) 2015/2366 of the European Parliament and of the Council (6), nor with monetary value stored on instruments exempted as specified in points (k) and (l) of Article 3 of Directive (EU) 2015/2366, nor with in-games currencies, that can be used exclusively within a specific game environment. Although virtual currencies can frequently be used as a means of payment, they could also be used for other purposes and find broader applications such as means of exchange, investment, store-of-value products or use in online casinos. The objective of this Directive is to cover all the potential uses of virtual currencies.
(11) Local currencies, also known as complementary currencies, that are used in very limited networks such as a city or a region and among a small number of users should not be considered to be virtual currencies.
European Commission proposal for MiCA
Published in September 2020 the European Commission Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-Assets (MiCA) seeks to:
- provide legal certainty and bespoke regime for crypto-assets not covered by existing EU financial services legislation as well as e-money tokens,
- establish uniform rules for crypto-asset service providers and issuers at EU level.
The proposed Regulation is intended to replace existing national frameworks applicable to crypto-assets not covered by existing EU financial services legislation and also to establish specific rules for ‘stablecoins’ including when these are e-money.
Concise overview of respective main assumptions is included below:
Article 1 sets out that the Regulation applies to crypto-asset service providers and issuers, and establishes uniform requirements for transparency and disclosure in relation to issuance, operation, organisation and governance of crypto-asset service providers, as well as establishes consumer protection rules and measures to prevent market abuse.
Article 2 limits the scope of the Regulation to crypto-assets that do not qualify as financial instruments, deposits or structured deposits under EU financial services legislation.
Article 2 Scope 1. This Regulation applies to persons that are engaged in the issuance of crypto-assets or provide services related to crypto-assets in the Union.
2. However, this Regulation does not apply to crypto-assets that qualify as:
(a) financial instruments as defined in Article 4(1), point (15), of Directive 2014/65/EU;
(b) electronic money as defined in Article 2, point (2), of Directive 2009/110/EC, except where they qualify as electronic money tokens under this Regulation.
Article 3 sets out the terms and definitions that are used for the purposes of this Regulation, including:
- ‘issuer of crypto-assets’,
- ‘asset-referenced token’ (often described as ‘stablecoin’),
- ‘significant asset-referenced token’,
- ‘e-money token’ (often described as ‘stablecoin’),
- ‘significant e-money token’,
- ‘crypto-asset service provider’,
- ‘utility token’ and others.
Article 3 also defines the various crypto-asset services.
Importantly, the Commission may adopt delegated acts to specify some technical elements of the definitions, to adjust them to market and technological developments.
Title II regulates the offerings and marketing of crypto-assets to the public.
Article 4 indicates that an issuer shall be entitled to offer crypto-assets to the public in the Union or seek an admission to trading on a trading platform for crypto-assets if it complies with the requirements of Article 5 (such as the obligation to be established in the form of a legal person), it draws up a whitepaper in accordance with Article 6 and notifies such a whitepaper to the competent authorities.
Article 4 also includes some exemptions, including for small offerings of crypto-assets (below €1 million within a twelve-month period) and offerings targeting qualified investors as defined by the Prospectus Regulation (Regulation EU 2017/1129).
Article 6 and Annex I of the proposal set out the information requirements regarding the whitepaper accompanying an issuance of crypto-assets, while Article 7 imposes some requirements related to the marketing materials produced by the crypto-asset issuers. The whitepaper will not be subject to a pre-approval process by the national competent authorities (Article 8). It will be notified to the national competent authorities that will be in charge of assessing whether the crypto-asset at stake constitutes a financial instrument under the Markets in Financial Instruments Directive (Directive 2014/65/EU) or electronic money under Directive 2009/110/EU. After the notification of the whitepaper, competent authorities will have the power to suspend or prohibit the offering, require the inclusion of additional information in the whitepaper or make public the fact that the issuer is not complying with the Regulation (Article 8).
Title II also includes provisions on the amendments of an initial whitepaper (Article 10), the cancellation of an offering of crypto-assets (Article 11) and on the issuers’ liability attached to the whitepaper (Article 11).
Title III, Chapter 1 sets out the requirements for issuers of asset-referenced tokens (often described as ‘stablecoins’).
Article 13 indicates that no asset-referenced tokens can be offered to the public in the Union or admitted to trading on a trading platform for crypto-assets if the issuer is not authorised in the Union and it does not publish a whitepaper approved by its competent authority. Article 13 also includes exemptions for small-scale asset-referenced tokens and for asset-referenced tokens that are marketed, distributed and exclusively held by qualified investors. To be authorised to operate in the Union, issuers of asset-referenced tokens shall be incorporated in the form of a legal entity established in the EU and shall act honestly, fairly and professionally (Article 14). They shall also comply with other requirements, such as capital requirements (Article 16), governance requirements (Article 17), rules on conflicts of interest (Article 18), rules on the stabilisation mechanism and the reserve of assets backing the asset-referenced tokens (Article 19) and requirements for the custody of the reserve assets (Article 20).
Article 21 provides that an issuer shall only invest the reserve assets in assets that are secure, low risk assets (as described by the electronic money directive) and that meets the definition of high quality liquid assets under the Capital Requirements Regulation (Regulation EU 575/2013).
Article 22 also imposes on issuers of asset-referenced tokens to disclose the rights attached to the asset-referenced tokens, including any direct claim on the issuer or on the reserve of assets. Where the issuer of asset-referenced tokens does not offer direct redemption rights or claims on the issuer or on the reserve assets, Article 22 provides holders of asset-referenced tokens with minimum rights.
Article 23 also prevents issuers of asset-referenced tokens and crypto-asset service providers from granting any interests to holders of asset-referenced tokens.
Article 25 and Annex 2 of the proposed Regulation set out the additional disclosures that an asset-referenced token issuer is required to include in its whitepaper (Article 25). Issuers of asset-referenced tokens are also subject to ongoing information obligations (Article 26). They are required to establish a complaint handling procedure (Article 27) and have a procedure in place for an orderly wind-down (Article 28). The draft Regulation puts in place prohibitions and requirements to prevent market abuse involving crypto-assets, defines the notion of inside information and indicates that an issuer whose crypto-assets are admitted to trading on a trading platform for crypto-assets shall disclose inside information. The ban on insider dealing, unlawful disclosure of inside information and market manipulation is alcohol imposed. The proposal for a Regulation contains empowerments for the Commission to adopt delegated acts specifying certain details, requirements and arrangements as set out in the Regulation. Transitional measures include a grandfathering clause for crypto-assets issued before the entry into force of this Regulation, with the exception of asset-referenced tokens and e-money tokens. The Regulation shall enter into application 18 months after its entry into force, except for the provisions related to e-money tokens that shall enter into application on the date of entry into force of this Regulation.
Key features of the new framework
Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 has been published in the EU Official Journal on 9 June 2023.
Verena Ross, ESMA's Chair on 16 November 2023 underlined (ESMA75-840896669-368) that key objective of MiCA is to provide the crypto market with regulatory certainty that will enable sound innovative technologies, such as distributed ledgers, to develop in the EU. MiCA technical standards will ensure that issuers of crypto-assets provide the information required in MiCA in a common format. In particular, issuers “will no longer be able to hide potential risks behind catchy slogans” or prevent investors from comparing various options to make well-informed investment decisions.
An important feature of new rules will be standardised white-papers. As white-papers will be required for all crypto-assets offered in the EU, whether they are issued inside or outside of the EU, a standardised format will allow for a better cross-jurisdictional analysis of crypto-assets markets that are global by nature. This will be further enhanced by another important feature: machine readability.
The MiCA already seen a positive reception from many in the crypto industry, who often cite the rights under MiCA as a welcome feature of the regulation. According to the EU regulator: these passporting rights are based on a simple premise: to do business in the EU, you have to properly comply with EU rules. This entails an expectation that EU-based crypto-asset service providers would not rely extensively on non-EU entities for the performance of services for clients based in the EU.
Verena Ross also emphasised that the idea that the crypto market is “borderless” may be true in a technological sense, but not from a legal perspective. Indeed, certain large crypto firms have made this ‘borderless’ philosophy part of their modus operandi, providing their services globally without a formal operational presence in any single jurisdiction. However, the regulators’ view is such a setup should be discouraged. The EU supervisors favour a firm presence and commitment to the EU regulatory framework. With this comes a broad interpretation of what constitutes solicitation of EU clients from third-country firms, through which the EU supervisors want to limit the scope of the ‘reverse solicitation’ clause to genuinely exceptional cases. A clear warning from the ESMA was also sent that breaches of the reverse solicitation clause will be met with stringent enforcement by ESMA and the competent authorities. This is both to protect MiCA-compliant firms from unfair competition and to shield EU investors from unknowingly using unregulated crypto-asset services.