On 12 July 2023, the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published for public consultation various draft technical standards that they are mandated to develop under Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA). Whilst the draft rules published by ESMA focus on the relevant requirements for crypto-asset service providers (CASPs) and financial institutions providing services in crypto-assets, the draft set of technical standards published by the EBA mainly addresses requirements for the issuers of asset-referenced tokens (ARTs). In addition, the EBA published a statement encouraging financial institutions and other undertakings intending to undertake activities concerning ARTs and e-money tokens (EMTs) to take timely preparatory steps towards the application of the MiCA regime, which in respect of ARTs and EMTs is 30 June 2024.
The following sets out a high-level overview of the draft technical standards that are subject to consultation.
ESMA’s consultation paper on the technical standards specifying certain requirements of MiCA covers the following key areas:
- Content and template for notifications for certain financial entities providing services in crypto-assets: By way of background, MiCA provides for a framework allowing certain financial entities to provide services in crypto-assets, subject to submitting a notification to their home national competent authority (NCA). MiCA sets out the types of information that need to be provided in the notification and these are further specified in the draft regulatory technical standard (RTS). The overall objective is that where the relevant information is already available at the relevant NCA, and where the provision of crypto-asset services does not call for changes to the organisational structure and procedures of the notifying entity, the information does not have to be re-submitted.
- Content and templates for the application for authorisation by crypto-asset service providers (CASPs): MiCA requires non-regulated persons that wish to provide services in crypto-assets in the EU to become authorised; to this end it sets out information that the authorisation application must include and in particular how the relevant organisational, conduct and prudential requirements must be met. The draft RTS further specifies the details of the information that will be required to be provided in the application process, including a programme of operations, proof that the applicant meets the prudential requirements, a description of the governance arrangements and other requirements. In this context, ESMA also points out to lessons to be drawn from recent collapses of various international crypto-service providers.
- Complaints-handling procedures of CASPs: MiCA requires CASPs to establish and maintain effective and transparent procedures for the prompt, fair and consistent handling of complaints received from clients and to publish descriptions of those procedures; the draft RTS further specifies the requirements, templates and procedures for handling complaints.
- Identification, prevention, management and disclosure of conflicts of interest by CASPs: MiCA requires that CASPs must implement and maintain effective policies and procedures to identify, prevent, manage and disclose conflicts of interest as well as disclose to their clients and prospective clients, on a prominent place on their website, the general nature and sources of conflicts of interest and the steps taken to mitigate them. It also details the types of conflicts that should be covered by such polices and disclosed; the draft RTS sets out the relevant details. In terms of managing the conflicts of interest, ESMA highlights that is essential for CASPs to dedicate adequate resources (a sufficient number of staff but also adequate technical resources) to the implementation, maintenance and review of the policies and procedures meant to identify, prevent, manage and disclose conflicts of interest as these are critical to the investor protection and to the sound management of CASPs.
- Assessment of intended acquisition of a qualifying holding in a CASP: By way of background, MiCA requires any natural or legal person who intends to acquire or to increase a qualifying holding in a CASP, to notify the NCA of that CASP in writing and provide specific information to enable the relevant NCA to assess the proposed acquisition or increase of an existing qualifying holding, it also establishes the criteria against which the NCA should evaluate the suitability of the proposed acquirer. In the draft RTS ESMA sets out the detailed content of the information for the assessment of proposed acquisitions of qualifying holdings in CASPs. As ESMA aims to achieve consistency with the similar rules applicable in other areas of the European financial sector, the proposed requirements are aligned with the procedures, timelines and criteria applicable on the acquisition of qualifying holdings across the financial sector.
The EBA’s consultation paper on technical standards specifying information for ARTs authorisation covers the following:
- Authorisation to offer to the public or to seek admission to trading of ARTs: In accordance with MiCA, the offer to the public or the admission to trading of ARTs is reserved to legal persons or other undertakings established in the EU which have been granted authorisation in or to credit institutions subject to the publication of a white paper. To this end, the draft RTS covers the comprehensive list of information to be provided in an application by legal persons or other undertakings seeking to obtain the authorisation and specify the content of the information required. The information set out in the draft RTS on information for authorisation complements that contained in the white paper which has to be submitted together with and is part of the application for authorisation.
- Information to be included in an application for authorisation to offer to the public or to seek admission to trading of ARTs: The accompanying draft implementing technical standard (ITS) clarifies the modalities to file an application with the NCA (electronic form, upload on the competent authority’s portal, paper form, which may be required for certificates on criminal records etc …), the steps to be followed in case of incomplete application and when an application has to be considered complete.
In addition, the EBA’s consultation paper on information necessary to carry out the assessment of a proposed acquisition of qualifying holdings in issuers of ARTs specifies information required for the prudential assessment of such proposed acquisition; such prudential assessment must be performed by the NCAs against the prescribed criteria (reputation of the proposed acquirer, suitability of the persons who will direct the business of the target undertaking, financial soundness of the proposed acquirer, compliance with prudential requirements of the target undertaking and reasonable ground to suspect an attempt or increase in the money laundering or terrorist financing risk by the proposed acquisition). The draft RTS sets out the information request against the relevant assessment criteria.
In terms of the next steps, the ESMA and EBA await stakeholders’ input respectively until 20 September 2023 and 12 October 2023. The EBA will also host two public hearings on 21 September 2023, one on authorisation of ART issuers and RTS on qualifying holdings and the other on complaints handling procedures.