In September we published a blog setting out 10 key things that firms needed to know about the draft regulation on markets in crypto-assets (MiCA). In this blog we provide an update on what’s been happening.
On 13 November 2020, the German Presidency of the Council hosted a meeting of a working party on financial services, the agenda of which focused on a review of the specific provisions of Title II (crypto-assets other than asset-referenced tokens or e-money tokens), Title V (Authorisation and operating conditions for crypto-asset service providers) and Title VI (prevention of market abuse involving crypto-assets). In advance of the meeting the Presidency circulated a note to Member States, broadly setting out the key issues for discussion which included:
- Offer of crypto-assets to the public and admission on a trading platform: some Member States questioned the provision in the MiCA proposal that would require issuers of crypto-assets to set up a legal entity but without an obligation to be established in the EU or have a registered office in the EU. They argued that such approach may have adverse consequences for innovation in the market. Other Member States pointed to the lack of requirement for such issuers to be legally incorporated in the EU in the absence of an equivalence regime, and questioned some of the exemptions proposed. The Presidency asked for further views on the legal entity requirement and whether any future solution should involve ESMA.
- White-paper accompanying issuance of crypto-assets: the Presidency asked for Member States’ views whether the proposed requirements concerning the publication of a white-paper by issuers of crypto-assets adequately reflects the nature of crypto-assets and their differences in comparison to financial instruments, and whether the list of information to be included in the white-paper should be extended.
- Notification of the white-paper to the NCA: some Member States questioned the mechanisms of the mandatory notification of the white-paper to Member State competent authorities (NCAs), including in respect of a related marketing communication, others proposed further amendments addressing – among other – the role of ESMA. The Presidency asked for Member States’ views whether the proposed notification requirement should be replaced by mandatory approval by the NCAs and whether the proposed regime provided for sufficient safeguards.
- Right of withdrawal: a number of Member States raised further questions in respect of the proposed MiCA provisions requiring the issuer of crypto-assets to offer the right of withdrawal, including why such right would not be applicable when crypto-assets are admitted to trading on a platform for crypto-assets. The Presidency therefore sought views about any circumstances in which such right of withdrawal should not be granted and whether it should be renewed or prolonged in case of modification of the originally published white-
- Authorisation of crypto-asset services providers: many Member States in their initial comments on the MiCA proposal suggested that additional information should be requested of crypto-asset services providers in the course of their application for authorisation. The Presidency sought views whether such information should be specified in Level 1 or Level 2 texts.
- Cross-border provision of crypto-asset services: some Member States questioned the proposed MiCA provisions on cross-border provision of services by authorised crypto-asset service providers, and suggested further alignment between the MiFID and MiCA regimes in that aspect. The Presidency sought views of all delegations whether such alignment would be appropriate.
- Obligations for crypto-asset service providers: a number of comments provided on the MiCA proposal to date by Member States included suggestions for more clarity and alignment with other pieces of European legislation and international standards, notably MiFID II, PSD II and FATF, as well as to provide additional information on reporting requirements. The Presidency therefore asked for further opinions as to whether it would be appropriate to set out in Level 2 more detail of what is expected of crypto-asset service providers.
- Off-chain transactions: some Member States noted that the proposed obligation for an operator of a trading platform in crypto-assets to have their client’s transactions immediately settled on the respective DLT system would prevent any kind of off-chain settlement of transactions, which would be contrary to current market practice (“cold wallets”). The Presidency asked for Member States’ views whether MiCA should allow operators of a trading platform in crypto-assets to execute customers’ transactions off-chain, and whether it should require the accounts to be operated by trading platforms for crypto-assets to be regularly aligned with the holding of crypto-asset according to the distributed ledger.
- Alignment with MiFID II: noting that potential risks stemming from provision of services in crypto-assets can be at least as high as those with regards to financial instruments, some Member States suggested that the relevant MiCA provisions should be brought even more into line with the MiFID II The Presidency sought views from all delegations as to whether they agree with the Commission’s approach or whether more alignment with MiFID II should be considered in the context of regulating provision of services in crypto-assets.
- Prevention of market abuse involving crypto-assets: in their initial comments on the MiCA proposal some Member States noted that the proposed provisions on market abuse for crypto-assets were less comprehensive that the regime for financial instruments as set out by Market Abuse Regulation (MAR), others questioned whether formulating specific requirements is a suitable approach at all. The Presidency sought further views whether the proposed market abuse regime for crypto-assets should be further strengthened, and if so, by which measures (Level 1 / Level 2 provisions).
On the European Parliament’s side, the legislative review is in its preparatory phase. The rapporteur who will be leading the work of the Economic and Monetary Affairs (ECON) committee on the MiCA proposal has recently been appointed, together with a group of shadow rapporteurs from other political groups. That said, the leading lawmaker role has been allocated to Stefan Berger (EPP / Germany), he will be supported by Ondřej Kovařík (Renew / Czech Republic), Antonio Maria Rinaldi (ID / Italy) and Patryk Jaki (ECR / Poland). The ECON committee is yet to present its indicative timeframe for the MiCA review.
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