On 24 February 2021, the Portuguese Presidency of the Council held a working group meeting dedicated to continue the review of the European Commission’s proposal for the regulation on markets in crypto-assets (MiCA). The agenda for the meeting included a discussion on select issues under Title I, IV and V of the proposed regulation, as well as prudential requirements for credit institutions dealing in crypto-assets. Below is short overview of the key issues discussed:
- Subject matter, scope and definitions (Title I): The Presidency proposed for Member States’ consideration certain drafting suggestions regarding the classification of crypto-assets and terminology regarding the holding of crypto-assets. Among other things, the Presidency proposed to remove an exemption from the scope of MiCA for crypto-assets that are structured deposits. It also proposed to remove an exemption for insurance undertakings from the scope of MiCA. Finally, the Presidency also proposed to amend a definition of the term “operation of a trading platform for crypto-assets” and align it with the MiFID definition of regulated market.
- Select issues concerning e-money tokens (Title IV and V): Noting that the proposed legislation does not exempt e-money institutions from MiCA authorisation if they provide services in crypto-assets, the Presidency acknowledged concerns of certain Member States that such institutions should be subject to such limited exemption that would be linked with their existing authorisations under the revised Payment Services Directive (PSD II) or E-Money Directive. The Presidency was of the view that while it would not be feasible to draw equivalence between the provision of services in crypto-assets and payment services, there was scope for amending MiCA in order to ensure that e-money institutions may provide custody services only for the e-money tokens (EMTs) issued by them without a need for further MiCA license. Regarding payment services, the Presidency questioned whether the services provided by the custodian to enable a client to transfer an EMT to another account is considered a transfer of funds under PSD II, and suggested that MiCA could provide some further clarity to this end. Recalling that Member States did not support a proposal to classify asset-referenced tokens with payment functionality as EMTs, the Presidency noted some of the Member States’ concerns that some of the protections and rules applicable to payment services under the PSD II should also be extended to asset referenced token holders, and proposed some options for further consideration.
- Requirements for crypto-asset service providers (Title V): Building on an exemption for investment firms from MiCA authorisation that was included in the Commission’s proposal, the Presidency put forward for Member States’ consideration a similar exemption for fund managers who are authorised to provide certain MiFID services. In respect of custody and administration services for crypto-assets, the Presidency proposed two options for Member States’ consideration regarding prospective amendments to the provisions of custody services and depending on whether the client is required to transfer the crypto-assets to an account of the custodian. In relation to service of operation of trading platform for crypto-assets, the Presidency noted the concerns from certain Member States that the current provisions regarding settlement prevented operators of trading platforms from settling off-chain and suggested two options for amendments (deletion of the requirements or creating separate options for off-chain/on-chain settlement). In respect of decentralised exchanges (DEX), the Presidency suggested to clarify that MiCA would not apply to DEX with no degree of centralisation.
- Prudential requirements for credit institutions: A non-paper prepared by two Member States focused on the possible risks posed by the activities related to the issuance and servicing of crypto assets and noted that such activities are not sufficiently covered by the CRD/CRR framework. Noting that the MiCA proposal only allows banks to perform crypto related activities in line with their existing banking license, the non-paper stated that banks’ risk management frameworks do not include specific provisions that effectively ensure proper risk management for crypto-asset-related activities. As such, the non-paper concluded that allowing banks to carry on crypto-assets activities without additional regulation concerning risk management was not prudent. To this end, the non-paper called on the Commission to conduct an assessment of the specific risks stemming from banks’ crypto-asset-related activities, including the identification of specific risk drivers and information on how they are covered by the CRD/CRR. Should any such risks be identified, the non-paper suggested that the entry into force of MiCA should be postponed until a new prudential framework for credit institutions is developed.