On 14 December 2020, the outgoing German Presidency of the Council hosted the last working group under its leadership for Member States representatives with a purpose of continuing discussions on the recently proposed regulation on markets in crypto-assets (MiCA). The meeting’s agenda covered the fundamental issue of scope and definitions, as well as own fund requirements for asset-referenced tokens (ART) significant ART issuers. Key points discussed included the following:
- Scope of MiCA
In its join paper prepared and circulated in advance of the meeting, three Member States commented on the proposed MiCA definition of “crypto-assets” and noted that – in their view – it was too broad and as such carrying potentially far-reaching consequences (in particular due to the notion of “digital representation of value” being present in many areas of economic activity beyond financial services). They proposed therefore several options for Member States’ discussion in order to narrow down the scope of MiCA and to maintain appropriate legal certainty.
- Definitions (ART and EMT)
In a working paper circulated ahead of the meeting the Presidency noted that a large number of Member States took a critical stance towards the alignment between the ART and e-money token (EMT) regimes proposed by the European Commission. While some Member States did not see the need for two regimes in MiCA (ART and EMT), the others did not see the need to regulate EMTs elsewhere than in Electronic Money Directive (EMD). Regarding a possible payment function of ARTs, some Member States were of the view that the proposed rules do not sufficiently allow it. In addition, some Member States suggested additional requirements for significant ARTs, such as attributing to the consumer a direct claim on the reserve.
In advance of the meeting the European Commission prepared a non-paper, further outlining the rationale underpinning the proposed definitions of ART and e-money tokens (EMT). The Commission specifically refrains from using the term “stablecoins”, considering it being a “marketing concept” rather than a term accurately reflecting the nature of crypto-assets in question. Commenting on the definition of EMTs, the Commission noted that it was inspired on the definition of e-money under the Electronic Money Directive, with the important difference being the lack of reference to a claim in the definition. The intention was to ensure that by regulating e-money tokens in MiCA, it will be ensured that all relevant actors in the ecosystem of an EMT are subject to appropriate rules – under EMD and PSD2 where they constitute e-money and payment services – and/or MiCA where they constitute e-money token issuance or crypto-asset service provision. In respect of the proposed definition of ART, the Commission noted that ARTs differ substantially from the notion of e-money due to the variety of underlying or referenced assets and its implications for redemption rights. Also, given the potential higher risks involved, ARTs should not be recognised as means of payment.
Based on the Member States’ comments expressed to date and the Commission’s non-paper, the Presidency sought further views on the options proposed in its working paper and concerning the definitions of ARTs and EMTs, and prospective introduction of new ART subcategories.
- Own fund requirements for ART and significant ART issuers
The Presidency noted that the proposed own funds requirements for ARTs and significant ARTs issuers turn out to be another contentious point in the ongoing review, with many Member States questioning their adequacy. They consider them being generally too low, in particular in the light of the volatile character of the ARTs underlying reserve, but also noting some potential flexibility due to the ART’s character (payment / investment) and their corresponding risk profiles. In the non-paper prepared in advance of the meeting, the Commission explained that the rationale behind the capital requirements of issuers of ART is to provide a harmonised approach to cover the associated risks, and that the approach of regulating the risk associated with issuers of ART was inspired by prudential requirements as set out in Second Electronic Money Directive (EMD2).
Accordingly, the Presidency sought views on options presented in its working paper and considering, among other, potential higher own fund requirements and reinforced backstops, further differentiation in requirements for ARTs and significant ARTs according to their functionality and risk profiles.
The legislative review will continue in New Year under the leadership of the upcoming Portuguese Presidency of the Council.