MiCAR Levels 2 and 3 measures – where do we stand?

Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets (“MICAR”) will enter into application at the following dates:

  • as of 30 June 2024, regarding its title III and title IV on issuers of assets-referenced tokens (“ARTs”) and e-money tokens (“EMTs”),
  • as of 30 December 2024, regarding the other titles of MiCAR, which pertain to i.a. (i) crypto-assets other than ARTs and EMTs, (ii) the authorisation and operating conditions for crypto-asset service providers (“CASPs”), and (iii) the prevention and prohibition of market abuse involving crypto-assets.

To supplement MiCAR, European authorities are required to prepare and publish additional documentation, such as delegated acts, regulatory technical standards (“RTS”), implementing technical standards (“ITS”) and guidelines (the “Additional Documentation”). They may also release questions and answers (“Q&As”), opinions, recommendations, letters and statements. Some of such various and numerous Additional Documents are binding, the other ones set out explanations for the good and appropriate understanding and application of MiCAR.

Here is a list of some legal texts making up the Additional Documentation, which are under development, i.e. that are not yet finalised or applicable. But it is worth already analysing them to be well prepared for a smooth transition to MiCAR, as encouraged by competent authorities.

Four draft delegated regulations dated 22 February 2024 pertain to (i) certain criteria for classifying ARTs and EMTs as significant, (ii) criteria and factors to be taken into account by the European Securities Markets Authority (“ESMA”), the European Banking Authority (“EBA”) and competent authorities in relation to their intervention powers, (iii) fees charged by EBA to issuers of significant ARTs and issuers of significant EMTs, and (iv) procedural rules for the exercise of the power to impose fines or periodic penalty payments by EBA on issuers of significant ARTs and issuers of significant EMTs.

Regarding ARTs and EMTs, EBA already released a statement dated 12 July 2023 providing for guiding principles for financial institutions (and other undertakings) carrying out ART/EMT activities, which pertain to (i) disclosures to, and fair treatment of, potential acquirers and holders of ARTs and EMTs, (ii) business model, (iii) sound governance, including effective risk management, (iv) reserve, recovery and redemption arrangements, and (v) communications with the relevant competent authority. It also includes a template that financial institutions (and other undertakings) intending to carry out, or carrying out, ART/EMT activities, are encouraged to communicate, on a timely basis, to the relevant competent authority.

Furthermore, EBA is required by MiCAR to provide for additional documentation. Among others, EBA produced draft RTS and ITS on (i) information for authorisation as issuers of ARTs, (ii) requirements for policies and procedures on conflicts of interest for issuers of ARTs, (iii) the minimum content of the governance arrangements on the remuneration policy, (iv) complaints handling procedures for issuers of ARTs, (v) information for assessment of a proposed acquisition of qualifying holdings in issuers of ARTs, (vi) the procedure for the approval of white papers of ARTs issued by credit institutions, (vii) the reporting and use of ARTs and EMTs denominated in a non-EU currency, (viii) the adjustment of own funds requirements and stress testing of issuers of ARTs and procedure and timeframe to adjust own funds requirements for ‘significant’ issuers, (ix) the minimum content of the liquidity management policy, the highly liquid financial instruments ,and the liquidity of the reserve of assets requirements.

EBA prepares guidelines on, inter alia, (i) redemption and recovery plans, (ii) the prevention of the abuse of funds and certain crypto-assets transfers for money laundering and terrorist financing purposes, (iii) internal governance arrangements for issuers of ARTs, and (iv) liquidity stress testing.

Joint guidelines drafted with ESMA are also under development, such as guidelines on (i) the suitability assessment of shareholders and members with qualifying holdings in issuers of ARTs and in CASPs and (ii) the suitability assessment of the members of the management body of issuers of ARTs and of CASPs.

Regarding CASPs, ESMA released draft documentation in three packages. The 1st one covers 5 draft RTS and 2 draft ITS on: (i) the notification by certain financial entities of their intention to provide crypto-asset services; (ii) the authorisation of CASPs; (iii) complaints handling by CASPs; (iv) the identification, prevention, management and disclosure of conflicts of interest; and (v) the proposed acquisition of a qualifying holding in a CASP.

The 2nd one includes 8 draft RTS and ITS regarding (i) the content, methodologies and presentation of information in respect of sustainability indicators in relation to adverse impacts on the climate and other environment‐related adverse impacts, (ii) the continuity and regularity in the performance of crypto-asset services, (iii) the manners in which transparency data for CASPs operating a trading platform for crypto-assets is to be presented, (iv) the content and format of order book records for CASPs operating a trading platform for crypto-assets, (v) records to be kept of all crypto-asset services, activities, orders and transactions undertaken, (vi) the data necessary for the classification of crypto-asset white papers and the practical arrangements to ensure that such data is machine-readable, (vii) forms, formats and templates for the crypto-asset white papers, and (viii) technical means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information.

The 3rd set, which was partially published on 29 January 2024, pertains to (i) guidelines on the classification of crypto-assets as financial instruments, (ii) guidelines on reverse solicitation, (iii) market abuse, (iv) suitability of advice and portfolio management services to the client, (v) policies and procedures for crypto-asset transfer services and (vi) system resilience and security access protocols.

Finally, on 2 February 2024, ESMA released Q&As on, i.a., (i) new CASPs established before (and after) 30 December 2024, (ii) passporting rights for entities benefiting from grandfathering, (iii) prohibition of monetary and non-monetary benefits, (iv) the provision of crypto-asset services by credit institutions and (v) notification for certain financial institutions wishing to provide crypto-asset services.

The Additional Documentation is on its way to be adopted and should be released as from 2nd quarter of 2024 to the 4rd quarter of 2024.