Deconstructing MiCA (Part 2): The First Obligations in EU Regulators' Focus

Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on Markets in Crypto-Assets, and Amending Regulations (EU) No. 1093/2010 and (EU) No. 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (MiCA) was officially published in the Official Journal of the European Union (EU) on June 9, 2023.

The background, scope and key content of the new legislation were examined in the first part of Vixio PaymentsCompliance’s regulatory series, “Deconstructing MiCA (Part 1): Background, Scope and Biggest Changes”. As a follow-up, this second part of MiCA’s analysis will take a closer look at key obligations applicable to crypto-asset service providers, such as authorisation, assessment of proposed acquisitions and complaints-handling requirements. These requirements will also be assessed in light of their relationship with the first MiCA consultation package released by the EU on July 12, 2023.

A Summer of Multiple Consultations

MiCA entered into force 20 days after its official publication, on June 29, 2023, in accordance with Article 149(1). Following this entry into force, multiple EU member states announced consultations on the new regulation’s implementation at the domestic level; examples include:

• The Dutch Ministry of Finance’s consultation on a draft act implementing MiCA, as announced on August 14, 2023, and finalised on August 11, 2023.
• The Irish Ministry of Finance’s consultation on the exercise of national discretions contained within MiCA, as announced on August 9, 2023. This consultation remains open until September 15, 2023.

In addition to the measures undertaken by national competent authorities, EU regulators rushed to take immediate steps, as evidenced in the first MiCA consultation package released by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) on July 12, 2023. Led by the EBA, the consultations focus on a package of the following key draft documents:

• Consultation Paper EBA/CP/2023/13 on draft regulatory technical standards (RTS) to specify the requirements, templates and procedures for handling complaints under MiCA.
• Consultation paper EBA/CP/2023/14 on draft RTS on the detailed content of information necessary to carry out the assessment of a proposed acquisition of qualifying holdings (QHs) in issuers of asset-referenced tokens (ARTs) under MiCA.
• Consultation paper EBA/CP/2023/15 on draft RTS and draft implementing technical standards (ITS) concerning the authorisation of ARTs issuers under MiCA.

As mandated by the respective MiCA provisions to be discussed below, the EBA’s consultative process will be carried out in close collaboration with ESMA. The sections below will shed light on the specific obligations for crypto-asset service providers under MiCA that are subject to this first round of consultations.

Complaints-Handling Requirements and Procedures

Legal basis for current EU regulatory action

The first set of obligations within the EBA’s current focus concerns the development of draft RTS on complaints-handling procedures, requirements and templates. The RTS in this respect shall be introduced in accordance with Article 31(5) of MiCA, under which the responsibility for taking action lies with the EBA and ESMA.  

Both classified as European supervisory authorities (ESAs), the EBA and ESMA shall work in “close cooperation” on drafting the RTS, as stipulated in Article 31(5). However, the EBA’s mandate extends beyond the drafting process, as the same provision requires that the EBA submit the draft RTS on complaints handling to the European Commission by June 30, 2024.

Nature of obligations for entities

Article 31(1) of MiCA imposes an obligation on ARTs issuers with respect to both establishing and maintaining “effective and transparent procedures for the prompt, fair and consistent handling of complaints”. In addition, the descriptions of these procedures are to be published, allowing complaints to be submitted by not only holders of ARTs but also other stakeholders, such as representatives of ARTs holders and consumer associations. 

However, under Article 34(5)(h) of MiCA, ARTs issuers are also subject to an additional governance obligation that requires the establishment, maintenance and implementation of procedures involving third parties. This obligation applies to arrangements between ARTs issuers and third parties for the following activities: 

• The operation of asset reserves.
• Investing reserve assets.
• Acting as custodian of reserve assets.
• Distribution of ARTs to the public.

Read in conjunction, Articles 31(1) and 34(5)(h) require that ARTs issuers shall ensure that their complaints-handling procedures also cover the indirect relationship between third parties and holders of ARTs. 

As further clarified by Article 31(2) of MiCA, the filing of complaints by holders of ARTs shall not be subject to charges. Moreover, under Article 31(3), ARTs issuers and third parties shall ensure that: 

• They have provided ARTs holders with the necessary complaint templates.
• They keep record of all complaints and any related courses of actions adopted in response to each particular complaint.

An investigation into each complaint shall be carried out in “a timely and fair manner”, with the result being communicated to the ARTs holder “within a reasonable period”, as required of ARTs issuers under Article 31(4) of MiCA.

Focus of consultation

In its consultation paper EBA/CP/2023/13, the EBA has proposed that the draft RTS on complaint handling under MiCA should include a combination of:

• The “Guidelines for complaints-handling for the securities (ESMA) and banking (EBA) sectors” issued by the Joint Committee of the ESAs (the JC Guidelines). The scope of the JC Guidelines was extended to complaints-handling procedures under the revised Payment Service Directive (PSD2) in 2018. 
• Additional content derived from ESMA’s RTS on crowdfunding and the emerging MiCA RTS subject to the current consultation; this additional content would be necessary where the JC Guidelines do not cover MiCA-related requirements—for example, with respect to complaint templates.

The consultation seeks to establish whether this approach achieves “an appropriate balance” between the interests of various stakeholders. 

In addition, the consultation paper also requests opinions on the content of the draft RTS, which includes:

• Definitions of “complaint”, “complainant” and “third-party entity” (Article 1).
• Requirements for a complaints management policy to be approved by an ARTs issuer’s senior management and in written form, among other matters (Article 2).
• Requirements for an ARTs issuer to develop and make available a complaint template, as contained in the annex to the draft RTS (Article 4).

Responding to consultation

Interested stakeholders can respond to the consultation by using the “send your comments” button on the consultation’s webpage. The consultation will be open until October 12, 2023.

In addition, the EBA will organise a virtual public hearing on the consultation paper on September 21, 2023 from 14:30 to 16:00 CEST. Stakeholders can register to attend via the meeting registration form by September 19, 2023 at 16:00 CEST.  

Assessment on Acquiring Qualifying Holdings

Legal basis for current EU regulatory action

The second set of MiCA requirements, upon which the EBA has decided to focus, is the detailed content of information necessary to carry out an assessment of a proposed acquisition of qualifying holdings (QHs) in ARTs issuers. Similarly to complaints handling under MiCA, the responsibility for drafting RTS in this area is vested with the EBA and ESMA in accordance with Article 42(4) of MiCA. The deadline for submitting the draft RTS to the European Commission is also June 30, 2024.

As provided under Article 42(4), the draft RTS shall specify the detailed information that is required to carry out an assessment of proposed acquisitions of ARTs issuers. The provision should be read alongside Article 41(4) of MiCA, which governs the assessment process of acquisitions of ARTs issuers by the competent authorities.

Nature of obligations for entities

Article 41(1) of MiCA imposes an obligation on entities acquiring QHs to notify the competent authorities of their intentions: “Any natural or legal persons or such persons acting in concert who intend to acquire, directly or indirectly (the ‘proposed acquirer’), a qualifying holding in an issuer of an asset-referenced token or to increase, directly or indirectly, such a qualifying holding so that the proportion of the voting rights or of the capital held would reach or exceed 20%, 30% or 50%, or so that the issuer of the asset-referenced token would become its subsidiary, shall notify the competent authority of that issuer thereof in writing, indicating the size of the intended holding and the information required by the regulatory technical standards adopted by the Commission in accordance with Article 42(4).”

A similar obligation to notify the competent authority applies to entities disposing of QHs in ARTs issuers, as laid down in Article 41(2) of MiCA. 

Each of the five criteria below, as set out in Article 42(1), shall then be taken into account by the competent authority to assess whether the proposed acquirer is suitable and the proposed acquisition is financially sound:

• The reputation of the proposed acquirer.
• The reputation, knowledge, skills and experience of any persons who will be involved in directing the business of the ARTs issuer targeted in the acquisition.
• The financial soundness of the proposed acquirer.
• The target ARTs issuer’s continued compliance with the requirements set out in Title III of MiCA governing ARTs.
• The presence of reasonable grounds to suspect that the proposed acquisition would lead to committing or attempting to commit money laundering or terrorist financing (ML/TF), or would result in an increase to the ML/TF risks posed by the proposed acquisition.

A proposed acquisition may be rejected on the two primary grounds stated under Article 42(2):

• There are “reasonable grounds” for a competent authority to oppose the acquisition.
• The information provided to assess the acquisition against the five criteria listed above is either false or incomplete.

Focus of consultation

Consultation paper EBA/CP/2023/14 focuses on proposals for RTS that would apply to both potential acquirers of QHs in ARTs issuers, as well as to competent authorities that need to assess the proposed acquisitions in light of the five criteria mentioned above.

Where possible, the draft RTS aim to achieve balance and align obligations with pre-existing requirements. For example, as the consultation paper points out with respect to requirements on notifying information to the competent authority, the draft RTS have been aligned with:

• Commission Delegated Regulation (EU) 2017/1946, which determines RTS on the information to be included by proposed acquirers in the notification of a proposed acquisition of QHs in an investment firm.
• Annex I to the ESA’s “Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector”. 

In addition, the draft RTS have been developed in accordance with Article 42(4) of MiCA, which indicates that a notification of a proposed acquisition should contain information that is “relevant for the prudential assessment, proportionate and adapted to the nature of the proposed acquirer and the proposed acquisition”. Paragraph 2 of the draft RTS preamble also clarifies the following:

“Information on the identity of the proposed acquirer should be provided by the proposed acquirer irrespective of whether it is a natural or a legal person, in order to enable the competent authority of the target entity to assess the reputation of that proposed acquirer.”

In this respect, the draft RTS propose separate information-related requirements for various circumstances, such as:

• General information regarding the proposed acquirer (Article 1).
• Additional information regarding a proposed acquirer that is either a natural person (Article 2), or a legal person (Article 3).
• Additional information regarding corporate strategy depending on the size of the proposed acquisition, i.e., where the acquisition of QHs is: up to 20 percent (Article 9); more than 20 percent but under 50 percent (Article 10), or more than 50 percent (Article 11).
• Reduced information requirements where the proposed acquirer has been subject to assessment by the same competent authority previously (Article 12).

The general goal of the consultation is to ascertain whether stakeholders agree with the proposed proportionate criteria and the information requested in each specific situation.

Responding to consultation

Interested stakeholders can respond to the consultation by using the “send your comments” button on the consultation’s webpage. The consultation will be open until October 12, 2023.

The EBA will organise a virtual public hearing on the consultation paper on September 21, 2023, from 11:30 to 13:30 CEST. Stakeholders can register to attend via the meeting registration form by September 19, 2023 at 16:00 CEST.  

Authorisation of ARTs Issuers

Legal basis for current EU regulatory action

A third primary area that is subject to the ongoing EU consultative effort is entities’ authorisation to offer ARTs to the public. 

The EBA’s primary mandate is to ensure that supervisory authorisation practices with respect to ARTs issuing across the EU align. This harmonisation is to be achieved on the basis of Article 18(6)-(7) of MiCA, according to which the EBA shall collaborate with:

• ESMA and the European Central Bank (ECB) on developing draft RTS that specify information necessary for the purposes of obtaining authorisation to offer ARTs to the public or be admitted to trading of ARTs.
• ESMA on developing draft ITS that establish standard forms, templates and procedures relating to information to be requested in entities’ applications for authorisation.

Consultation paper EBA/CP/2023/15 addresses all sets of draft standards (i.e., both RTS and ITS) due to the closely related nature of the associated obligations for ARTs issuers.

The EBA shall submit both draft RTS and ITS to the European Commission by June 30, 2024, also in accordance with Article 18(6)-(7).

Nature of obligations for entities

In accordance with Article 16(1) of MiCA, a person shall not offer ARTs to the public, or seek admission to trading of ARTs, within the EU, unless the person is the issuer of the particular ART and either of the following conditions is met:

• The person is established in the EU and holds authorisation by the specific competent authority in its home EU member state.
• The person meets the “credit institution” requirements for issuing ARTs under Article 17 of MiCA.

Under Article 18(1) of MiCA, ARTs issuers shall submit an application for the abovementioned authorisation to the competent authority of their home EU member state. Such application shall contain the information specified under Article 18(2), including: 

• The applicant’s address.
• The applicant’s legal entity identifier. 
• Where possible, the applicant’s articles of association.
• A legal opinion indicating that the particular ART issued by the applicant does not qualify as an e-money token (EMT) or a crypto-asset excluded from MiCA’s scope (more information on MiCA’s scope can be found in this regulatory analysis).
• Detailed evidence of the applicant’s “robust governance arrangements”, including consistent lines of responsibility, as set out in Article 34 of MiCA.
• A crypto-asset white paper, which contains information about the particular ART and its issuer, among further disclosure items specified in Annex II to MiCA.

Focus of consultation

The draft RTS contained in consultation paper EBA/CP/2023/15 focus on addressing the specific nature and content of the information that needs to be provided in an application for obtaining ARTs issuer authorisation. Such information concerns, among other matters:

• Identification details of the applicant (Article 2).
• Programme of operations (Articles 3-4).
• Internal governance arrangements (Article 5).
• Suitability of the applicant’s managers (Article 8).

The draft ITS aim to complement and should be considered in conjunction with the draft RTS, as specified in paragraphs 1-2 of the draft ITS preamble. The key difference is that, whereas the RTS specify what type of information needs to be submitted in an application for authorisation, the ITS ensure how that information is being submitted. As specifically addressed by paragraph 2 of the preamble: “For the purposes of harmonisation, it is important that applicant issuers submit the information required for such authorisation in a uniform manner, using the same standard forms, templates and procedures across the Union.”

The draft ITS also contain the particular standard form (in Annex I) and template (in Annex II) that need to be filled out by applicant ARTs issuers when submitting an application for authorisation.

With respect to both drafts, interested stakeholders would be expected to answer the questions summarised in Section 5(b) of the consultation paper, particularly with regard to assessing the clarity, accuracy and level of detail of the authorisation requirements described above.

Responding to consultation

Interested stakeholders can respond to the consultation by using the “send your comments” button on the consultation’s webpage. The consultation will be open until October 12, 2023.

The EBA will organise a virtual public hearing on the consultation paper on September 21, 2023, from 11:30 to 13:30 CEST. Stakeholders can register to attend via the meeting registration form by September 19, 2023, at 16:00 CEST.  

Next Steps for EU Regulators

Following the consultation process and collaboration with the other key ESAs, the EBA will submit all RTS and ITS mentioned above to the European Commission by June 30, 2024.

The European Commission’s mandate with respect to RTS and ITS is laid out in paragraphs 110-11 of MiCA’s preamble. With respect to the draft RTS, the commission should adopt those through delegated acts in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU). This involves a process during which the RTS will be subject to scrutiny by the European Parliament and the Council, after which the documents will be officially published.

The draft ITS are to be solely endorsed by the European Commission in accordance with the procedure under Article 291(2) of the TFEU, which requires that “[w]here uniform conditions for implementing legally binding Union acts are needed, those acts shall confer implementing powers on the Commission”.

Next Steps for Entities

When it comes to next steps for various interested entities, as stated above, all consultation papers that form part of the EBA’s first MiCA consultation package will be open for comments until October 12, 2023. Virtual public hearings are also to be held by the EBA on September 21, 2023.

In the lead-up to the entry into force of MiCA, the EBA also published a statement addressed to various crypto undertakings which intend to commence, or have commenced, business activities involving ARTs or EMTs before June 30, 2024. The EBA released the statement to encourage crypto-asset service providers to take the necessary timely preparatory actions leading up to the application of MiCA.

In addition, entities are expected to use the template accompanying the EBA’s statement to notify the relevant competent authority of their crypto business activities.

National competent authorities are expected to follow the EBA’s approach and seek information from supervised or potentially supervised crypto-asset service providers. For example, the German regulator, the Federal Financial Supervisory Authority (BaFin), published an announcement on the precise next steps for entities in light of the EBA’s guidance. BaFin’s announcement requires that:

• Entities that are already supervised by BaFin should reach out to their responsible contact persons at BaFin using the contact information they have already received.
• Entities that are not yet supervised by BaFin should email art-emt@bafin.de, preferably using secure email communication for this purpose.

Although not all EU member states have published such announcements, it is recommended that entities that are covered by the scope of MiCA contact the respective national authority in a timely manner. Further specific regulatory actions at the national level are also being tracked in Vixio’s MiCA implementation tracker.