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The latest Q&As from the European Securities and Markets Authority (ESMA) focus mainly on issues related to authorisation under the Markets in Crypto Assets (MiCA) regulation.
2024 has been a year of implementation for many in the EU, given the approaching deadlines for MiCA and the Digital Operational Resilience Act (DORA), the flagship pieces of legislation to come out of the EU’s Digital Finance Strategy back in 2020.
Just as the European Banking Authority (EBA) published its first Q&A on DORA earlier this month, so ESMA has now released several Q&As, prepared by the European Commission, clarifying elements of MiCA.
Firms seeking to operate in the crypto space in the EU now have greater clarity in a number of areas, including the grandfathering of activities under anti-money laundering/counter-terrorist financing (AML/CTF) frameworks, how to benefit from a simplified authorisation procedure and the process for crypto-asset transfers.
This will be valuable for organisations operating in these areas currently, particularly those that submitted the questions, or that are considering doing so in the future.
Grandfathering clause and AML
According to the answer to a question regarding grandfathering, entities providing crypto-asset services that are registered under national AML/CTF frameworks can benefit from the grandfathering clause under Article 143(3) of MiCA.
This allows them to continue offering services in their respective member states if they were operating legally before December 30, 2024.
These entities can maintain their operations until they receive or are denied authorisation under Article 63 of MiCA.
However, they are not eligible for the passporting regime, meaning they can only provide services within the jurisdiction where they are registered.
Simplified authorisation procedures
The response to another AML/CTF-related question says that entities authorised under national law to provide crypto-asset services by December 30, 2024 cannot benefit from the simplified authorisation procedure under Article 143(6) of MiCA if they were merely registered, rather than authorised, under the EU AML/CTF framework.
Article 143(6) allows member states to implement a simplified authorisation procedure for 18 months, applicable only if:
- The entity was authorised to provide crypto-asset services before December 30, 2024.
- Chapters 2 and 3 of Title V are complied with before granting authorisation.
This procedure ensures information submitted during the initial national authorisation does not need to be resubmitted, according to the Q&A.
However, this does not apply to entities that were only registered as crypto-asset service providers (CASPs) under the AML/CTF framework, as registration is not considered sufficient for the simplified procedure.
Article 60 notifications and the CASP transitional phase
Another answer clarifies that financial entities mentioned in Article 60 of MiCA that provided crypto-asset services according to applicable law before December 30, 2024 can rely on the transitional provision of Article 143(3) of MiCA.
These entities must notify their home member states' competent authority with the information specified in Article 60(7) of MiCA if they wish to continue providing these services.
Crypto-asset transfers
The answer to a question submitted in January 2024 looks at crypto-asset transfers as a component of another crypto-asset service or as a separate crypto-asset transfer service.
It says Recital 93 of MiCA acknowledges that many crypto-asset service providers include transfer services as part of offerings such as custody, administration or order execution for clients.
However, whether such transfers qualify as part of those services or as standalone transfers under Article 3(1)(26) of MiCA depends on specific criteria.
If a transfer of crypto-assets is considered integral to another crypto-asset service, such as for custody or order execution, it is not exempt from MiCA's authorisation requirements under Article 59.
Such services must comply with Article 82, including ESMA guidelines per Article 82(2).
In summary, if a transfer of crypto-assets is deemed part of a broader crypto-asset service, it still falls under MiCA's regulatory framework, requiring authorisation and compliance with relevant guidelines.
Entities not authorised as CASPs
Another answer looks at authorisation, suggesting that if an entity providing crypto-asset services under applicable law before December 30, 2024 has applied for but not yet received authorisation by the end of the transition period, it can continue operating until July 1, 2026 or until it is granted or refused authorisation under Article 63 of MiCA, whichever comes first.
However, if authorisation is not granted by the end of the transition period, the entity must cease providing crypto-asset services until authorised under MiCA as a CASP.
Here, the response says that it is advisable for such entities to apply for CASP authorisation as soon as possible to allow time for assessment by national competent authorities without interruption of services.
A further response in this area says that entities providing crypto-asset services in accordance with applicable law before December 30, 2024 must apply for authorisation as a CASP under MiCA.
If they fail to apply for or are refused authorisation by the end of the transition period, they must cease providing crypto-asset services.
Entities that choose not to seek MiCA authorisation are advised to plan out an orderly wind-down of operations to minimise negative impacts on clients, complying with applicable laws.
Treatment of staking services in MiCA
Separate from authorisations, another Q&A looks at staking, which involves immobilising crypto-assets to support blockchain consensus mechanisms and earn rewards.
MiCA does not specifically regulate or prohibit staking, and no specific requirements or licensing are needed for direct staking activities.
In contrast, staking services, or staking-as-a-service, are offered by intermediaries who stake clients' crypto-assets for a fee, whereby these intermediaries earn rewards and share them with clients.
Staking services involve custody of crypto-assets, requiring providers to be authorised under MiCA to offer custody and administration services, and these staking service providers must comply with MiCA requirements for custody services, including asset segregation, minimising loss risks and liability for asset loss.
They must ensure clients' assets can be returned as per custody agreements and remain liable for any loss from staking activities, with explicit client consent being necessary when combining staking with other crypto-asset services under MiCA.
EBA launches consultation on crypto-asset reporting guidelines
ESMA’s sister regulator, the EBA, has initiated a consultation on draft guidelines for reporting requirements to assist in overseeing compliance with MiCA.
This consultation aims to provide competent authorities with sufficient and comparable information that will allow them to effectively supervise issuers and enable the EBA to conduct significance assessments via the incoming crypto framework.
The consultation has been prompted by issuers of asset-referenced tokens (ARTs) and certain e-money tokens (EMTs) needing to report specific information, as mandated by Article 22 of MiCA.
However, the data currently provided by issuers has been deemed insufficient for supervisory and assessment tasks.
To address these gaps, the EBA proposes common templates and instructions for issuers and CASPs to ensure comprehensive data collection.
The consultation period will run until October 15, and a virtual public hearing will be held on September 20, for which interested parties can register before September 18.
