Deadline of crypto asset regulation MiCA requires swift action!

In July 2023, just over one month after MICA’s publication in the EU’s Official Journey, several interesting developments occurred. First, on 12 July the European Banking Authority (“EBA”) and the European Securities and Markets Authority (“ESMA”) published consultation papers on new regulatory technical standards (“RTS”) and implementing technical standards (“ITS”). Two days thereafter, the Dutch legislator published a consultation version of their act implementing MiCA's requirements into Dutch law.

New draft EBA standards help shape the future regime for asset-referenced tokens

The EBA initiated consultations on several new sets of standards. Responses to this consultation must be submitted by 12 October 2023. All standards are related to offers of so-called asset-referenced tokens (“ARTs”): crypto-assets aiming to stabilize their value by referencing another value, such as fiat currency. The draft standards will be further discussed below.

New standards provide the contours for applications for authorization

Anyone listing or offering ARTs within the EU must publish an approved whitepaper and – unless the issuer is a bank – apply for prior authorization from the relevant national competent authority. The new draft RTS and ITS provide clarity on the application process for authorization, as well as the information to be submitted to the regulator. Although some of the information required is specific to ART issuers (e.g., in relation to the custody of reserve assets), most of the information to be provided will be familiar to anyone with knowledge of the authorization requirements that apply to other financial sector parties, such as banks, insurers or investment firms. For example, the ART issuer will need to prepare a three-year program of operations (including accompanying financial projections) and provide details on matters such as governance, liquidity, and management suitability.

On a related note, EBA has also published draft RTS on the assessment of a proposed direct or indirect acquisition or increase of qualifying holdings in issuers of ARTs. These standards mirror the standards prepared by the European Securities Markets Authority (“ESMA”) for the acquisition of a qualifying holding in a crypto-asset service provider (“CASP”). In short, a qualifying interest refers to a holding of more than 10% of the firm’s capital or voting rights. They are derived from the existing European standards for the acquisition of qualifying shareholdings in banks and investment firms. This means that the new rules for ART issuers are broadly comparable to the current “qualifying shareholdings”-regimes applicable with respect to certain regulated firms. In the Netherlands, this pre-acquisition approval is typically referred to as a declaration of no objection (verklaring van geen bezwaar). An important aspect of these rules is that they are proportional: the bigger the envisaged shareholding, the more information will need to be provided.

ART issuers will need to implement robust complaints handling procedures

Diligent complaints handling has long been a cornerstone of sectoral regulatory legislation. Under article 31 of MiCA, ART issuers will also be required to implement procedures for the prompt, fair and consistent handling of complaints received from token holders. For the sake of completeness – a similar requirement applicable to CASPs is set out in article 71.

The EBA’s draft RTS elaborate on the more general requirements of article 31, by providing clear requirements, templates and procedures for handling complaints – including those from consumer associations. The RTS also address dispute resolution with third-party entities and include details on complaints management policy and information provision to token holders.

Also, ESMA issued its first MiCA-related consultation paper

ESMA's MiCA consultations will be organized in three packages. The first was recently published. Unlike the EBA standards discussed above for ART issuers, the ESMA standards are aimed at CASPs. The package contains five draft RTS and two ITS. They cover topics like authorization, complaints handling, conflicts of interest and the proposed acquisition of qualifying holdings.

Covering all of ESMA’s measures in detail goes beyond the scope of this blog. However, the standards have a fair amount of overlap with the draft EBA guidelines discussed above and are clearly based on existing financial services legislation such as the MiFID II framework for investment services.

As mentioned above, two more packages of standards are expected soon, the first of which will be published in October 2023 and the second in the first quarter of 2024.

Finally, the Netherlands is also working on its MiCA implementation efforts

Currently, the Netherlands lacks a comprehensive regulatory framework for crypto assets. As MiCA is a regulation (and not a directive), most of its provisions will apply in the EU member states directly without the need for local implementation. However, various legislative preparations will still need to be made at national level.

In the Netherlands, the first draft of the act amending Dutch law in view of MiCA’s imminent application was recently published as part of a public consultation. MiCA offers only a few choices for European member states (so called “member state options”), leaving the Dutch legislator with limited discretion to implement certain parts of the regulation. One such member state option is the transitional regime: under this regime, effective as of 30 December 2024, CASPs can continue to provide regulated services without a MiCA license until 1 July 2026 at the latest (or such earlier date the relevant member state decides).

The legislator has indicated that it intends to exercise this member state option, although it expects to opt for a six month transition period as opposed to the full 18 months the regulation allows.

With the deadline for MiCA compliance approaching, swift action is necessary

As the implementation of MiCA progresses, it is crucial for stakeholders to remain up to date with legislative developments and – if possible – to actively engage in the consultation process: the upcoming stages of MiCA's implementation will be critical in shaping the future of the crypto market in the European Union. CASPs and ART issuers should also be mindful of MiCA’s fast approaching deadlines for authorization. Although 2024 seems far off, applications for authorization are comprehensive and thorough processes, with long lead times. An early start mitigates the risk of having to suspend business operations if the authorization ultimately is not obtained in time.

At Deloitte, the licensing specialists in our Legal and Risk practices regularly support firms to navigate the extensive local and European regulatory landscapes. For instance, we can help (prospective) CASPs and ART issuers build or improve adaptable and compliant policy frameworks, governance arrangements, internal (risk management) programs and controls. If you are considering providing crypto-asset services or issuing ARTs, please reach out to one of our colleagues below.