The European Banking Authority (“EBA”) and the European Securities and Markets Authority (“ESMA”) on the 20th of October published a Consultation Paper on two draft joint guidelines. The guidelines focus on the suitability assessment of members of the management body, and suitability of shareholders and members with qualifying holdings of issuers of asset referenced tokens (“ART”) and of crypto-asset service provider (“CASP”). The Consultation Paper aims to provide clarity and harmonisation with respect to the criteria to assess the suitability of the management body, the shareholders and members with qualifying holdings, as mandated under the MiCA. Therefore, reducing the risk of arbitrage in the application of the rules.

The Consultation Paper first focuses on guidelines pertaining to the assessment of the suitability of the management body. These guidelines aim to robust governance arrangements contributing to the trust into the financial system whilst contributing confidence in those assets and services. The assessment process and criteria shall assess that the knowledge, skills, and experience are proportionate to the business model of the issuers. The assessment process shall consider: (i) the role and duties of the position and the required capabilities; (ii) the knowledge and skills attained through education, training, and practice; (iii) the practical and professional experience gained in previous positions and other current directorships; and (iv) the knowledge, skills, and experience acquired and demonstrated by the professional conduct of the member. Consideration shall be given to the theoretical and practical experience gained through previous positions.

The principle of proportionality, shall also be applied when taking account of (i) the size of the issuer; (ii) its internal organisation; (iii) nature and scale of the issued assets; (iv) the complexity of issued assets; (v) whether there is cross border activities, if so to what extent in each jurisdiction; and (vi) according to specifically listed additional criteria when dealing with CASPs.

On top of the criteria, the person must have good repute and their time-commitment should be relative to the business activities and strategy of the issuers. This is a notion which assess the person’s ability, with respect to time, to fulfil his roles and responsibilities especially in peaks of increased activity. The notion of sufficient good repute is given specific detail and attention in the guidelines due to such notion being at the core of the aim of improving trust in the financial system. The criteria assessing the notion of good repute shall be reputation, honesty, and integrity, as listed in Section 8 of the joint EBA and ESMA guideline.

The guideline also imposes the responsibility of assessing suitability of the members of the management body on the shareholders. The criteria which shall be enforced by virtue of the joint guideline shall model the process adopted by the shareholders. Moreover, the Consultation Paper recommends the adoption of a suitability policy, including principles of selection, monitoring, and succession planning. Moreover, the Consultation Paper introduces instances whereby the issuers shall perform re-assessment of suitability. When the criteria for suitability is not met, the issuers of the ARTs’ and CASPs’ shall adopt appropriate corrective measures in a timely manner. The Consultation Paper lists some corrective measures which may be adopted, but such measures are not exhaustive.

Moreover, there shall also be the suitability assessment conducted by the competent authorities. The Consultation Paper makes it clear that the competent authorities shall specify the supervisory procedures and include the possibility that after a suitability assessment is conducted on a person who already forms part of the management body may, consequently, be removed from the position. The competent authorities shall require issuers to submit the information and documentation necessary for the suitability assessment. The competent authorities shall take their decision within 6 months of the suitability assessment and have the power for removal of members and applying the listed appropriate corrective measures.

The assessment process shall also provide that for authorised credit institutions under Directive 2013/36/EU do not require further authorisation to issue asset-referenced tokens or to provide any crypto-asset services as provided for by the MiCA. Nonetheless, if investment firms intend to issue ARTs or provide crypto-asset services other than the ones which they already authorised to issue, they require authorisation by the MiCA. Moreover, credit institutions whose management body have already been tested by virtue of the suitability framework of the Capital Requirements Directive (“CRD”) and the Markets in Financial Instruments Directive (“MiFID”) II, shall not remain subject to the EBA and ESMA joint guidelines.

The second part of the Consultation Paper deals with the suitability assessment of shareholders or members, whether direct or indirect, with qualifying holdings in issuers of ARTs or CASPs. When circumstances arise giving rise to the sale of a qualifying portion of the issuer, the competent authority shall preliminarily assess the proposed acquirer. Moreover, the competent authority shall also undertake the suitability process assessing the good repute of the proposed acquirer; at both the authorisation stage and the post-authorisation stage, as deemed necessary.

The consultation process shall last until the 22nd of January 2024 and comments are to be submitted through a portal on the EBA’s website. Moreover, a virtual public hearing on the Consultation Paper will take place on the 11th of January 2024, whereby interested stakeholders are to register by the 9th of January 2024. Once this consultation process comes to an end the EBA will inform ESMA of the comments received and all contributions will be published.

For more information please contact Dr Ian Gauci.

Disclaimer This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.
Skip to content