On the 25th of March 2024, the European Securities and Markets Authority (‘ESMA’) issued three documents in relation to the Markets in Crypto-Assets Regulation (‘MiCA’), these being:
In essence, the Consultation Paper deals with four mandates:
The Consultation Paper
The first part deals with questions pertaining, inter alia, to the suspicious transaction or order report (STOR). For this regime to be effective under MiCA, it is imperative to specify the elements required for persons professionally arranging or executing transactions (‘PPAETs’) in crypto-assets to comply with the regime as well as other coordination procedures between National Competent Authorities (‘NCAs’) in cases of cross-border market abuse, as mandated under Article 92(2) of MiCA. By virtue of this, ESMA states that the framework designed under MiCA and the empowerment conferred upon ESMA to develop a draft RTS in accordance with Article 92(2) of MiCA resembles, respectively, the obligation and the mandate under Article 16 of the Market Abuse Regulation (‘MAR’) on STORs for financial instruments. Moreover, ESMA opines that crypto-asset service providers (CASPs) operating a trading platform should be considered as PPAETs, meaning that they should be subject to the regime under Article 92(1) MiCA, even though they are not expressly mentioned therein.
The second part of the Consultation Paper deals with the suitability requirements applicable to the provision of advice and portfolio management in crypto-assets and the format of the periodic statement referred to in Article 81(14) of MiCA. Here, ESMA opined, inter alia, that it would be a good practice for CASPs to collect information regarding preferences on environmental, social and governance factors of the client or potential client.
The third part, deals with procedures and policies, including the rights of clients in the context of transfer services for crypto-assets. Here, ESMA mentions Art.82(2) of MiCA, which states that CASPS providing transfer services for crypto-assets must conclude an agreement with their clients to specify their duties and responsibilities which must include the identity of the parties to the agreement, descriptions of the modalities of the transfer service provided and of security systems adopted by CASPs, fees applied by the CASPs and the applicable law. Here, ESMA, inter alia, clarifies that CASPs should establish adequate policies and procedures determining conditions for the CASP to be liable to clients in case of unauthorised or incorrectly initiated or executed crypto-asset transfers.
The fourth part deals with maintenance of systems and security access protocols in conformity with appropriate Union standards. Here, ESMA, inter alia, stated that, even though other precedents exist meeting the definition of ‘in conformity with appropriate Union standards’, one should note that said standards often draw from policies developed by international standard setting organisations, which constantly shift to mitigate new types of ICT security risks. As such, in relation to this, ESMA referred to the 2022 edition for confirmation with a view to ensuring that the controls in the guidelines are based on the latest internationally-recognised best practices for operational resilience.
The First Final Report
With regard to the First Final Report, the feedback statements relating to five of the six draft technical standards related to investor protection topics in the first consultation paper issued by ESMA in July 2023. Issues dealt with include: the notification by certain financial entities to provide crypto-asset services; the information to be included in the application for authorisation as a CASP; complaints handling procedures of CASPs and the assessment of intended acquisition of a qualifying holding in a CASP. Here, inter alia, questions pertaining to extending the list of information with an application for authorisation as a CASP, amendments to ESMA’s proposed draft RTS, due to the potentially burdensome language requirements, ESMA’s proportionate approach to the request of information to be submitted by proposed indirect acquirers of qualifying holdings – which approach was generally agreed with – were discussed.
The Second Final Report
In the Second Final Report, ESMA deals with draft RTS specifying the information to be exchanged between competent authorities, draft Implementing Technical Standards (‘ITS’) specifying the relevant standard forms, templates and procedures for the exchange of information between competent authorities, draft ITS on forms for information exchange between competent authorities and ESMA or European Banking Authority (‘EBA’) and draft RTS on the cooperation template with third countries. Here, ESMA stated that it is necessary to ensure that competent authorities cooperate effectively in a variety of contexts and be able to exchange all necessary information to undertake supervisory and other roles. It also stated that technical standards on the cooperation, exchange of information or on the consultation process between competent authorities developed by ESMA under existing financial legislation served as a precedent for the draft ITS as found under Article 95(11) of MiCA. On the draft ITS on forms for information exchange between competent authorities and ESMA/EBA, ESMA stated that the proposed draft ITS set out streamlined procedures and templates which ease the communication between competent authorities and ESMA and EBA. The cooperation request form found in Annex I of the draft ITS lists those cases where a request for information may be made, and for which the exchange of information should take place.