News and developments
The regime for crypto-asset service providers under the Markets in Crypto-Assets Regulation
Among other matters, MiCA sets the scene for Europe to become an attractive base for crypto-asset service providers (CASPs) to undertake business globally. Owing to the EU taking the regulation route, rather than enacting a directive, MiCA will be directly applicable across all EU Member States – including Malta – without the need of further implementation at a national level. The Malta Financial Services Authority (MFSA) is already working to bridge the gap between the homegrown VFA Act (Chapter 590 of the laws of Malta) and MiCA. The objective is to grant Maltese CASPs a competitive edge by ensuring an immediate and seamless transition to MiCA, once the VFA Act is repealed.
Authors: James Debono, Mark Caruana Scicluna February 13, 2023
The Framework for CASPs
A CASP intending to provide crypto-asset services to EU customers will require prior authorisation by the competent authority in its (home) EU Member State. The list of crypto-asset services under MiCA is inspired by the MiFID II regime (Directive 2014/65/EU), which also served as a blueprint for the VFA Act. Authorisation under MiCA is required if a CASP provides any one or more of the following services in respect of crypto-assets to EU-based clients:- custody and administration services,
- the operation of a trading platform in respect of crypto-assets,
- the exchange of crypto-assets for funds/crypto-assets for other crypto-assets,
- the execution of orders on behalf of third parties,
- placement services,
- transferring crypto-assets from one address or account to another address or account,
- the reception and transmission of orders,
- investment advice, and
- portfolio management services.
Reverse Solicitation
The concept of reverse solicitation also features in MiCA. Authorisation will not be necessary if: (i) a non-EU firm provides a crypto-asset service at the “own exclusive initiative” of an EU customer; and (ii) the crypto-asset service is limited exclusively to the service requested by the client. In other words, the request must not be in response to advertising or marketing. The European Securities and Markets Authority is expected to issue more detailed guidelines shortly.Firms Already Authorised under other Legislation
There are certain classes of firms, which are already licensed under their respective regulatory regimes, that may provide crypto-asset services without authorisation under MiCA. These firms include, amongst others, MiFID investment firms, alternative investment fund managers, UCITS management companies, credit institutions and e-money institutions. This is encouraging news for firms in Malta that may fall within the scope of MiCA. For instance, MiFID investment firms may, without authorisation under MiCA, provide crypto-asset services deemed to be equivalent to the MiFID activities for which they are already authorised. In each case, firms should plan in advance. The MFSA will need to be notified and provided with the required information at least forty working days before the service is provided for the first time. The principal documents would include: (a) the programme of operations, (b) a description of the governance, IT and risk arrangements, and (c) the business continuity plan.MiCA – The Trendsetter?
The effective date of MiCA is fast approaching. The trickiest part is understanding whether your business with EU customers will be impacted by the Regulation. This will allow you to determine whether a new licence is required, you may rely on an existing licence subject to certain conditions, or fall out of scope entirely. The EU Parliament’s plenary vote on MiCA should take place in April 2023. If the vote proceeds, MiCA should enter full force after a transitional period of 12 months for stablecoin issuers (Q2 2024) and after 18 months for CASPs (Q4 2024). The collapse of FTX last November has sparked serious debate for regulatory intervention across the crypto world, and MiCA may well become the blueprint for crypto regulation globally.Authors: James Debono, Mark Caruana Scicluna February 13, 2023