On the 17th October 2023, ESMA published two documents to clarify the timeline for the Markets in Crypto Assets Regulation (MiCA) and to encourage preparations for a smoother transition towards the MiCA regulatory framework.
The updates concern obliged entities, investors and national competent authorities.
A. Timeline Clarifications and Investor Risks
Currently, MiCA is in the "implementation phase". The implementation phase shall last from the entry into force of MiCA until the date of full application in December 2024. During this period, technical standards and guidelines that specify how the new rules will apply to issuers, offerors and service providers of crypto-assets are expected from ESMA, National Competent authorities and other European Supervisory Authorities.
ESMA clarifies that full MiCA rights and protections for holders of crypto-assets and current or prospective clients of crypto-asset services in the EU will not apply during the implementation phase of MICA; they will enter into force as from December 2024.
Additionally, even after December 2024, Member States have the option of granting entities already providing crypto-asset services in their jurisdictions up to an additional 18-month transitional period during which time they may continue to operate without a MiCA licence. Verena Ross, the ESMA Chair, through a letter addressed to the President of the Economic and Financial Affairs Council, encourages Member States to consider reducing the duration of this option known as the "grand-fathering clause" to a maximum of 12 months, particularly in respect of entities that have not been through a fully-fledged authorisation process and that are not yet subject to effective supervision in the EU.
Given the above timeline, this means that holders of crypto-assets and clients of crypto-asset service providers may not benefit from the full rights and protection afforded to them under MiCA until as late as July 2026.
Therefore, it is important that holders of crypto-assets and clients of crypto-asset service providers are aware of the recourse mechanisms and protection currently available in their jurisdiction (or lack thereof).
B. The Role of Market Participants in the Transition
ESMA encourages market participants themselves to make adequate preparations in anticipation of the changes brought by MiCA.
- Steps to be taken
These preparations should involve, amongst others:
- Aligning their practices to comply with incoming requirements of MiCA;
- Informing their national competent authority and clients of their transition plans as early as possible; and
- Informing their clients about the regulatory status of the crypto-assets and/or services they are offering.
- Reverse Solicitation
ESMA has emphasized that third-country firms are strictly limited under MiCA from providing crypto-asset services or activities in the EU. This strict limitation is restricted to cases where such services are initiated at the exclusive initiative of a client ("Reverse Solicitation").
ESMA emphasizes that this restriction should be understood as a very narrowly framed exemption that can neither be interpreted in a way, nor exploited by any means, so as to circumvent MiCA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.