William Fry's Financial Regulation and Fintech teams examine the second round of draft Markets in Crypto-Assets Regulation (MiCA) Level 2 and Level 3 measures separately published by ESMA and the EBA in October 2023.
As a regulation, MiCA is a directly effective European Union Level 1 legislative measure which will introduce and harmonise the EU regulatory framework for crypto-assets and crypto-asset service providers (CASPs) not otherwise captured under existing EU financial services regimes.
MiCA requires many Level 2 and Level 3 EU legislative measures such as Regulatory Technical Standards (RTS), Implementing Technical Standards (ITS) and Guidelines under the new regime.
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) are tasked with developing certain MiCA Level 2 and Level 3 measures.
The first batch of MiCA consultations
On 12 July 2023, ESMA published its first of three consultation packages under MiCA. ESMA's first consultation package contained draft technical standards (five RTS and two ITS). In the first consultation package, ESMA sought input on proposed rules for CASPs, relating to authorisation, identification and management of conflicts of interest and how CASPs should address complaints.
On the same date, the EBA also published its first of three consultation packages under MiCA. In the first consultation package, the EBA sought feedback on draft technical standards relating to asset-referenced token (ART) authorisations, assessment of proposed acquisitions of qualifying holdings in issuers of ARTs and complaints handling procedures for issuers of ARTs.
ESMA's second MiCA consultation package
On 5 October 2023, ESMA, the EU's financial markets regulator and supervisor, published a second consultation package under MiCA. This package covers the following eight sets of technical standards (six draft RTS and two draft ITS) and the proposed text of each is set out in Annex II to the consultation paper:
- RTS on the content, methodologies and presentation of sustainability indicators and adverse impacts on climate and the environment (Articles 6(12),19(11), 51(15) and 66(6) MiCA).
- RTS on measures that CASPs must take to ensure continuity and regularity in the performance of crypto-asset services (Article 68(10)(a) MiCA).
- RTS on trade transparency (offering pre- and post-trade data to the public) (Article 76(16)(a) MiCA).
- RTS on content and format of order book records (Article 76(16) MiCA).
- RTS on record-keeping by CASPs (Article 68(10) MiCA).
- RTS on the data necessary for the classification of white papers (Article 109(8) MiCA).
- ITS on standard forms and templates for the crypto-asset white paper (Articles 6, 19 and 51 MiCA).
- ITS on the technical means for appropriate public disclosure of inside information (Article 88(4) MiCA).
This consultation period will run until 14 December 2023.
Separately, ESMA has developed and published a proof of concept (PoC) to demonstrate how an editable template can ensure the preparation of a compliant iXBRL white paper at a low cost, which stakeholders are invited to test. The MiCA white papers PoC includes a draft taxonomy, xHTML file and Excel converter into Inline XBRL, which sets out proposed format requirements included in the draft ITS on forms, formats and templates for the crypto-asset white papers under MiCA.
The EBA's second MiCA consultation package
On 20 October 2023, the EBA published its second batch of consultation papers containing draft technical standards and guidelines as follows:
- RTS on the approval process for white papers for ARTs issued by credit institutions under Article 17(8) MiCA (ART White Papers);
- RTS on the minimum content of the governance arrangements on the remuneration policy under Article 45(7)(a) MiCA (Remuneration Policy Governance Arrangements); and
- Guidelines on the minimum content of the governance arrangements for issuers of ARTs under Article 34(13) MiCA (Issuers of ARTs Governance Arrangements)
ART White Papers
An ART issued by a credit institution may be offered to the public or admitted to trading if the credit institution drafts a crypto-asset white paper for the ART and submits it for approval by the relevant competent authority.
The draft RTS aim to harmonise the approval procedure across the European Union by setting out the steps and timeframes to be followed by credit institutions and the relevant competent authority during the crypto-asset white paper process.
To ensure consistency, the RTS set out a structure that is like the process under MiCA for the notification of other information by credit institutions that aim to issue ARTs. The RTS cover:
- the submission of an application for approval of a white paper;
- the acknowledgement of receipt and processing of an application by the competent authority;
- the competent authority's assessment of completeness of a white paper and request for any missing information;
- the information exchange between the competent authority and the ECB or other central bank, where applicable;
- the substantive assessment and request of changes by the competent authority; and
- the approval of the white paper.
Remuneration Policy Governance Arrangements
This RTS aims to ensure that remuneration policies promote the sound and effective risk management of issuers of significant ARTs and significant e-money tokens (EMTs) and do not create incentives to ease risk standards.
The draft RTS set out the main governance processes regarding the adoption and maintenance of the remuneration policy and the matters that should be addressed in the policy.
To ensure cross-sectoral consistency and achieve the same regulatory objectives, the remuneration framework set by this RTS is aligned with the remuneration framework for investment firms.
Issuers of ARTs Governance Arrangements
Issuers of ARTs must have robust governance arrangements to protect consumers and investors. The draft guidelines (the Guidelines) consider, among other things, the role, tasks, and responsibilities of the issuer's management body, its risk culture (including the identification and management of risk) and business conduct, and the internal control framework and mechanisms (including business continuity plans).
The Guidelines also specify the arrangements to be put in place when using third-party entities relating to the operation, investment or custody of the reserve assets (including, where relevant, the distribution of ARTs to the public).
The EBA Guidelines will apply to competent authorities across the EU and issuers of ARTs.
This consultation period will run until 22 January 2024.
ESMA – Following consultation, ESMA will publish a final report based on feedback and submit the draft technical standards to the European Commission for endorsement by 30 June 2024. ESMA is due to publish a third consultation package in Q1 of 2024.
EBA – The EBA is due to publish a third MiCA consultation package in November 2023.
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