In a previous alert, "Are You Ready for MiCA Implementation?," we discussed provisions of the Markets in Crypto Assets Regulation (MiCA) governing stablecoins that came into effect on 11 June 2024.
With further provisions — including those for crypto-asset service providers (CASPs) — due to come into effect on 30 December 2024, the European Securities and Markets Authority (ESMA)1 published important questions and answers (Q&As) on 11 October 2024 about the status of entities authorised in individual EU member states that currently provide CASP services, their status after MiCA comes into effect, and how the transitional or so-called grandfathering provisions will operate.
These Q&As are very helpful in that they clarify that entities authorised in individual EU member states will not have to comply with MiCA and will be able to provide CASP services to CASPs that are MiCA-authorised. This should be welcomed by the industry.
The Transitional Provisions
As we have noted before in our client alert "Doing Crypto Business in Europe: MiCAR, the EU's New Uniform Crypto Code – Part 2," MiCA will require CASPs such as crypto-exchanges and crypto-custodians that provide services in the EU to be authorised and comply with the various requirements — including those that govern capital and conduct of business — for CASPs under MiCA. Those types of businesses are currently regulated under member state laws that implemented the Fifth Money Laundering Directive.
MiCA states that CASPs that provided their services in accordance with applicable law before 30 December 2024 may continue to do so until 1 July 2026 or until they are granted or refused an authorisation under MiCA, whichever is sooner.2
The Question to ESMA and Its Response
The status of these locally authorised CASPs under MiCA was unclear, however, giving rise to the following question to ESMA:
Are crypto-asset service providers that provided their services in accordance with applicable law before 30 December 2024 and that are authorised to continue to do so under the law of a member state in accordance with Article 143 of MiCA considered to be CASPs under the terms of MiCA during the transitional period until they are authorised?
This question required ESMA to:
- Clarify the status during the transitional period: ESMA had to determine if CASPs that were legally operating before 30 December 30 2024 (when certain provisions of MiCA come into force) can continue offering their services during the transitional period until they receive formal MiCA authorisation. It addresses providers that are already complying with national laws of an EU member state and seek to understand their legal standing until they obtain the MiCA license.
- Establish a smooth transition to the new regulatory framework: MiCA establishes a harmonised regulatory framework across the EU for crypto-assets. Because some providers existed before the full application of MiCA, transitional provisions allow them time to adjust to the new rules. The question seeks to determine if these providers can continue to be legally recognised and operate during this transitional phase before receiving formal MiCA authorisation.
- Ensure a temporary recognition of compliance: The issue raised is whether these providers are considered CASPs under MiCA — even though they have not yet obtained formal authorisation — as long as they are operating in compliance with existing national laws. This ensure that their services are not abruptly disrupted and gives them time to meet new requirements.
On 2 October 2024, ESMA gave a clear answer to this question, stating:
CASPs that are authorised to operate during the transitional period are not considered authorised under Article 3(1)(15) of MiCA, and thus do not qualify as "crypto-asset service providers" as defined by MiCA. As a result, the requirements of MiCA do not apply to them until they receive authorisation under Article 63.
Consequently, when an authorised CASP is subject to obligations related to another entity's compliance with requirements for CASPs under MiCA, the authorised provider may assume that the other entity, operating under the transitional regime, complies with MiCA until the end of the transitional period.
A CASP providing services under the transitional regime can continue providing its services to a MiCA-authorised CASP until the applicable transitional period expires.
Likewise, a MiCA-authorised CASP may engage with such an entity under the transitional regime until the transitional period ends. The Q&A expressly identifies Article 75(9) of MiCA, which states that, if CASPs providing custody and administration of crypto-assets on behalf of clients make use of other crypto-asset providers of that service, they shall make use only of crypto-asset service providers authorised in accordance with Article 59.
In the absence of a transitional period under MiCA, this clarification should not be interpreted as exempting any CASPs from complying with their obligations under MiCA.
Footnotes
1 ESMA is an independent authority accountable to European Union institutions and is responsible for securities and capital markets supervision. It aims to do so across financial sectors by working in collaboration with the other European Supervisory Authorities competent in the field of banking (EBA) and insurance and occupational pensions (EIOPA). ESMA takes into consideration the fundamental changes in the financial markets that are driven by the growing importance of sustainability and by accelerating technological innovation.
2 See Article 143(3).
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.
