Consultations on MiCA Technical Standards

As previously mentioned on Mazanti Pulse, new legislation regarding the crypto-asset sector is on its way in the European Union. The Markets in Crypto-Assets Regulation (MiCA) was officially adopted on 16 May 2023 by the Council of the European Union and is applicable from 30 December 2024 (transitional rules apply). This marks a significant milestone as MiCA establishes a comprehensive framework governing the crypto-asset sector, including stringent requirements and obligations applicable to Crypto-Asset Service Providers (CASPs).

AIFMs and CASPs

Among the key provisions of MiCA is the regulation of crypto-asset services, including portfolio management of crypto-assets. As a result, Alternative Investment Fund Managers (AIFM) managing crypto funds will be subject to these new requirements once MiCA becomes applicable.

Crucially, MiCA mandates rigorous compliance standards and other requirements for AIFM managing crypto funds. These include, among other things, thorough fit and properness assessments of management body members, implementation of efficient complaint-handling procedures, establishment of resilient business continuity plans, and suitability testing of clients.

In accordance with MiCA Article 143(3), CASPs operating in compliance with existing laws prior to 30 December 2024, are permitted to continue delivery of their services until 1 July 2026. However, it is noteworthy that the Member States retain the discretion to either not apply or reduce this transitional period.

Consultation Papers

In connection with the implementation of MiCA, the regulation provides for the European Securities and Markets Authority (ESMA) to develop draft regulatory and implementing technical standards (RTS and ITS), specifying certain provisions of MiCA.

ESMA has envisaged a total of three Consultation Papers, two of which have already been published. These papers contain drafts of level 2 and 3 measures under MiCA and invite public consultation.

In the following section we will outline the technical standards we consider relevant for CASPs and more specifically AIFM managing crypto funds.

Consultation Paper 1:

The first consultation paper was released on 5 June 2023, and includes technical standards on:

• The content of the notification from selected financial entities
• Forms and templates for notification from selected financial entities
• The content of the application for authorisation for CASPs
• Forms and templates for CASP authorisation application
• Complaint handling procedure
• Management and prevention, disclosure of conflict of interest
• Intended acquisition information requirements

The consultation period concluded on 20 September 2023.

Consultation Paper 2:

ESMA released the second consultation paper on 5 October 2023. This paper includes technical standards on, among other things:

• Sustainability indicators
• Business continuity requirements
• Record keeping requirements for CASPs

The consultation period for Consultation Paper 2 is scheduled to conclude on 14 December 2023.

Consultation Paper 3 (Expected in Q1 2024):

Looking ahead, ESMA is anticipated to release the third consultation paper in the first quarter of 2024. This final paper will cover the remaining mandates, including:

• Qualification of crypto-assets as financial instruments
• Investor protection:
  • Reverse solicitation
  • Suitability of advice and portfolio management services to the client
• System resilience and security access protocols

Next steps: Consultation Paper 3 is expected to be released in Q1 2024. Furthermore, we anticipate that ESMA will provide further clarity through publication of Q&As, specifying details related to the regulation. We continue to monitor this process closely.

Tags:  Crypto-assetsESMAMiCARegulatory Technical Standards