What are the EU’s white paper requirements in MiCAR and do they apply to Bitcoin? – Osborne Clarke

After intensive discussions and compromises, the first comprehensive crypto regulation is here: the Markets in Crypto-Assets Regulation – MiCAR. MiCAR will regulate crypto-assets themselves, and also the services and products connected to them, in a harmonised way across the EU. In this article we focus on the new white paper obligation and how it will be applied to established crypto-assets like Bitcoin.

The development of MiCAR

MiCAR is the European Parliament’s response to citizens’ expectations to set safeguards and standards for the use of blockchain technology, which was expressed in Proposal 35(8) of the conclusions of the Conference on the Future of Europe.

The European Commission first presented MiCAR as a proposal on 24 September  2020 as part of the larger digital finance package, which aims to develop a harmonised European approach that ensures financial stability and consumer protection, while also fostering technological developments and innovation.

Prior to MiCAR there were worries that the current legal framework could pose obstacles to the use of new digital financial instruments, and doubts as to whether certain new financial products and technologies would fall within the scope of active financial regulation in the EU. The new package addresses those concerns by ensuring that the current legal framework does not pose obstacles and that the new products and technologies will fall within the scope of financial regulation and risk management arrangements. The harmonised nature of the regulatory framework also adapts the regulation to the global nature of crypto markets and improves the current situation with national legislation in some Member States.

On 20 April 2023 the European Parliament officially endorsed MiCAR with 529 votes in favour (29 against). The legislative process concluded in the formal adoption of the regulation on 16 May 2023.

MiCAR was officially published in the Official Journal of the European Union on 9 June 2023  as Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937 (Volume 66, 9 June 2023, L 150, pages 40-205).

On 30 June 2024, two months after its publication, Titles III and IV, the regulations regarding asset-referenced tokens and e-money tokens, shall apply. The other MiCAR provisions will apply 18 months after publication, on 30 December 30 2024.

The European Securities and Markets Authority (ESMA) published a first consultation paper about Technical Standards specifying certain requirements of the Markets in Crypto Assets Regulation on 12 July 2023. The aim of its paper is to collect views, comments and opinions from stakeholders and market participants on the appropriate implementation of MiCAR. It intends to publish further consultation packages in October 2023 and the first quarter of 2024.

Scope of MiCAR

Crypto-assets in general are defined in MiCAR as a digital representation of a value or a right that is able to be transferred and stored electronically using distributed ledger technology (DLT) or similar technology (such as currency-tokens like Bitcoin or utility-tokens) (Article 3, paragraph 1 (5)).  

MiCAR generally is separated into titles concerning asset-referenced tokens (Title III), e-money tokens (Title IV) and crypto-assets other than asset-referenced tokens or e-money tokens (Title II), as well as titles for definitions (Title I), conditions for crypto-asset service providers (Title V) and the prohibition of market abuse (Title VI).

Asset-referenced tokens are a type of crypto-asset that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies, without being an electronic money token (e-money-token) (Article 3 paragraph 1 (6) MiCAR.) These tokens are usually referred to as stablecoins, for example, Tether or USDC, which reference the US dollar.

Electronic money tokens or e-money tokens are a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency, see Article 3 paragraph 1 No. 7 MiCAR. The value of e-money tokens is backed by one fiat currency (e.g. Euro, US-Dollar).

The third category of crypto assets are the types of crypto-assets that do not fall into the category of asset-referenced tokens or e-money tokens (see Title II).

Obligation to provide a crypto-asset white paper

One of the most important new provisions within MiCAR is the requirement for drawing up, notifying and publishing a crypto-asset white paper for asset-referenced tokens, e-money tokens and other crypto-assets.

A crypto-asset white paper is an information document containing mandatory disclosures. It should contain general information on the issuer, offeror or person seeking admission to trading, on the project to be carried out with the capital raised, on the offer to the public of crypto-assets or on their admission to trading, on the rights and obligations attached to the crypto-assets, on the underlying technology used for such crypto-assets and on the related risks (see recital 24 MiCAR).

It is generally mandatory to draw up, notify and publish a crypto-asset white paper before offering crypto-assets to the public or seeking admission to trading of a crypto-asset.

BaFin (the German Federal Financial Supervisory Authority) describes a white paper as a summary of the most important information about the offeror and the crypto-asset that is easy for everyone to understand.

Obligation for crypto-assets other than asset-referenced tokens and e-money tokens

In general, as determined in Article 4 paragraph 1 MiCAR, a person shall not make an offer to the public of a crypto-asset (other than asset-referenced tokens and e-money tokens) unless that person is a legal person and has drawn up, notified and published a crypto-asset white paper in accordance with Articles 6, 8 and 9 MiCAR.

The white paper requirements do not apply to an offer of crypto-assets: to fewer than 150 persons per Member State, or if the offer does not exceed €1 million over a period of 12 months starting with the beginning of the offer, or it is solely to qualified investors where the crypto-assets can only be held by such qualified investors (Article 4 paragraph 2 MiCAR).

The requirement for a white paper also does not apply, if the crypto-asset is offered for free (for example, airdrop) or as a reward for the maintenance of the DLT or validation of transactions (such as mining or staking) (Article 4 paragraph 3 MiCAR).

The offering of utility tokens providing access to a good or service that already exists or is in operation (serves as a voucher) is exempt from the white paper requirement (and all of Title II), according to Article 4 section 3 (c). The same goes for the offer of a crypto-asset if the holder of the crypto-asset has the right to use it only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror (Article 4 section 3 (d)).

The rules for seeking admission to trading of crypto-assets are similar. Article 5 paragraph 1 MiCAR provides that a person shall not seek admission to trading of a crypto-asset if that person is not a legal person and has drawn up, notified and published a crypto-asset white paper in accordance with Articles 6, 8 and 9 MiCAR.

The requirement of a white paper does not apply to a crypto-asset that is already admitted to trading on another trading platform for crypto-assets in the EU and if the crypto-asset white paper is drawn up in accordance with Article 6, updated in accordance with Article 12, and the person responsible for drawing up such white paper consents to its use in writing (according to Article 5 paragraph 4 MiCAR).

Obligation for asset-referenced tokens and e-money tokens

The white paper requirements for asset-referenced tokens and e-money tokens are more stringent compared to the requirements for other crypto-assets.

Any offer to the public or admission to trading for asset-referenced tokens requires a white paper (Article 16 paragraph 1, Article 19 and Article 21 paragraph 1 MiCAR). Even in cases where the issuer does not require an authorisation to offer the tokens to the public or seek its admission to trading (total value limited to €5,000,000 or offer limited to qualified investors), a white paper is required, according to Article 16 paragraph 2 and Recital (43) MiCAR.

Any offer to the public or admission to trading of e-money tokens requires a white paper, according to Article 48 paragraph 1 (b) and Article 51 MiCAR. Even in cases where the issuer of e-money tokens is exempt from an authorisation to offer the tokens to the public or seek its admission to trading under the applicable electronic money framework (for example, limited networks), a white paper (and also the notification to the authority) to inform buyers about the characteristics and risk of the asset-referenced tokens or e-money tokens is required (Article 48 paragraph 7 and recital (66) MiCAR).

Content requirements for a crypto-asset white paper

The form and content of the white paper are also specified in MiCAR.

Crypto-assets other than asset-referenced tokens and e-money tokens

The content requirements for white papers of crypto-assets (other than asset-referenced tokens and e-money tokens) are detailed in Articles 5-8 MiCAR and their respective parts in Annex I.

The content and structure of a crypto-asset white paper is comparable to a securities prospectus under the European Securities Prospectus Regulation.

The white paper should start with the following statement “This crypto-asset white paper has not been approved by any competent authority in any Member State of the European Union. The [offeror][person seeking admission to trading][operator of the trading platform] of the crypto-asset is solely responsible for the content of this crypto-asset white paper.” (Article 6, paragraph 3 MiCAR.)

This shall be followed by a statement from the management body of the offeror, the person seeking admission to trading or the operator of the trading platform confirming compliance with MiCAR and that the presented information is fair, clear and not misleading (Article 6, paragraph 6).

After this statement, the white paper shall contain a summary which provides key information about the offer to the public of the crypto-asset or the intended admission to trading in brief and non-technical language, as well as a warning detailed in Article 6, paragraph 7 MiCAR.

The white paper shall be drawn up in an official language of the home Member State or in a language customary in the sphere of international finance (notably English) and should contain the date of its notification and a table of contents (Article 6, paragraph 8 (f)).

In addition to that, the white paper should provide information about the offeror or the person seeking admission to trading as well as the issuer, if different, and, in cases where it draws up the crypto-asset white paper, about the operator of the trading platform. This information includes the name, the legal form, the registered address, the date of registration, the legal entity identifier and a contact telephone number and email address, identity, business addresses and functions of persons that are members of the management body and business or professional activity of the offeror or the person seeking admission to trading as well as their financial condition over the past three years (Article 6, paragraph 1a, b, c, Annex I part A, B, C).

Further requirements include information about the crypto-asset project (such as name and brief description and past and future milestones of the project, details of all natural and legal persons), the crypto-asset itself (the type of crypto-asset and a description of its characteristics) and the underlying technology (including DLT, protocols and technical standards used) as well as the rights and obligations attached to the crypto-asset (that is, information on future offers to the public of crypto-assets and a description of the conditions under which the rights and obligations may be modified) (Article 6, paragraph 1 d, f, g, h, Annex I part D, F, G, H).

The white paper should also contain information about the offer to the public of the crypto-asset or its admission to trading (like reasons for the offer to the public, the amount that the offer intends to raise in funds, the issue price and the total number of crypto-assets), information on the risks (including a description of the risks associated with the offer, the issuer, crypto-assets and the technology used) and the principal adverse impacts on the climate (and other environment-related adverse impacts of the consensus mechanism used to issue the crypto-asset) (Article 6 paragraph 1 e, i, j, Annex I part E, I). The latter information requirement is a consequence of discussions about the energy consumption of Bitcoin mining.

The provided information should be fair, clear and not misleading and presented in a concise and comprehensible form. The white paper should not contain material omissions, or any assertions as regards the future value of the crypto-assets (Article 6 paragraph 2, 4).

Moreover, the white paper shall contain a clear and unambiguous statement, detailed in Article 6 paragraph 5 MiCAR, including a warning to the potential loss of value and, transferability and liquidity.

After the white paper is drawn up, it must then be notified and published in accordance with Articles 8 and 9 MiCAR.

Asset-referenced tokens and e-money tokens

White papers for asset-referenced tokens and e-money tokens have similar content requirements to papers for other crypto-assets.

The requirements for e-money token white papers, contained in Article 51 and Annex III MiCAR, are almost identical to those listed in Article 6 MiCAR for crypto-assets that are neither e-money tokens nor asset-referenced tokens. However, they need to contain specific information adapted to e-money tokens.

The white paper requirements for asset-referenced tokens are similar, but also require information on the reserve of assets (see Article 19 and Annex II MiCAR).

Application to established crypto currencies

The white paper requirement is easy to imagine for crypto-assets that will be issued and offered by a legal person when MiCAR will be applicable. However, a very interesting question is how the rules for a mandatory white paper will apply to Bitcoin and other crypto currencies that were already issued and traded on various platforms before MiCAR applies?

Bitcoin is considered a crypto-asset, pursuant to MiCAR, that is neither an asset-referenced token nor an e-money token. It therefore falls under the regulations under Title II MiCAR. According to Article 4 paragraph 1 (b)-(d) MiCAR, a person shall not make an “offer to the public of a crypto-asset” unless that person has drawn up, notified and published a crypto-asset white paper. The white paper obligation refers to the term “offer to the public” – a term also familiar from the securities prospectus regulation.

An “offer to the public” according to MiCAR means “a communication to persons in any form, and by any means, presenting sufficient information on the terms of the offer and the crypto-assets to be offered so as to enable prospective holders to decide whether to purchase those crypto-assets” (Article 3, paragraph 1 (12) MiCAR). The “issuer” or the “offeror” of crypto-assets is responsible for this public offer.

For Bitcoin, there is no issuer of the crypto-assets, but a trading platform could be deemed as an “offeror”. According to MiCAR an offeror is “a natural or legal person, […] who offers crypto-assets to the public”.

As the term “offeror” is also related to the securities prospectus regulation, it seems reasonable to have a look at existing interpretations of the term. Pursuant to Art. 2 (j) of the EU Securities Regulation, the offeror is any legal entity or natural person who offers securities to the public and thus not necessarily the issuer. Offerors are also those who – in so-called distribution chains – resell securities. An offeror is anyone who is “responsible for the public offering of the investment” or at least shares responsibility and appears “to the investors as an offeror that is recognisable from the outside“. However, mere sales assistants are not considered offerors (Assmann/Schlitt/von Kopp-Colomb, Prospektrecht Kommentar, § 9 WpPG Haftung bei fehlerhaftem Börsenzulassungsprospekt, No. 81-83).

A crypto trading platform – even if it offers proprietary trading with crypto assets – appears to the customers as a seller, but not as a responsible entity for the crypto assets itself (like Bitcoin). Typically, an offeror has an influence on the product and therefore a specific responsibly. A crypto trading platform has no influence or responsibly for the listed crypto currencies like Bitcoin and is therefore not deemed as an “offeror”. Listing crypto assets on a trading platform would not qualify as an offer to the public. This means there are no crypto-asset white paper obligations for a crypto trading platform under Article 4, paragraph 1 (b)-(d) MiCAR.

If a person seeks admission to trade crypto-assets, Article 5 paragraph 1 (b)-(d) MiCAR would generally require them to draw up, notify and publish a white paper. Contrary to what a first read of the Articles may suggest, the requirement for a white paper does not extend to all platforms that offer crypto trading, but only to multilateral trading platforms. The reason is that under MiCAR any admission to trading refers to an admission on a trading platform for crypto-assets within the meaning of Article 3, paragraph 1 (18) MiCAR. This provision refers to multilateral trading platforms bringing together multiple purchasing and selling interests in a pre-defined automated system.

Most platforms that offer crypto trading do not provide a multilateral trading system but legally and technically operate as brokerage and/or proprietary trading services. Such platforms are therefore not multilateral “trading platforms for crypto-assets” under MiCAR. As a consequence, the provisions containing white paper obligations in the case of an admission to trading do not apply for such trading platforms.  

However, in case the already-issued crypto-asset is to be traded on a multilateral trading platform for crypto-assets under MiCAR, a white paper is still required. In such cases MiCAR also offers the possibility of white paper reliance, under Article 5, paragraph 4. This requires that the crypto-asset is already admitted to trading on another (multilateral) trading platform for crypto-assets. Additionally, the white paper needs to have been drawn up in accordance with Article 6 and updated in accordance with Article 12, and the person responsible for drawing up the white paper needs to have consented to its use in writing.