As noted in our previous alerts “Marketing Crypto-Assets in and Into Europe: MiCA, the EU’s New Uniform Crypto Code” and “Doing Crypto Business in Europe: MiCA, the EU’s New Uniform Crypto Code – Part 2”, the European Union (EU) Markets in Crypto-Assets Regulation (MiCA) was published in the Official Journal of the European Union on 9 June 2023. MiCA is a major step toward an EU-wide uniform code governing crypto-assets (such as Bitcoin, Ethereum and stablecoins) and crypto-asset service providers (CASPs).
MiCA’s effect will not be limited to CASPs themselves. It will also have an impact on anyone who wishes to acquire voting rights or capital in a CASP above any of the thresholds identified in MiCA. This will require regulatory approval under MiCA before an acquisition above that threshold can completed. Prudent acquirers will also want to use MiCA as the touchpoint for undertaking regulatory due diligence on EU CASP acquisition targets.
Those familiar with the provisions on the acquisition of a qualifying holding in an investment firm under the Markets in Financial Instruments Directive and similar provisions for EU banks, insurers and mutual fund managers will see similarities with the MiCA regime and with rules governing the acquisition of UK crypto businesses noted in “Buying a UK Crypto Business: The New Regulatory Hurdles”.
Although MiCA came into force on 29 June 2023, there is a period of time before its provisions come into effect:
- The provisions governing asset-referenced tokens (ARTs) (broadly, stablecoins) and e-money tokens will apply from 30 June 2024.
- The provisions governing the remaining crypto-assets will apply from 30 December 2024.
The new MiCA requirements will apply to the acquisitions of CASPs and also to the issuers of ARTs.
Although MiCA is an EU regulation which, unlike an EU directive, does not require a member state to make laws, rules or regulations to give it effect in that member state, the exercise of day-to-day administrative powers under MiCA falls within the jurisdiction of each member state’s national competent authority (NCA). The EU supervisory authorities have legislative powers under MiCA and, indeed, the European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) have published draft regulations in the form of regulatory technical standards (RTS) under MiCA on the acquisition of CASPs and ARTs. (These are discussed below.)
The most likely way will be to identify whether the name of the CASP appears in a register maintained by the relevant NCA, which shows that the NCA has authorised that CASP under MiCA.
A CASP will require authorisation under MiCA where its occupation or business is the provision of one or more of the following crypto-asset services to clients on a professional basis:
- custody and administration of crypto-assets on behalf of clients
- operation of a trading platform for crypto-assets
- exchange of crypto-assets for funds or other crypto-assets
- execution of orders for crypto-assets on behalf of clients
- placement of crypto-assets
- reception and transmission of orders for crypto-assets on behalf of clients
- provision of advice on crypto-assets
- provision of portfolio management on crypto-assets
- provision of transfer services for crypto-assets on behalf of clients
We discuss these activities in our alert “Doing Crypto Business in Europe: MiCA, the EU’s New Uniform Crypto Code – Part 2”.
Issuers of ARTs include any natural or legal person or other undertaking who issues a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or combination of values or rights.
The requirements under MiCA apply when any person intends to acquire a proportion of voting rights or capital in a CASP or an issuer of an ART that reaches or exceeds 20%, 30%, 50% or 100%. The requirements also apply where the thresholds are met by a group of persons acting in concert or the voting rights or capital are acquired indirectly.
If a holding reaches or exceeds a threshold, then the acquirer must notify the relevant NCA of the proposed acquisition, disclosing relevant information, as discussed below. The NCA will then assess the notification and may either oppose or approve the acquisition.
A notification of proposed acquisition of an issuer of ARTs or a CASP should include an indication of the size of the intended holding, as well as information prescribed in RTS issued by the EBA, for ARTs, and ESMA, for CASPs. Following the initial notification, the NCA has wide discretion to request additional information.
Both the EBA and the ESMA published draft forms of their relevant RTSs in consultations published on 12 July 2023. The current form of the draft RTSs envisions reduced information requirements where the proposed acquirer has been assessed by the same NCA within the previous two years or is subject to ongoing supervision by the NCA. In these situations, the notification should only include information specific to the acquisition in question. If this is not applicable, then the information identified in the RTS is required. (We set this out in Appendix 1 below.)
Whether an acquisition is approved will be based on the NCA’s assessment of:
- the reputation of the proposed acquirer
- the reputation, knowledge, skills and experience of any person who will direct the business of the issuer of ARTs or the CASP as a result of the proposed acquisition
- the financial soundness of the proposed acquirer
- whether the issuer of ARTs or the CASP will be able to comply with the requirements of MiCA
- whether the acquisition could increase the risk of money laundering or terrorist financing
The NCA will acknowledge receipt of a completed application within two working days and assess the proposed acquisition within 60 working days of the acknowledgment.
As discussed above, the NCA may request additional information, which will allow them to suspend the assessment period until the additional information has been received (and not by more than 20 working days for EU applicants or 30 working days if the proposed acquirer is situated outside the EU).
If the NCA chooses to oppose the acquisition, it must notify the proposed acquirer within two working days.
In total, then, the maximum period for the assessment of a proposed acquisition will not exceed 94 working days from the date the NCA is notified.
Even now, member state laws implementing the Fifth EU Anti-Money Laundering Directive (AMLD5) provisions on crypto firms will be relevant when buying a CASP because the AMLD5 imposes regulatory obligations on a CASP. These include obligations connected with standard and enhanced customer due diligence and reliance and record-keeping, which an acquirer will need to include as part of its regulatory due diligence in addition to related items under the general law, such as provisions governing anti-bribery.
MiCA, however, extends the type of CASP subject to regulatory obligations. It also imposes additional obligations, such as a general obligation to act honestly, fairly and professionally and to act in the best interests of clients. It also includes ongoing disclosure requirements, stringent prudential requirements, and various organizational and governance requirements. There are also requirements around outsourcing of operational functions. In addition to these general obligations, there are also specific obligations depending on a CASP’s specific business, e.g., for crypto custodians. For further discussion, see our alert “Doing Crypto Business in Europe: MiCA, the EU’s New Uniform Crypto Code – Part 2”.
These additional regulatory obligations will necessarily increase the regulatory obligations and corresponding risk under EU law for CASPs. From this, it will follow that acquirers of and investors in EU CASPs will be required to undertake more thorough due diligence than is currently the case.
Appendix 1
Information about the proposed acquirer
Information about the proposed acquisition
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