Which crypto-assets does MiCAR cover?
MiCAR regulates the public offering and admission to trading of crypto-assets, as well as the activities of crypto-asset service providers (so-called Crypto-Asset Service Providers – CASPs). It does not replace existing financial market regulation, but supplements it. That is why every regulatory analysis starts with the question of how the token in question should be classified, in order to determine the applicable regulatory framework.
The decisive factor is not the label, but the actual design (substance-over-form approach). Utility tokens typically grant access to a good or a service. Asset-referenced tokens refer to a value or a right, or a combination thereof. E-money tokens are intended to maintain their value stable by referencing a single official currency. Other crypto-assets, such as Bitcoin, also generally fall within its scope. Tokens that qualify as financial instruments, by contrast, remain subject to classic capital markets and supervisory law. Unique and non-fungible tokens (non-fungible tokens, or NFTs) may fall outside the scope of MiCAR. Particular caution is required, however, with serial NFTs or fungible tokens, meaning that a case-by-case assessment is always necessary.
Public offering – When is a whitepaper required?
Anyone offering other crypto-assets to the public must, as a rule, act as a legal entity, draw up a crypto-asset whitepaper, notify the German Federal Financial Supervisory Authority (BaFin) thereof and subsequently publish it. The whitepaper is similar to a short prospectus. It contains, among other things, information on the issuer, the project, the rights attached to the token, the technology and the risks involved. Certain offerings are exempt. These include in particular offerings to fewer than 150 persons per member state, offerings with a total volume of less than one million euros within twelve months, and offerings directed exclusively at qualified investors. A free-of-charge issue or a utility token for goods that already exist may also benefit from these exemptions. However, if the token is to be admitted to trading on a crypto-asset trading platform, these exemptions may no longer apply.
The information in the whitepaper must be complete, fair, clear and free of misleading statements. In addition to supervisory measures, incorrect information can give rise to civil liability towards investors.
Secondary market – Crypto-assets are subject to market abuse rules
For crypto-assets admitted to trading, rules apply that are designed to safeguard market integrity. Insider dealing is prohibited, as is market manipulation. Transactions outside the actual trading platform are also covered, provided they relate to a crypto-asset admitted to trading there. Non-public, precise information that is likely to have a significant impact on the price must not be used for one’s own transactions or those of third parties. Misleading trading signals, artificial price levels and so-called pump-and-dump schemes also fall under the prohibition of manipulation. Issuers are, moreover, generally obliged to disclose inside information promptly. Companies are therefore well advised to put in place a compliance structure modelled on that of classic securities business. This includes insider lists, trading bans and review processes for transactions by members of the management body, employees and founders.
Crypto-asset services – Who needs authorisation?
Crypto-asset services may, as a rule, only be provided by authorised Crypto-Asset Service Providers or by financial institutions making the corresponding notification. The regulated activities include in particular the custody of crypto-assets, the operation of a trading platform, exchange services, the execution and placing of orders, as well as investment advice and portfolio management. Financial institutions that are already regulated can provide certain comparable crypto-asset services under facilitated conditions. Depending on the activity in question, credit institutions, investment firms or managers of alternative investment funds do not necessarily require an additional CASP authorisation for this purpose. However, they must notify the supervisor of the intended activity in advance and submit extensive information. An important exception applies to services provided purely within a group. If, for example, a family office provides crypto-asset portfolio management or investment advice exclusively for genuine parent or subsidiary companies, the group exemption may apply. As soon as external third parties also receive such services, the requirement for authorisation must be re-examined.
Do not underestimate ongoing obligations
A CASP authorisation is not a one-off formality. Authorised companies must continuously meet organisational, staffing and financial requirements. These include reliable and professionally qualified members of the management body, governance, documentation and reporting obligations, as well as acting honestly, fairly and professionally in the client’s best interests. In addition, there are own funds requirements, the level of which depends on the services offered. The minimum capital ranges from 50,000 Euro for certain advisory and execution services to 150,000 Euro for operating a trading platform. Depending on the company’s fixed costs, a higher amount may be decisive.
Conclusion
Every crypto project should begin with its regulatory classification. The token structure, target group, distribution channel and the specific service offered determine whether a whitepaper, a notification or an authorisation is required. Family offices, investors and providers should not view MiCAR in isolation: depending on the business model, banking, securities or investment law may also be relevant.
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