ECOVIS ProventusLaw bring you a curated selection of significant developments from the European crypto regulatory landscape. It provides viewers a look at what’s ahead and high-profile insights from the ever-changing crypto industry.
European Banking Authority Consultation on CASPs’ Central Contact Points (CCPs)
The EBA released a Consultation Paper amending regulatory technical standards for CASPs operating in multiple EU Member States. CASPs exceeding EUR 3 million in cumulative services per year in a host Member State may need to appoint a CCP to oversee AML/CFT compliance. CCPs will liaise with host Member State authorities, reducing compliance discrepancies across jurisdictions.
EBA Explainer: Preventing Money Laundering and Terrorism Financing in the Crypto-Assets Sector
On December 5, 2024, the European Banking Authority (EBA) issued an Explainer titled “Preventing Money Laundering and Terrorism Financing in the EU’s Crypto-Assets Sector”. This document provides essential guidance on applying Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) regulations to Crypto-Asset Service Providers (CASPs), E-Money Tokens (EMTs), and Asset-Referenced Tokens (ARTs) both at market entry and throughout their lifecycle.
Key Highlights:
- EBA Regulatory Instruments: The Explainer lists critical guidelines and regulatory tools issued by the EBA to support AML/CFT compliance in the crypto-assets sector.
- Comprehensive Compliance: It emphasizes the importance of adhering to AML/CFT rules at every operational stage to uphold the integrity of the EU crypto-asset market.
- Target Audience: Designed for CASPs, EMTs, ARTs, and regulators, the Explainer serves as a practical resource for understanding obligations and implementing measures to prevent financial crimes.
European Commission Guidance on MiCA and PSD2 Interplay
On January 2025, the European Commission (EC) issued guidance addressing regulatory challenges stemming from the interaction of the Markets in Crypto-Assets Regulation (MiCA) and the Payment Services Directive (PSD2), with a particular focus on e-money tokens (EMTs).
Key Points:
1. Dual Nature of EMTs:
– EMTs are categorised as both crypto-assets under MiCA and as electronic money or funds under PSD2.
– Crypto-asset service Providers (CASPs) offering payment services involving EMTs must:
Obtain a Payment Service Provider (PSP) license.
OR collaborate with an already licensed PSP.
2. Challenges and Risks:
– Divergent interpretations of MiCA and PSD2 by EU Member States could result in regulatory inconsistencies and non-compliance.
– Dual licensing requirements increase operational burdens for CASPs.
3. Proposed Interim Measures:
– The EC suggests reducing redundant licensing and streamlining authorisation procedures for CASPs.
– It proposes a “no-action letter” from the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) to clarify that:
EMTs are considered “funds” under PSD2.
CASPs would only require a PSP license if EMT-related activities are explicitly used for payment.
4. Future Harmonization:
– The EC anticipates upcoming legislative developments, including the Payment Services Regulation (PSR) and PSD3, which aim to harmonise obligations.
– However, these changes are expected to take up to three years to implement.
Bank of Lithuania Updates Rules on Notifying Qualified Holdings
On December 17, 2024, the Bank of Lithuania updated its rules for reporting the acquisition and transfer of qualified holdings in financial market participants. These changes, outlined in Resolution No. 03-158, align with evolving European Union regulations and Lithuanian law, ensuring a modernised and comprehensive framework.
Key Updates:
1. Expanded Scope:
– The rules now apply to cryptocurrency service providers and issuers of asset-linked tokens, reflecting the growing significance of digital assets in the financial sector.
2. Notification Requirements:
– Acquirers must promptly notify the Bank of Lithuania and provide all necessary documentation.
– If European Central Bank (ECB) approval is needed, additional provisions ensure smooth coordination.
3. Simplified Procedures:
– The amendments introduce flexibility by allowing equivalent documentation to meet reporting requirements, easing the administrative burden for market participants.
4. Enhanced Compliance:
– The updates incorporate European regulatory guidelines to ensure consistent application of legal frameworks.
ESMA Finalizes Regulatory Framework for MiCA Implementation
On December 17, 2024, the European Securities and Markets Authority (ESMA) released its final set of Regulatory Technical Standards (RTS) and guidelines in preparation for the full implementation of the Markets in Crypto-Assets Regulation (MiCA). This comprehensive package enhances regulatory clarity, safeguards investors, and ensures a well-regulated environment for the growing crypto-asset market.
Key Measures and Guidelines:
1. Market Abuse Framework:
– The RTS on market abuse sets out the necessary systems, procedures, and reporting obligations to detect and prevent market abuse within the crypto-asset space.
2. Reverse Solicitation:
– The guidelines on reverse solicitation clarify that the exemption for client-initiated services is limited and applies only in exceptional cases.
3. Suitability Guidelines:
– Crypto-asset service providers (CASPs) offering advisory or portfolio management services must comply with MiFID II-aligned rules when recommending crypto-assets, ensuring suitability for investors.
4. Crypto-Asset Transfer Services:
– ESMA introduces guidelines for CASPs involved in crypto-asset transfers, emphasising investor protection through detailed policies and procedures.
5. Qualification of Crypto-Assets as Financial Instruments:
– The guidelines define conditions under which crypto-assets may fall within the scope of both MiCA and MiFID II, providing clarity on their regulatory status.
6. ICT Risk Management Principles:
– For entities outside the scope of MiCA or DORA (Digital Operational Resilience Act), ESMA outlines principles to effectively manage ICT risks, focusing on robust system maintenance and secure access protocols.
ESMA’s Commitment to Investor Protection and Regulatory Clarity
This final package reflects ESMA’s commitment to creating a transparent, secure, and compliant environment for crypto-assets. The regulations aim to protect investors while providing clear guidance to crypto market participants as they navigate the evolving landscape ahead of MiCA’s full application.
ESMA Releases Official List of Grandfathering Periods for MiCA Compliance
On December 30, 2024, the European Securities and Markets Authority (ESMA) published a list of grandfathering periods for crypto-asset service providers (CASPs) under the MiCA regulation. These transitional periods allow CASPs to continue operations without a MiCA license, provided they obtain authorisation or exit the market before the period expires. The duration of these periods varies by Member State, with Lithuania offering the shortest at 5 months, while others like Germany, Belgium, and Portugal have yet to announce their deadlines, leaving some uncertainty for operators. CASPs must act swiftly to ensure compliance and avoid market disruption.
ESAs Issue Final Guidelines for Crypto-Asset Classification Under MiCAR
The Joint European Supervisory Authorities (ESAs) released the Final Report on Guidelines under Article 97 of the Markets in Crypto-Assets Regulation (MiCAR). The guidelines establish a unified regulatory framework for classifying crypto-assets across the EU. They introduce standardised templates for the explanatory documents accompanying crypto-asset white papers and legal opinions on asset-referenced tokens (ARTs). The guidelines clarify that MiCAR applies to crypto-assets that meet specific criteria and exclude certain assets, individuals, and entities, such as those providing services exclusively for related parties or operating during insolvency. These measures aim to ensure consistency and transparency in the classification of crypto-assets.
ESMA Warns Investors on Cryptocurrency Risks Ahead of MiCA Full Implementation
The European Securities and Markets Authority (ESMA) has issued a cautionary statement to investors regarding the risks of cryptocurrency investments, even with the upcoming implementation of MiCA. While MiCA aims to enhance regulation, it does not eliminate risks such as price volatility, fraud, cyberattacks, and technological vulnerabilities. Cryptocurrencies lack protections like investor compensation schemes available under MiFID II. Full implementation of MiCA’s protections will not occur until July 2026, leaving gaps in supervision, particularly for non-EU service providers. ESMA urges investors to carefully assess these risks, verify provider legitimacy, and secure their digital assets to mitigate potential losses.
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