EU regulation mandates crypto-asset white paper

1. Definition of the crypto-asset white paper

In order to establish a harmonised framework for markets in crypto-assets in the EU, the MiCAR introduces minimum standards and disclosure requirements for offerings and admissions to trading of crypto-assets – a crypto-asset white paper.

The aforementioned crypto-asset white paper will serve as an information document containing mandatory disclosures about the issued crypto-asset to inform the prospective holders of crypto-assets about the characteristics, functions and risks of the products that they intend to purchase. These disclosures include general information on the issuer, offeror or person seeking admission to trading; the crypto-asset project to be carried out with the capital raised; and the offer to the public of crypto-assets or their admission to trading. Interestingly, the white paper should also include information on the adverse environmental and climate-related impacts of the consensus mechanism used to issue the crypto-asset.

The white paper must be drafted in at least one of the official languages of a EU member state or, alternatively, in a language customary in the sphere of international finance, such as English. All the information contained in the crypto-asset white paper must be fair, clear and not misleading. This also applies for all the related marketing communications, which also must be consistent with the information provided in the crypto-asset white paper. Furthermore, the crypto-asset white paper should never contain a description of risks that are unforeseeable and unlikely to materialise.

As a matter of fact, regulatory approval is one of the main differences between a prospectus under financial market regulation and a crypto-asset white paper. Contrary to a prospectus that needs to be approved by the competent authority prior to publication, no authorisation is required for publication of a white paper. The relevant competent authority must be notified of the crypto-asset white paper, followed by publication of the white paper to inform potential buyers.

These rules notwithstanding, the MiCAR foresees certain reporting exemptions to ensure a proportionate approach to different offers of crypto-assets. Hence, disclosure requirements will not apply for offers to the public of crypto-assets if they are asset-referenced tokens or e-money tokens that are offered to certain limited groups or for small or no consideration.

2. Minimum content and form of the crypto-asset white paper

The MiCAR specifies the minimum content to be included in the crypto-asset white paper, which must include the following clear and not misleading information on the following:

• The issuer, the offeror, the person seeking admission to trading, or the operator of the trading platform in cases where it draws up the crypto-asset white paper;
• The crypto-asset issued;
• The offer to the public of the crypto-asset or its admission to trading;
• The rights and obligations attached to the crypto-asset;
• The underlying technology;
• The risks; and
• The main adverse impact on the climate and other environment-related impact of the consensus mechanism used to issue the crypto-asset.

The crypto-asset white paper must not contain material omissions and must be presented in a concise and comprehensible form. It must not include any assertions regarding the future value of the crypto-asset.

It will also contain a statement from the management body of the offeror, the person seeking admission to trading or the operator of the trading platform confirming that the information presented in the crypto-asset white paper is clear and not misleading.

After this statement, the crypto-asset white paper must contain a summary providing key information about the offer to the public of the crypto-asset. This summary must be easily understandable and provide appropriate information about the characteristics of the crypto-assets concerned in order to help prospective holders of crypto-assets to make an informed decision. Similarly, the summary must include a warning that it should be read as an introduction to the white paper on crypto-assets and that it is not a prospectus.

Finally, the white paper must be published on the website of the issuer, the offeror, the person seeking admission to trading or the operator of the trading platform.

3. Differences in the content and requirements for the white paper

3.1 Crypto-assets other than asset-referenced tokens or e-money tokens

Regarding the crypto-assets other than asset-referenced tokens or e-money tokens issuers, these white papers must contain the following statement on the first page:

“This crypto-asset white paper has not been approved by any competent authority in any Member State of the European Union. The offeror of the crypto-asset is solely responsible for the content of this crypto-asset white paper.”

Similarly, the white paper must contain information on the crypto-assets project as part of the minimum required content.

Specifically, the paper must contain another clear statement that the crypto-asset:

• may lose its value in part or in full;
• may not always be transferable;
• may not be liquid; and
• is not covered by the investor compensation schemes or deposit guarantee schemes.

3.2 Asset-referenced tokens

An asset-referenced tokens issuer's white paper must contain detailed information about its reserve of assets, the description of the custody arrangements for the reserve of assets and a description of the issuer’s governance arrangements.

The asset-referenced tokens white paper must not contain any assertions about the future value of the crypto-asset. It can only contain a clear statement communicating that the asset-referenced token:

• may lose its value in part or in full;
• may not always be transferable;
• may not be liquid; and
• is not covered by the investor compensation schemes or deposit guarantee schemes.

3.3 E-money tokens

The e-money token white papers must include the following initial statement:

“This crypto-asset white paper has not been approved by any competent authority in any Member State of the European Union. The issuer of the crypto-asset is solely responsible for the content of this crypto-asset white paper.”

Furthermore, it also needs to contain a clear warning that the e-money is not covered by the investor compensation or deposit guarantee schemes.

4. Notification and Publication of the crypto-asset white paper

4.1 Notification

a) Crypto-assets other than asset referenced tokens or e-money tokens

Regarding the notification of the crypto-asset white paper, the offerors, persons seeking admission to trading, or operators of trading platforms for crypto-assets other than asset-referenced tokens or e-money tokens must notify this to the competent authority of their home member state no less than 20 working days before the publication of the white paper.

The notification must include a list of host member states where the crypto-assets are intended to be offered or admitted to trading. The competent authority should also be informed of any changes to the starting date of the intended offer or admission. In addition, the competent authority of the home member state must notify the corresponding crypto-asset white paper of the single point of contact of the host member states within five working days of receipt of the list of the host member states.

Competent authorities must not require any prior approval for crypto-asset white papers before their publication. In addition, they should also communicate the information received, including any changes, to the European Securities and Markets Authority (ESMA) within five working days of receipt.

Therefore, the ESMA will make the crypto-asset white paper available in a register by the starting date of the offer to the public or admission to trading. Such a register is publicly available on ESMA’s website and will be updated on a regular basis.

b) Asset-referenced tokens and e-money tokens

Both issuers of e-money tokens and issuers of asset-referenced tokens must notify their crypto-asset white paper to the competent authority of their home member state at least 20 working days before the date of its publication, which must be published on the issuer’s website.

The competent authority must communicate to the ESMA within five working days of receipt of the information from the issuer and such information will be made available in the ESMA’s register.

4.2 Publication

a) Crypto-assets other than asset referenced tokens or e-money tokens

In addition to the notification to competent authorities, offerors and persons seeking admission to trading of crypto-assets other than asset-referenced tokens or e-money tokens must publish their crypto-asset white papers.

The publication should occur at a reasonable time in advance of the starting date of the public offer or admission to trading of those crypto-assets.

The published crypto-asset white papers must remain available on the website of the offerors or persons seeking admission to trading for as long as the public holds the crypto-assets. Moreover, such versions must be identical to the versions that were previously notified to the competent authority or, if applicable, to the versions modified.

For offerors who set a time limit for their public offer, they must publish the result of the offer on their website within 20 working days after the end of the subscription period. Others who have not set a time limit must regularly publish, at least monthly, on their website the number of units of crypto-assets in circulation.

b) Asset-referenced tokens and e-money tokens

In the specific case of asset-referenced and e-money tokens, the issuer must also publish the approved crypto-asset white paper on its website and any modified white papers. The approved white paper should be accessible to the public before the token's offering or trading begins. Both the approved and modified white papers should remain available on the issuer's website for as long as the crypto-asset is held by the public.

4.3 Modifications

a) Crypto-assets other than asset referenced tokens or e-money tokens

Offerors, persons seeking admission to trading, or operators of a trading platform for crypto-assets (excluding asset-referenced tokens or e-money tokens) must modify their published crypto-asset white papers if there is a significant new factor, material mistake, or material inaccuracy that could affect the assessment of the crypto-assets. This requirement applies throughout the public offering or as long as the crypto-asset is admitted to trading.

Competent authorities must be notified of modified white papers at least seven working days before publication. This notification must include the reasons for the modification.

On the publication date, or earlier if required by the competent authority, the offeror, person seeking admission to trading, or operator of the trading platform must immediately inform the public on their website about the notification of a modified crypto-asset white paper with the competent authority of their home member state and provide a summary of the reasons for the notification.

The competent authority must notify the host member states and inform the ESMA about the modified crypto-asset white paper within five working days. The modified versions must be published on the website, time-stamped and marked as applicable.

All modified versions should be available as long as the public holds the crypto-assets. Changes to utility token offers should not extend the 12-month time limit. Older versions should remain accessible on the website for ten years, marked as invalid with a warning and a link to the latest version.

b) Asset-referenced tokens

As for the white papers for asset-referenced tokens, issuers must notify the competent authority of any significant changes to their business model likely to have a significant influence on the purchase decision of any actual or prospective holders. These changes include governance arrangements, reserve assets, token rights, issuance and redemption mechanisms, transaction validation protocols, distributed ledger technology, liquidity management, third-party arrangements, complaints-handling procedures, and anti-money laundering policies. The notification should be made 30 working days before the changes take effect.

The issuer must then prepare a draft modified crypto-asset white paper, consistent with the original, and notify it to the competent authority of its member state for approval. The competent authority should acknowledge receipt within five working days and must approve or refuse the draft within 30 working days.

If the modifications affect payment systems, monetary policy, or monetary sovereignty, the competent authority may consult the European Central Bank, national central banks, European Banking Authority (EBA), and the ESMA. The approval of the modified white paper may come with requirements to protect token holders and address market integrity or financial stability concerns. The competent authority must communicate the approved modified white paper to relevant entities, including the ESMA, within two working days, and the ESMA will include it in its register promptly.

c) E-money tokens

Regarding e-money tokens issuer’s white papers, any significant new factor, material mistake or material inaccuracy that could affect the assessment of the e-money token must be drafted in a modified crypto-asset white paper drawn up by the issuers. Similarly, these issues must be notified to the competent authorities and published on the issuers’ websites.

5. Liability of the issuers for the information given in the crypto-asset white paper

To protect the holders of crypto-assets, the MiCAR lays down rules for civil liability for incomplete, unfair, ambiguous or misleading information provided to the public in the crypto-asset white paper. Although the rules are set out separately for each type of crypto-assets (e.g. e-money tokens, asset-referenced tokens and other crypto-assets) to follow the specific white paper requirements, the liability reveals common features for all of them.

In this sense, the issuers of crypto-assets (and the other responsible persons) should not allow offering of crypto-assets unless a white paper fully compliant with MiCAR requirements has been published. Holders of crypto-assets should be cautious if the information published in the crypto-asset white paper appears to be incomplete, unfair, ambiguous or misleading and whether they have incurred any losses as a result of making their purchase decision relying on such information.

As stated, the MiCAR civil liability is attached to the information provided to the public in the initial white paper and any subsequent modifications to it. Regarding crypto-assets other than e-money tokens and asset-referenced tokens, liability is extended to the related marketing communications.

Liability should not be incurred for reliance solely on the information included in the summary of the white paper as long as certain conditions are met. The summary should:

• Include key information to facilitate the potential crypto-asset holders to make a decision about the crypto-asset purchase when read together with the other parts of the crypto-asset white paper; and
• Not be misleading, inaccurate or inconsistent with the other parts of the white paper.

Additionally, no contractual exclusion or limitation of the civil liability for the information in the white paper is permitted. The civil liability under the MiCAR is provided without prejudice to any other civil liability pursuant to national law.

Depending on the type of crypto-asset, the personal scope of liability covers the following categories of legal entities and natural persons:

• for e-money tokens and asset-referenced tokens, the issuer;
• for crypto-assets other than e-money tokens and asset-referenced tokens:
  • the offeror (e.g. the issuer or other person who offers the crypto-assets to the public);
  • the persons seeking admission to trading; or
  • the operator of the trading platform;
• the members of the management or supervisory bodies of the above listed entities.

The situations where the crypto-asset service provider will be liable instead of the issuer or the person seeking admission to trading on the grounds of written agreement between them seem clearly prescribed by the MiCAR. The scenario for crypto-asset without an identifiable offeror (e.g. Bitcoin) appears to be more complex since it is unclear whether the platform operator is offering the crypto-asset to the public. However, MiCAR rules do not allow the risk for inaccurate, unfair or misleading information to fall on the holder of the crypto-asset. Hence, an operator of a crypto exchange, who wishes to list a crypto-asset without an identifiable issuer on that exchange, will have to publish a MiCAR compliant white paper or can be held liable for the related losses of holders of such assets on the trading platform.

The burden of proof for any loss incurred due to the information in the white paper lies with the holders of crypto-assets. They need to present evidence showing that:

• The information published in the white paper is not complete, fair or clear, or that it is misleading; and
• They have based their decision to acquire or dispose of crypto-assets relying on that information.

6. Conclusion

The MiCAR, which regulates the issuance of crypto-assets, includes the obligation of publishing the crypto-asset white paper, which is intended to guarantee and protect the crypto-asset holder’s rights. With this new requirement, crypto-asset issuers included under the MiCAR’s scope must include true information in the white paper. The issuers will be liable for errors and false information contained therein.

For more information and legal support, contact your usual CMS professional or CMS experts who worked on this article: Jaime Bofill, María Luisa Ruiz Campos, Sara Piñero Mosquera, Rodrigo Pérez Gil, Filipe de Oliveira Casqueiro, Katerina Hristova, Neža Vončina, Maja Žgajnar or send an email to [email protected].

For other articles in the series “Legal experts on Markets in Crypto-Assets (MiCA) regulation”, click here: Legal experts on Markets in Crypto-Assets (MiCA) regulation (cms.law)

For more information on crypto regulation before the introduction of MiCA, please visit CMS Expert Guide to European Crypto Regulation.