The Markets in Crypto-Assets Regulation (MiCAR) sets down a harmonised regulatory framework for service providers known as crypto-asset service providers (CASPs), which carry out activities with crypto-assets that fall within the regulation's scope. The following article describes the MiCAR requirements applicable to persons providing services related to crypto-asset trading.
MiCAR introduces enhanced legal requirements that will apply to service providers carrying out professional activities related to trading crypto-assets. The crypto-assets trading activities that MiCAR identifies as being within its scope include the following:
- operation of a crypto-assets trading platform;
- exchange of crypto-assets;
- execution of orders for crypto-assets; and
- reception and transmission of orders for crypto-assets.
Specific Requirements for Trading of Crypto-Assets under MICAR
MiCAR sets out general rules for all CASPs and specific requirements applicable to each type of crypto-asset service. The requirements for the trading of crypto-assets under MiCAR are to a great extent based on the regime of trading with financial instruments set out by the directive on markets in financial instruments (MiFID). The new uniform EU rules under MiCAR aim at increasing crypto-asset market integrity and providing better protection to customers when trading crypto-assets.
Operation of a trading platform for crypto-assets
Operators of a crypto-asset trading platform should adopt clear and transparent operating rules for the platform. The rules should include the approval process for admission to trading, exclusion of categories of crypto-assets, fee policies, non-discriminative rules and criteria for participation in trading activities, and customer due diligence requirements. Effective and resilient systems and arrangements of CASPs combined with non-discretionary rules, policies and procedures for the platform operation should ensure fair and orderly trading. The application of liquidity thresholds, conditions for suspension of trading and procedures for efficient settlement of funds and crypto-assets are intended to prevent trading disruptions.
A crypto-asset will not be admitted to trading unless a white paper has been published. In addition, the crypto-asset should comply with the operating rules of the platform following a suitability assessment. MiCAR does not permit anonymous trading of crypto-assets.
Furthermore, platforms should only allow matched principal trading where the client has given consent. CASPs are prohibited from dealing with crypto-assets on their own accounts. In addition, crypto-asset platform operators must have rules in place to prevent and detect market abuse. If operators detect suspicious transactions on the trading platform, they should inform the competent authorities.
Exchange of crypto-assets for fiat currencies and other crypto-assets
CASPs providing the service of exchanging crypto-assets to other crypto-assets or fiat currencies should establish a non-discriminatory policy indicating the types of clients with which and the conditions under which they can complete transactions. Crypto-asset exchanges should publish firm prices or a methodology for calculating the price. They must execute client orders at the prices displayed when the order for exchange was finalised. Crypto-asset platform operators and exchanges will be subject to transparency and periodic disclosure requirements. For platform operators, pre-trading disclosure must cover the bid and ask price, and the depth of the trading interest. The crypto-asset exchanges should publish post-transactional information about the volume and prices of the transactions concluded at the exchange. The ESMA will develop level two regulations (i.e. draft technical standards to further specify the transparency requirements).
Execution of orders for crypto-assets on behalf of third parties
The execution of crypto-asset orders for clients may reveal similarities with the service of exchanging crypto-assets for fiat currencies or other crypto-assets. However, when exchanging crypto-assets, the CASP freely determines the price for the exchange. When executing orders, however, CASPs must always ensure the client obtains the best possible result in compliance with the best execution requirement. Each CASP should establish an order execution policy, which its clients must approve.
Reception and transmission of orders for crypto-assets
In order to receive and transmit crypto-asset orders for clients, CASPs must have procedures and arrangements in place for prompt and proper transmission of these orders to other CASPs. It is prohibited for CASPs to receive remuneration or monetary incentives for routing the orders or to misuse information relating to a client’s pending order.
Liability of Trading Platforms
In cases where a crypto-asset is admitted to trading at the initiative of the trading platform or it is without an identifiable offeror and a published whitepaper, the trading platform is responsible for providing a compliant white paper. According to MiCAR rules, the risk for inaccurate, unfair or misleading information does not fall on the holder of the crypto-asset. The white paper prepared by the trading platform should therefore include a statement confirming that the information presented in the crypto-asset white paper is clear and not misleading. This may lead to liability claims if the information in the white paper is proven to be misleading.
Consequently, a trading platform seeking to place a crypto-asset that lacks an identifiable offeror on the exchange must publish a white paper compliant with MiCAR or it may be held liable for the related losses of holders of such assets on the trading platform. Trading platforms and issuers of crypto-assets seeking admission to trading may also enter into an agreement that requires the trading platform to provide a whitepaper. Clearly, MiCAR sets down the liability of the trading platform.
The current EU regime (ALMD5) regarding anti-money laundering (AML) covers AML obligations regarding virtual currencies, but currently does not cover other forms of crypto-assets. Furthermore, AML obligations apply only to the following:
- providers engaged in exchange services between virtual and fiat currencies; and
- custodian wallet providers are bound by the AML obligations.
The European legislator has issued three pieces of draft AML legislation. With the proposal for an EU 'single rulebook' Regulation (AML Regulation Proposal) the European legislator incorporates crypto-assets and CASPs within the scope of the AML Regulation Proposal. Hence, CASPs are subject to AML requirements in the same manner as other types of financial institutions.
Moreover, the AML Regulation Proposal explicitly prohibits the provision and the custody of anonymous crypto-asset wallets. More specifically, CASPs, credit institutions and financial institutions will be prohibited from keeping anonymous accounts, anonymous passbooks, anonymous safe-deposit boxes or anonymous crypto-asset wallets and any account that allows for the anonymisation of the customer account holder.
MiCAR entered into force on 29 June 2023 and is applicable from 30 December 2024 (with certain exceptions). MiCAR also sets out transitional measures relating to CASPs. Pursuant to these measures, CASPs that provided their services in accordance with the applicable law before 30 December 2024 may continue to do so until 1 July 2026 or until they are granted or refused an authorisation. If member states consider their national regulatory framework applicable before 30 December 2024 to be less strict than MiCAR, they may decide not to apply this transitional regime or to reduce its duration. This option may result in the transitional regime being applied differently from one member state to another.
Finally, member states may also decide to apply a simplified procedure for applications to be authorised to act as a CASP that are submitted between 30 December 2024 and 1 July 2026 by entities that on 30 December 2024 were already authorised under national law to provide crypto-asset services. In this context, since MiCAR refers to the term “authorised”, the question arises as to whether this simplified procedure will also be available for the entities, which were merely “registered” under national law to provide crypto-asset services.
MiCAR represents a significant step towards harmonising and regulating crypto-asset trading services within the EU. MiCAR applies to CASPs and covers a range of activities related to trading crypto-assets, including operating trading platforms, executing orders, and exchanging crypto-assets for fiat currencies or other crypto-assets. The new regulations encompass trading platform transparency, whitepaper compliance, and anti-money laundering measures, aiming to enhance market integrity and customer protection. The transitional regime provides existing CASPs that are already registered with a transition period to adapt to MiCAR's requirements, although their implementation may vary among member states.
For more information and legal support, contact your usual CMS professional or the CMS experts who contributed to this article: Clair Wermers, Karsten Bruinsma, Katerina Hristova, Katarzyna Biszczanik, Aurélia Viémont, Tihana Balagović and Kilian Rowel, 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. For tax perspectives, check out CMS Expert Guide on Taxation of Crypto-Assets (Crypto Tax)