As far as MiCAR is concerned, December 2024 was a busy month for both market participants and competent authorities. On 17 December 2024, the ESMA published the last remaining guidelines and other policy documents required under MiCAR. At the same time, questions of delineation to other legal frameworks became more frequent as the date of application approached.
While MiCAR has been specifically established to cover crypto-assets (i.e. instruments based on distribution ledger technologies (DLT)), MiCAR does not aim to supersede existing European legal frameworks. However, crypto-assets can qualify as instruments that are already regulated under European law. Due to the technology-neutral approaches of other areas of financial regulation, DLT-based instruments may for instance be treated as securities, derivatives or deposits. If the rules governing these instruments (such as MIFID II, CRD, etc.) apply, MiCAR is generally not applicable. For market players and competent authorities, it is therefore crucial to identify the applicable regime for the instrument they are issuing or dealing with.
There were notable developments in two areas in which MiCAR interacts (and potentially collides) with other regimes:
- How the exemption for deposits, that qualify as crypto-assets (i.e. tokenized deposits) should be construed.
- To which extent the handling of e-money tokens, that MiCAR qualifies as e-money, requires a license for payment services under PSD2.
Tokenized deposits
MiCAR does not apply to crypto-assets which qualify as deposits (Art. 2(2)(b) MiCAR).
In the context of deposits, the – still rarely occurring – recording of deposit balances on DLT can qualify as a crypto-asset. The precise features of tokenized deposit arrangements can differ. The token may exist instead of or in addition to a central bank ledger (i.e. an off-chain bank account). The claim against the credit institution may be ‘account-based’ i.e. linked to the account holder’s identity, or ‘token-based’ i.e. solely linked to the token holder (like a bearer instrument).
On 13 December 2024, the EBA published a report about tokenized deposits. Most notably, the EBA provides indicative criteria on how to distinguish account-based tokenized deposits from e-money tokens (EMT). EMTs are stablecoins pegged to one official currency. The report is therefore also beneficial for the understanding of the exemption for deposits.
According to the EBA, the following elements may characterize tokenized deposits (as compared to EMTs):
- The existence of a continuous contractual relationship between the credit institution and the client.
- A lack of transferability of the token on secondary markets.
- The lack of usability to finally settle financial transactions (but instead withdrawal and transfer of underlying funds).
- The ability to pay interest (as this is prohibited for EMTs).
- A value denominated in an official currency (compared to a purported peg to an official currency).
These criteria are not only relevant for the applicable legal regime. MiCAR relies on the deposit definition established by the Deposit Guarantee Scheme Directive. Tokenized deposits that qualify under the exemption are potentially eligible for deposit protection.
Interplay between MiCAR and PSD2
EMTs have a dual character. They are crypto-assets under MiCAR, but they are also deemed electronic money for purposes of payment services regulation (Art. 48(2) MiCAR). As a result, EMTs are treated – as is scriptural money – as ‘funds’ under payment services regulation (Art. 4(1)(25) PSD2).
This means, that there is not a strict separation, but a potential overlap between MiCAR and PSD2. Crypto-asset service providers that provide services with EMTs in a way that qualifies as a payment service under PSD2 may therefore require a dual authorization under MiCAR and under PSD2.
There are, however, diverging interpretations amongst Member States of how this situation should be solved. On 5 December 2024, the Commission sent a letter to the EBA and asked them to explore the possibility to publish a “no action letter”.
In its letter, the Commission has taken the view, that:
- crypto-asset service providers that offer custodial wallets enabling their clients to make transfers of EMTs from or to that wallet and control the private cryptographic key on their clients’ behalf may also provide the payment service of “operations required for operating a payment account”; and
- that a crypto-asset service provider’s involvement in transfers of EMTs may qualify as the payment service of “execution of payment transactions”; while
- crypto-asset service providers that offer the service of “exchange of crypto-assets for funds” or “exchange of crypto-assets for other crypto-assets” act in their own name (and on their own account) when dealing with EMTs and therefore do not provide payment services when exchanging EMT.
The Commission suggests distinguishing between situations that should fall within the scope of both authorisation requirements, and situations that are only inadvertently covered by PSD2. More specifically, where “EMTs are not used as a means of payment or for peer-to-peer (P2P) payment transactions, but rather for investment or trading purposes” the PSD2 authorisation requirement would create a significant burden for crypto-asset service providers and competent authorities. For instance, a crypto-asset service provider that intermediates the exchange of EMTs for funds or other crypto-assets between buyers and sellers, without handling other funds, should not be covered by an additional license requirement.
The EBA is authorized so issue public opinions of this kind if the application of legislative acts is liable to raise significant issues due to direct conflicts with other acts or the absence of further guidance. In the past, such letters have asked the competent authorities not to prioritize supervisory or enforcement actions in relation to certain regulations. In the case at hand, a “no action letter” might ask the competent authority to not prioritize supervisory or enforcement action regarding the PSD2 license requirements in the case at hand.
Such “no action letter” could specifically cover the term before PSR/PSD3 enters into force. It can be expected that PSR/PSD3 will include some further clarification how PSR/PSD3 and MiCAR will interact. The Parliament’s negotiation position, for instance, already proposes to exclude from the scope of PSR/PSD3 all payment transactions used for the execution of trading and settlement services using EMTs as long as the service provider is a licensed crypto-asset service provider.
