Response to consultation on Guidelines on redemption plans under MiCAR
Q1. Do you consider that the scope of the GL on redemption plans is sufficiently clear and takes into account the differences regarding the obligation to hold a reserve of assets set out in Regulation (EU) 2023/1114 applicable to the different types of ART or EMT issuers?
The Guidelines can be seen as generally supportable and rightly applicable to all issuers of ART and EMT, providing, however, as expressed within the text under analysis, that the sections and provisions relating to the reserve of assets don’t apply to credit institutions issuing EMT and e-money institutions (IMELs) issuing non-significant EMT. Paragraph 7 of the Guidelines states that “For issuers of e-money tokens that are not subject to the requirement to hold a reserve of assets (either because they are credit institutions or e-money institutions issuing non-significant tokens whose relevant competent authority has not imposed it in accordance with Article 58(2) of Regulation (EU) 2023/1114) sections “Allocation of the reserve of assets to meet the token holders’ redemption claims” and “Liquidation of the reserve of assets”, both under 4.2., shall not apply, likewise any other paragraph assuming the issuer is subject to said requirement.”
Reading the above under Article 58(1) MiCAR, “1. Electronic money institutions issuing significant e-money tokens shall be subject to: (a) the requirements referred to in Articles 36, 37, 38 and Article 45, (1) to (4) of this Regulation, instead of Article 7 of Directive 2009/110/EC; (b) the requirements referred to in Article 35(2), (3) and (5) and Article 45(5) of this Regulation, instead of Article 5 of Directive 2009/110/EC.”, it would, therefore, appear to be self-evident that for credit institutions and electronic money institutions issuing non-significant e-money tokens, the above-mentioned Articles 5 and 7 of Directive 2009/110/EC apply.
However, this clarification obtained deductively does not appear to be included within the Guidelines and it is considered appropriate, if the proposed interpretation is agreeable, to provide this detail explicitly to avoid misunderstandings.
Furthermore, from an examination of the sections “Allocation of the reserve of assets to meet the token holders' redemption claims” and “Liquidation of the reserve of assets,” both found in Chapter 4.2 of the Guidelines, it is considered correctly argued how issuers, subject to the requirement to hold a liquidity reserve, should develop the redemption plan.
In contrast, no guidelines appear to be provided in the reported sections with respect to the entities identified in the previous paragraph (IMEL issuer of non-significant EMT or credit institution regardless of the type of EMT issued), either by providing positive behaviors to be implemented or by specifying behaviors that they aren't required to perform. A detail to this point would be considered useful.
Q2. Do you consider that the GL on redemption plans are sufficiently clear and comprehensive and that they cover all aspects of the mandate?
Overall, the guidelines are clear and certainly supportable.
One aspect, however, is highlighted that is considered useful to specify.
In general, the Guidelines, relying on Article 47 MiCAR , would seem to emphasize even more the importance of providing a redemption plan such that each ART or EMT holder sees his or her rights guaranteed equally and without undue delay. Not only that, the Guidelines also go one step further. In fact, from the examination of Chapter 5 “Accompanying documents” under “Policy issue 1: Redemption costs” (p. 36) the question arises concerning the management of costs related to the implementation of the redemption plan, and the solution put forward as optimal is as follows “Require for the redemption-related costs to be borne by the proceeds from the liquidation of the reserve of assets after the amounts necessary to meet the token holders' claims has been set aside, and require the issuer to explain in the redemption plan how such costs will be covered.”
Of course, it's considered correct to give priority to the interest of customers by taking every possible precaution; however, it's difficult to imagine that even in the presence of a well-structured redemption plan a hypothetical issuer of ART or EMT would manage without difficulty to shoulder all the expenses related to the actual implementation of the plan and the redemption of all crypto asset holders in a minimum time frame and without causing concrete disparities in treatment among different clients (for example, even if all the measures in the redemption plan were implemented in a timely manner, one could assume a certain complexity in redeeming all the tokens at the same time). Certainly within the Guidelines the Regulator's intention to avoid certain scenarios of uncertainty is clear (see for example point 33 where it states that “The redemption plan should also include a comprehensive and organised planning of the phases and related actions necessary to the full implementation of the plan and demonstrate that they achieve the orderly redemption of all the token holders and the consistency of such actions with the crypto-asset white paper. Furthermore, the redemption plan should be drawn up in a comprehensive, self-explanatory and easy to understand manner also by third persons”), but it would be more prudent to argue and regulate within the text under analysis also the case in which an issuer, despite the drawing up of a proper redemption plan, fails to satisfy all the token holders at one time. In this sense, therefore, it is considered useful to explicitly regulate such a possibility by providing criteria to be adopted in order to organize an orderly redemption over a defined period, this in order to mitigate the risk of generating damage toward customers or, even, market instability.