Response to consultation on Guidelines on templates for explanations and opinions, and the standardised test for the classification of crypto-assets under MiCAR
1. Do respondents have any comments on the template for the purposes of Article 8(4) Regulation (EU) 2023/1114?
The ESAs should establish a mechanism for offerors, persons seeking admission to trading and operators of trading platforms to:
- jointly submit templates for white paper notification under Article 8(4), MICAR, including an explanation why a crypto asset described in white paper is not an asset-referenced token (ART)/e-money token (EMT) or out of scope of MiCAR; and
- not be required to submit a white paper if the crypto-asset is recorded on the register that is to be maintained by ESMA under Article 109, MiCAR.
Multiple parties may seek to offer the same crypto-asset and/or seek its admission to trading. Furthermore, several operators of trading platforms may provide services in the same crypto-asset. For efficiency and consistent with the single market objectives envisaged by MiCAR, parties should be permitted to jointly submit a white paper to a single NCA. The ESAs should also permit a single party – making a submission for several parties - to list its information on the template in Annex A of the CP (e.g., their name and contact details). In the annex to the template in Annex A of the CP, the ESAs appear to envisage that multiple parties may be listed for the purposes of providing the explanation on the consideration of whether the crypto asset is: (i) excluded from MiCAR (under article 2(4)); (ii) is an EMT; or (iii) is an ART. The ESAs should continue to provide the ability for multiple parties to submit a white paper – consistent with MiCAR – and clarify that, once submitted, information on a white paper can be amended and/or a revised white paper can be submitted.
We have proposed extensive revisions to ESMA’s proposed guidelines for the conditions and criteria for the qualification of crypto-assets as financial instruments in our response to ESMA’s prior consultation. Accordingly, we urge ESMA to revise its proposed guidelines to ensure that the correct calibration of the explanation which offerors, persons seeking admission to trading and operators of trading platforms need to provide on the templates concerning the status of the crypto-asset under article 8(4), MiCAR. At the present time, as ESMA has not finalised its guidelines it is more challenging to accurately comment on the proposals in this CP.
We also recommend raising the threshold for consideration under MiCAR’s SME exemption from white paper obligations to EUR 5 000 000 (Recital 27, MiCAR). This is inline with the ESA’s desire for the proportionate application of their proposals and with MiCA’s desire to reduce excessive and disproportionate administrative burdens on CASPs, particularly small and medium sized enterprises (SMEs) and start-ups, which can support innovation and fair competition – also a goal of MiCAR (Recital 5).
2. Do respondents have any comments on the template for the purposes of Article 17(1) point (b)(ii) and Article 18(2) point (e) of Regulation (EU) 2023/1114?
Inline with our proposal in response to question 1, the ESAs should establish a mechanism for credit institutions, and legal persons and other undertakings intending to offer to the public or seek admission to trading of an ART/EMT (as applicable) to:
- jointly submit a legal opinion on the qualification of the crypto-asset, in accordance with point (b)(ii) of Article 17(1) and point (e) of Article 18(2) of MiCAR (as applicable); and
- not be required to submit a legal opinion on the ART/EMT (as applicable) if one has already been submitted by a third-party to an NCA or the ESAs.
Multiple credit institutions, legal persons and other undertakings may intend to offer to the public or seek the admission to trading of the same ART/EMT. For efficiency and consistent with the single market objectives envisaged by MiCAR, parties should be permitted to jointly submit a legal opinion to the relevant NCA or the ESAs. The ESAs should permit a single party – making a submission for several parties – to list its information on the template in Annex B of the CP (e.g., their name and contact details.)
3. Do you consider that the fields of the template relating to explanations as to regulatory status are sufficiently clear and would enable a proportionate completion in line with the simplicity or complexity of the structure of the crypto-asset to which the explanation or legal opinion relates?
As noted in our response to question 1, we have proposed extensive revisions to ESMA’s proposed guidelines for the conditions and criteria for the qualification of crypto-assets as financial instruments in our response to ESMA’s prior consultation. Accordingly, we urge ESMA to revise its proposed guidelines to ensure the correct calibration of the assessment on the regulatory status of the crypto-asset that is to be provided by credit institutions, legal persons and other undertakings (as applicable) on the template in Annex B of the CP.
4. Do respondents have any comments on the standardised test?
We have recommended extensive changes to ESMA’s proposed guidelines for the conditions and criteria for the qualification of crypto-assets as financial instruments in our response to ESMA’s prior consultation. These guidelines, once finalised, will be critical to ensuring the correct functioning of the standardised test. We urge ESMA to make the changes we have recommended. At the present time, as ESMA has not finalised its guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, it is more challenging to accurately comment on the proposed standardised test in this CP.
In our comments on ESMA’s proposed guidelines, we signalled our agreement with ESMA’s overarching approach to assessing the legal qualification of crypto-assets based on a substantive case-by-case assessment of the features, design and rights attached to a crypto-asset rather than the crypto-asset’s form or ‘technological envelope’. However, we recommended that ESMA should adopt a nuanced, principles-based approach to the assessment of crypto-assets which takes account of the materiality of any financial instrument related features a crypto-asset may exhibit and reflects any identified underlying risks to which users are exposed. We do not support an approach which automatically presumes a crypto-asset is covered by MiFID if it displays any financial instrument related features.
Our recommended changes to ESMA’s proposed guidelines also included revisions to its proposed approach to defining negotiability and transferability, and to the other conditions and criteria proposed to identify crypto-assets qualifying as transferable securities (see our response to question 2 in ESMA’s prior consultation). Our recommended revisions would ensure the correct calibration of the proposed element of the standardised test for determining whether an asset be transferred and stored electronically.
We have also recommended extensive changes to the ESMA’s proposed guidelines for assessing uniqueness and fungibility. This is of particular relevance for assessing and classifying NFTs – which are explicitly excluded from MiCAR. We respectfully disagreed with ESMA’s proposed approach and recommended the following changes to its proposed guidelines:
- Add a principles-based, purposeful look-through test to assess the following for a crypto-asset:
- its predominant purpose and use;
- whether it represents ownership of an underlying asset; and
- whether it has a financial or non-financial use case.
ESMA should exclude by default those tokens with non-financial use cases from MiCA’s scope to reflect their limited risks to holders and the financial system, treating tokens that represents ownership of an underlying asset as that asset for regulatory purposes and applying a substance over form approach to how the NFT is being used in practice, rather than the technical standard upon which it is based.
- Revise the methodology for assessing tokens’ interchangeability to take account of whether a token is ‘readily interchangeable’ and to better align ESMA’s approach with the criteria in MiCA.
- Calibrate the proposed ‘value interdependence’ test with that in MiCA by incorporating the concept of ‘relative value’ interdependence and clarifying that value interdependence does not necessarily indicate fungibility.
Our recommended changes to ESMA’s proposed guidelines will ensure the correct calibration of the proposed element of the standardised test that is used to determine whether an asset is unique and not fungible with other crypto-assets. We urge the ESAs to ensure that the implementation of the requirements they are proposing in the CP is consistent with the exclusion of NFTs from the scope of MiCAR (Recital 11).