It is no surprise that the world of CASPs (Crypto Asset Service Providers) is about to change rapidly with the arrival of MiCAR. In our previous article, we told you about the introduction of MiCAR, the licensing requirement and the associated requirements.
But did you know that as a licensed financial institution, you will soon be able to offer crypto asset services without having to apply for a full MiCAR licence? For example, as an investment firm, you can notify certain crypto asset services under the current MiFID licence. You can then offer them without applying for a full licence. We explain how this works.
Notification or license?
Title V of MiCAR sets out the requirements that CASPs must (continue to) meet in order to offer one or more crypto asset services. First, a licence or notification is required. What exactly is the difference?
- Notifiers: certain financial entities that are already authorized to offer particular banking, investment or payment services under an existing license, may notify to offer crypto asset services.
- MiCAR licensing requirements: other parties wishing to (continue to) offer crypto asset services must apply for a licence.
MiCAR licence
Let us start with the second group, the so-called ‘new entrants’ who want to offer crypto asset services, and parties that are currently offering crypto asset services. These could be services that are not yet regulated, as well as providers of custodial wallets or crypto exchange services that are covered in the current AMLD registration regime. They must apply for a MiCAR licence and go through the full licensing process.
Milder requirements apply to CASPs that are already registered with DNB, and licensed electronic money institutions (ELMIs), investment firms, and payment service providers. For example, they do not have to resubmit information already provided in the earlier registration or licensing process. Beware, this information must be up to date. However, it remains uncertain who determines this, and at which point in the process this is assessed.
During the AFM seminar regarding MiCAR on the 25th of January, the AFM communicated that the turnaround time for a licence application is at least 5 months, in the most favourable scenario. The AFM shows an in-depth timeline on its website. To us, this seems ambitious when we look at the processing time of other licence applications done by the AFM. In practice, we anticipate that a MiCAR licensing process will take about 9 months.
MiCAR notification
Under some conditions, certain financial entities that already obtained another licence can offer crypto asset services following a notification procedure. They do not need to apply for a MiCAR licence. This notification regime applies to the following licensed financial entities:
- Credit institutions or banks.
- Central securities depositories.
- Investment firms.
- Electronic money institutions (ELMI).
- UCITS managers or AIFDM managers.
- Market operators.
For credit institutions only, there is no limit to the types of crypto asset services that may be offered after the notification procedure is completed. Thus, they may offer al 10 crypto asset services (Article 3 MiCAR).
Other financial entities that are allowed to notify are subjected to a restriction. Meaning that they are only allowed to offer crypto asset services similar to the already licensed activity. For instance, receiving and transmitting crypto asset orders on behalf of clients will be considered equivalent to receiving and transmitting orders relating to one or more financial instruments under the MiFID regime. And an ELMI may only offer crypto asset services in respect of the e-money tokens (crypto asset under MiCAR) it has issued itself (crypto asset custody and management and crypto asset transfer services).
When notifying, these parties do not have to provide the AFM with any information already provided to the regulator in previous registration or licensing processes, as long as this information is unchanged. It is up to the financial entities to explicitly indicate that any previously provided information is still relevant.
Crypto asset services by investment firms
Nine out of ten crypto asset services are phrased in such a way that it is easy to see which MiFID (ancillary) service they are equivalent to. The only difference is that MiCAR services are about crypto assets, and MiFID services are about financial instruments. So, based on the current MiFID authorisation, and investment firm can determine which crypto asset services it can opt for notification for, and which other services require MiCAR authorisation.
Crypto asset services by fund managers
UCITS and AIFMD managers are allowed to offer similar crypto asset services to those for which they are already authorised, the so-called MiFID top-up. For this type of financial entity, these services include:
- Receiving and transmitting crypto asset orders.
- Providing advice on crypto assets.
- Managing crypto asset portfolios.
All financial entities eligible for notification must submit the same information to the home competent authority. Some information may not be relevant to the specific crypto asset service being notified. For example, receiving and transmitting orders in crypto assets does not require information on custody and management policies.
Much of the information that must be provided to the regulator upon notification will already be in place because of existing services. However, it must be adapted to be relevant for crypto assets. The AFM will initially carry out a so-called completeness check, during which it might ask further questions if necessary.
We advise to spend sufficient time on the business plan regarding the crypto asset services to be offered, as this is the basis for other information and documentation. In our experience, the preparation of the business plan often leads to an adjustment or concretisation of the design and layout of the activities or organisation. In other words, it is essential to correctly qualify the crypto asset service you want to offer from the beginning. We can help you with this process.
Timeline
The AFM indicates that applications for a MiCAR licence or MiCAR notifications can be submitted from April or May 2024, even though the latest RTSs’ will not be final or known by then. The regulator stresses the need for a pragmatic approach. We are glad to assist you with this.
What is next?
We help organisations prepare and submit a notification or licence application. Are you unsure whether your business activities fall under MiCAR? Or are you curious about the impact of the licence on your current business operations? As specialists in crypto services, we would be happy to tell you more about MiCAR and its implications. Please do not hesitate to contact us.
However, the work does not end with the notification or licence application. A crypto licence comes with all sorts of requirements. Our compliance software Ruler helps you to understand these requirements. Read more about Ruler here.
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