June 13, 2024
Crypto

Marketing Crypto Assets to EU Investors Under MICA: ESMA’s First Take on Reverse Solicitation | Goodwin


In our previous alert, we noted the statement of the European Securities and Markets Authority (ESMA) encouraging market participants and national competent authorities in EU member states to prepare for implementation of the Regulation on Markets in Crypto Assets (MiCA).

MiCA’s provisions governing certain stablecoins will apply from 30 June 2024, and its provisions governing the remaining crypto assets will apply from 30 December 2024.

ESMA is working toward MiCA implementation, consulting on the various measures it is required to put in place to give effect to MiCA. Among its most recent consultations is the Consultation Paper on the draft guidelines on reverse solicitation under the Markets in Crypto Assets Regulation (MiCA) (Consultation).

As we noted in our previous alert Doing Crypto Business in Europe: MiCAR, the EU’s New Uniform Crypto Code – Part 2:

  • The text of MiCA indicates that the regulation will have extraterritorial effect and require any non-EU crypto asset service provider (CASP) that provides services to EU-based customers to become authorised under MiCA.
  • However, MiCA provides a reverse solicitation exception through which EU clients can seek out crypto asset services provided by a non-EU CASP on their own initiative.

Services offered under the reverse solicitation exception will be outside the scope of MiCA, and the Consultation addresses this exception.

The Consultation contains two sets of draft guidelines:

  • Guidelines on the solicitation of clients by third-country firms (Solicitation Guidelines)
  • Guidelines on the supervision practices to detect and prevent the circumvention of the reverse solicitation exemption

This alert focuses on the Solicitation Guidelines, each of which:

  • Means of solicitation
  • Person soliciting
  • Exclusive initiative of the client
  • A crypto asset or a crypto asset service that is of the same type as another one

The consultation will close on 29 April 2024, with ESMA issuing a final version of the Guidelines which will then apply from 30 December 2024, when the MiCA provisions governing CASPs go into effect.

The Solicitation Guidelines will be of the most interest to non-EU CASPs — such as exchanges and custodians based in the US, the UK, or another non-EU area — that wish to offer services in the EU. For many, if not most, non-EU CASPs that would prefer not to become authorised under MiCA, reverse solicitation will offer the only legitimate avenue for offering services to EU users. 

The Consultation does, however, provide some ominous context for the use of the exemption with ESMA’s parsimonious language: ‘[The exemption] should be understood as very limited and very narrowly framed and, consequently, should not be assumed, nor exploited to circumvent MiCA.’

The Reverse Solicitation Exemption
In language echoing that in the Markets in Financial Instruments Directive (MiFID), Article 61 of MiCA unpacks the reverse solicitation exemption as follows:

  • The requirement for a CASP to be authorised under MiCA will not apply where a client established or situated in the EU ‘initiates at its own exclusive initiative the provision of a crypto-asset service or activity by a [non-EU] firm.’
  • A firm’s solicitation of clients or prospective clients in the EU, ‘regardless of the means of communication used for the solicitation, promotion or advertising in the [EU],’ will not be deemed to be reverse solicitation.
  • ‘Any contractual clause or disclaimer . . . including any clause or disclaimer that the provision of services by a [non-EU] firm is deemed to be a service provided on the client’s own exclusive initiative’ will not alter the position above.

Article 61 also mandates ESMA to create the Solicitation Guidelines. But before moving to discuss these, one point to note is that the reverse solicitation exemption in Article 61 is not a general exemption from MiCA: It only applies to non-EU CASPs. It does not, for example, absolve the non-EU issuers of assets referenced, e-money, or other tokens that wish to offer those tokens to EU investors from compliance with the provisions in MiCA on, for example, drawing up, notifying, and publishing a white paper where those investors have solicited the tokens at their own exclusive initiative from the non-EU issuers or their agents.

Our main take-aways on the four Guidelines are:

1) Means of Solicitation 

  • Solicitation should be construed broadly and in a technology-neutral way.
  • It includes the promotion, advertisement, or offer of services by any means, including social media platforms and mobile applications, invitations to fill in a response form or to follow a training course, and messaging platforms, as well as general communications such as brand advertisements by way of sponsorship deals.
  • All facts and circumstances are relevant, including factors such as the language(s) used on a website and the use of geo-blocking to prohibit access to a website by EU persons being ‘a strong indication that a non-EU CASP is not soliciting in the EU via that website.’

2) Person Soliciting

  • The person soliciting includes the non-EU CASP or any other person acting explicitly or implicitly on its behalf or having close links to it (an agent) and can include influencers.
  • Indications that a person is acting as an agent include directing an audience to the firm’s website, providing the means to access services, offering promotional deals, or displaying a logo.
  • The fact that an agent is an authorised firm, such as a bank or broker-dealer, does not change the analysis EU credit institution, and its redirection, for example, of its clients to a non-EU CASP, will be soliciting in breach of MiCA.

3) Exclusive Initiative of the Client 

  • The ‘client’s own exclusive initiative’ should be construed narrowly.
  • The assessment should be a factual one, and contractual arrangements or disclaimers cannot supersede contrary facts (a point clear in the text of MiCA).
  • The ‘client’s own exclusive initiative’ should be construed as not permitting third-country firms to offer the client further crypto assets or crypto asset services or activities, even if such services or activities are of the same type as the one(s) originally requested by the client, unless they are offered in the context of the original transaction.
  • Non-EU CASPs must be able to provide records tracking the relationship with the EU client and, in particular, show that the client has taken the initiative to receive crypto asset services with respect to a new product.

4) A Crypto Asset or a Crypto Asset Service of the Same Type as Another One

  • The reverse solicitation regime leaves open the possibility for a third-country firm to market crypto assets or crypto asset services or activities of the same type, subject to compliance with Guideline 3 above.
  • This should be assessed on a case-by-case basis, taking into account elements such as (i) the type of asset or service offered and (ii) the risks attached to the new asset or service.
  • The categorisation of the asset or service must be granular enough to ensure that the reverse solicitation exemption cannot be abused.
  • Guideline 4 contains a nonexhaustive list of pairs of crypto assets that do not belong to the same type and includes assets not stored or transferred using the same technology.

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