European Crypto Assets
Law & Regulation

There is significant scope for differing interpretation as to what types of crypto-asset related intermediation are sufficient to trigger a CASP authorisation requirement versus those that may be considered out of scope mere introducer activities. 

Where there are equivalent regulated activities under MiFID, any national or European guidance that is related to the meaning of those terms will be highly persuasive (pending further guidance from ESMA). We note that even if a firm facilitates a transaction relating to financial instruments, such a firm may still be caught by MiFID II regulation. The distinction often lies in whether the firm is merely “introducing” clients (without further involvement) or actively participating in the transmission and completion of the transaction/deal.

For example, under MiFID, there are different interpretations across Member States of the following terms:

• Reception and transmission of orders (RTO): In some EU jurisdictions, the scope of RTO is limited to situations where there is a formal process of receiving an order from a client and transmitting it directly to another entity for execution. This interpretation restricts the activity to a defined, linear process of handling client orders. However, in other Member States, RTO has been interpreted more broadly to include activities such as arranging or brokering transactions. Under this broader interpretation, intermediaries involved in connecting parties or facilitating deals, even if they do not directly receive or transmit orders, may be required to obtain authorisation for RTO activities. Under MiCAR, intermediaries that receive orders from clients for the sale or purchase of crypto-assets and transmit them to exchanges or liquidity providers may require authorisation as a core intermediary service. This may be the case even if the intermediary does not take custody of the crypto-assets, given MiCAR’s broad approach to regulating intermediary services in crypto markets.
• Execution of Orders: Under MiFID, this activity involves completing client orders by executing transactions in financial instruments on behalf of clients. In the context of MiCAR, executing orders for crypto-assets on behalf of clients could similarly be interpreted to encompass intermediaries facilitating the matching and finalisation of transactions between two parties. However, in our view, if an intermediary merely introduces two people for a potential crypto-asset transaction or to establish a crypto-asset service relationship between them, then without further involvement in the actual execution of the order (i.e., they do not complete the transaction themselves) this is likely to fall outside the scope of the regulated execution of orders activity. Nonetheless, further guidance from EU authorities will be necessary to be confident in this interpretation on an EEA wide basis.

Providing Transfer Services 

A key difference under MiCAR is the regulated activity of providing transfer services on behalf of clients, which has no direct equivalent under MiFID. Whilst the FATF definition of a Virtual Asset Service Provider (VASP) is not identical to the definition of a Crypto-Asset Service Provider (CASP) under MiCAR, the FATF guidance on VASP activities is relevant for understanding what might be considered transfer services since the term derives from FATF Guidance. According to the FATF, VASP activities involving the transfer of virtual assets require more than just an indirect relationship to the transaction; the intermediary must be actively involved in the onward chain of transfers.

“Similar to wire transfers between FIs, there may be VA transfer scenarios that involve “intermediary VASPs” or other intermediary obliged entities or FIs that facilitate VA transfers as an intermediate element in a chain of VA transfers. Countries should ensure that such intermediary institutions (whether a VASP or other obliged entity) also comply with the requirements of Recommendation 16, as set forth in INR. 15, including the treatment of all VA transfers as cross-border qualifying transfers. 

Just as a traditional intermediary FI processing a traditional fiat cross-border wire transfer must ensure that all required originator and beneficiary information that accompanies a wire transfer is retained with it, so too must an intermediary VASP or other comparable intermediary institution that facilitates VA transfers ensure that the required information is transmitted along the chain of VA transfers, as well as maintaining necessary records and making the information available to appropriate authorities upon request”

FATF uses the analogy of money remittance, where the service typically involves both the receipt and onward transmission of funds. This analogy suggests that intermediaries need to be directly involved in the value transfer chain, rather than simply having a commercial relationship with the underlying payment service providers, to trigger AML/CFT obligations. They also specifically exclude cloud service and internet service providers. 

This principle of meaningful involvement in the value flows aligns with the risk-based approach FATF encourages, ensuring that AML/CTF obligations are imposed where there is meaningful control over or participation in value transfers. 

A mere introducer, who lacks direct involvement in the flow of assets or value, may not have the necessary information to manage AML/CTF risks effectively and it would be disproportionate using a risk based approach to require them to try to do so.

Clearly the provision of investment advice in relation to a specific crypto-asset transaction or a bringing about a relationship between two separate parties could also bring the intermediary into scope for the regulated CASP activity of providing advice in some circumstances.