Ramparts appoints Ravi Viroomal as Business Development Director
Ramparts, a leading Gibraltar law firm and fiduciary group business, today announced the appointment of Ravi Viroomal as Business Development Director.
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The Markets in Crypto-Assets regime also applies in some cases to services providers (including token issuers) based outside of the EU. This article focuses on the impact of MiCA on persons outside of the EU.
Will MiCA apply to token sales from issuers outside of the EU (like Switzerland, BVI, Bermuda, Cayman Islands, Singapore and Gibraltar)?
Yes. The new EU Markets In Crypto Assets Regulation (MiCA) will change the nature of the global token sale market (including ICO, IDO and IEO) and is likely to lead to a substantial reduction in token sales within the EU from late 2024, given the cost and complexity of compliance.
This may however lead to a rush in token sales in the next 18 months (i.e. prior to MiCA becoming fully enforced for utility token issuers).
This article follows our Introduction to the Markets in Crypto-Assets (MiCA) Regime and our High Level Summary of MiCA.
For those persons conducting token sales (private sales, ICO’s, IDO’ and IEO’s) and their advisors, it is crucial to consider whether your activities will be within scope of MiCA even if you are outside of the EU.
For other non-European CASPs (such as exchanges and custodians) it is likely that you will need to choose an EU Member State within the next 6 months to seek authorisation in if you wish to continue to service EU customers or offer your services within the EU. In addition, the permission for non-EU offerors of utility tokens does not apply to e-money (ERT) and asset referenced token (ART) issuers whom must be established and authorised within the EEA once MiCA comes into full effect.
The impact of the EU Market in Crypto Assets (MiCA) regulation on issuers, advisors and other service providers outside of Europe will be very significant. Whilst MiCA primarily focuses on regulating the crypto asset market within the European Union, its extraterritorial reach can have implications around the world.
The Regulation covers crypto asset service providers (CASPs) and this includes any utility token issuer offering their crypto assets or services within the EU (though there are some limited exemptions – see further below).
Unlike many aspects of US securities law, in the UK and Europe financial services legislation does not normally apply solely because you have a UK or European customer – there usually must be some additional nexus (branch/company, office, marketing, advertising, agent etc) for the services (or issuer) to be deemed to be conducting the activity “within the Union“.
This general territoriality approach continues under MiCA, leaving open the ability for non-EU CASPs to potentially rely upon ‘reverse solicitation‘ when providing crypto asset services within the EU without being authorised or registered in the EU.
“This Regulation should not affect the possibility for persons established in the Union to receive crypto-asset services by a third-country firm on their own initiative. Where a third-country firm provides crypto-asset services on the own initiative of a person established in the Union, the crypto-asset services should not be deemed to be provided in the Union. Where a third-country firm solicits clients or prospective clients in the Union or promotes or advertises crypto-asset services or activities in the Union, its services should not be deemed to be crypto-asset services provided on the own initiative of the client. In such a case, the third-country firm should be authorised as a crypto-asset service provider.” [Recital 75, MiCA]
The operative elements of the Regulation enshrine this principle as follows:
“1. Where a client established or situated in the Union initiates at its own exclusive initiative, the provision of a crypto-asset service or activity by a third‐country firm, the requirement for authorisation under Article 59 shall not apply to the provision of that crypto-asset service or activity by the third‐country firm to that client, including a relationship specifically relating to the provision of that crypto-asset service or activity.” [Art. 61.1 MiCA]
In summary “within the Union” means:
The interpretation and scope of the reverse solicitation exemption is likely to be very restrictive. However, it does leave open the ability to have non-EU member platforms where EU persons are members not due to any solicitation and choose the platform to access non-EU offers.
There are also a number of negative scope exemptions including, thankfully, an intra-group crypto-asset service provision exemption:
“This Regulation does not apply to:
(a) persons who provide crypto-asset services exclusively for their parent companies, for their own subsidiaries or for other subsidiaries of their parent companies;” [Art. 2, MiCA]
You will note that token sales do not need to be of listed tokens to fall within MiCA. Any offer to members of the public are caught unless they are entirely unsolicited:
“‘offer to the public’ means a communication to persons in any form, and by any means, presenting sufficient information on the terms of the offer and the crypto-assets to be offered so as to enable prospective holders to decide whether to purchase those crypto-assets;” [Art. 3 (12)]
This still leaves open the provision of general information about a proposed token without such information being considered an offer. However, to the extent that the information – and the marketing activity around it – is directed towards Europeans subscribing to purchase of the token then that offer will be within scope.
MiCA covers the following crypto asset:
“(a) providing custody and administration of crypto-assets on behalf of clients;
(b) operation of a trading platform for crypto-assets;
(c) exchange of crypto-assets for funds;
(d) exchange of crypto-assets for other crypto-assets;
(e) execution of orders for crypto-assets on behalf of clients;
(f) placing of crypto-assets;
(g) reception and transmission of orders for crypto-assets on behalf of clients;
(h) providing advice on crypto-assets;
(i) providing portfolio management on crypto-assets;
(j) providing transfer services for crypto-assets on behalf of clients.“
Token issuers will usually therefore be covered by (c) or (d) at a minimum, in relation to their SAFTs and token sales activities.
We have a number of separate articles planned that will cover the scope of each of these activities individually. In the meantime this article focuses on the impact for token issuers and those engaged in Token Sales (whether privately or as a so-called ICO, IDO or IEO).
Anyone who offers crypto-assets to the public in the EU or lists their tokens on an EU venue (e.g. an EU based crypto exchange or listing platform) must comply with Offering requirements set out in Title II (Art. 4, MiCA), unless they can rely on an exemption.
Clearly this covers direct offers of utility tokens as well as ICOs, IDOs and IEOs if they target EU subscribers. In addition, crypto exchanges will need to be established and regulated within the EU if they wish to market token offerings or enable crypto exchange services to EU customers (since that is a specific CASP activity which may not be conducted by a trading venue based outside of the EU).
Different rules apply for the offer of stablecoins that are ether EMTs or ARTs (e-money or asset referenced tokens) which may not be offered within the EU other than by an EU authorised entity.
Token issuers (other than in respect of asset-referenced tokens or e-money tokens governed by the additional MiCA obligations) are required to:
(a) be a legal person;
(b) draw up a crypto-asset white paper in accordance with Article 6;
(c) notify the crypto-asset white paper in accordance with Article 8;
(d) publish the crypto-asset white paper in accordance with Article 9;
(e) draft the marketing communications, if any, in respect of that crypto-asset in accordance with Article 7;
(f) publish, the marketing communications, if any, in respect of that crypto-asset in accordance with Article 9;
(g) comply with the requirements for offerors laid down in Article 14.
The crypto-asset white paper and any marketing communications must be published on the issuer’s website and communicated to the competent authority of their home Member State.
Under EU law the Home State is the country in which you are established as a legal entity (or a branch of the same).
Under MiCA, where you do not have an establishment within the Union but will be within its territorial scope (e.g. you are offering the crypto-asset to the public or admitting the crypto-asset to trading within Europe), then the Home State for regulatory purposes is:
“where the offeror or person seeking admission to trading of cryptoassets is established in a third country and has no branch in the Union.. either the Member State where the crypto-assets are intended to be offered to the public for the first time or, at the choice of the offeror or person seeking admission to trading, the Member State where the first application for admission to trading for those crypto-assets is made;” (Art 3, (33))
In addition to the full intra-group exemption referenced above, as with the offer of securities to the public, under the EU prospectus regime, there are a number of exemptions that may apply notably if:
“(a) the crypto-asset is offered for free;
(b) the crypto-asset is automatically created as a reward for the maintenance of the distributed ledger or the validation of transactions;
(c) the offer concerns a utility token providing access to a good or service that exists or is in operation;
(d) the holder of the crypto-asset has the right to use it only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror.“
Exemptions also apply to utility tokens offers to non-retail subscribers or below a €1m threshold. We will summarise these in a future article. Many of the exemptions relate to utility tokens only.
Note that under the transitional provisions, only crypto-assets that are first offered to the public or first admitted to trading after the specified date following the Regulations are in scope. So all other pre-existing crypto-assets will not need to comply unless they are asset-referenced tokens or e-money tokens.
However, CASPs will need to comply irrespective of whether they deal with grandfathered crypto assets, in scope crypto assets or out of scope crypto assets (such as decentralised crypto assets).
It is essential to stay informed about the developments and implications of MiCA, particularly if you or your clients have operations, investments, or transactions involving EU jurisdictions.
Engaging with legal networks, industry associations, and regulatory authorities can provide valuable insights and updates on MiCA-related matters and help you to remain compliant in the evolving global regulatory landscape for crypto assets.
You can start this series on MiCA here in our Introduction to MiCA.
Ramparts, a leading Gibraltar law firm and fiduciary group business, today announced the appointment of Ravi Viroomal as Business Development Director.
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