What are EBA’s and ESMA’s roles within MiCA?

The implementation of MiCA is a complex process that involves the development of numerous Level 2 and Level 3 measures. These measures are crucial to the successful application of the new regulatory regime. To achieve this, European Securities and Markets Authority (ESMA) , in close collaboration with European Banking Authority (EBA) , European Insurance and Occupational Pensions Authority (EIOPA) , and the European Central Bank , is actively engaging with the public.

As you might have noticed on your LinkedIn feed, during the implementation phase, a series of regulatory technical standards (RTSs) are being developed and published. The goal is to take into account feedback from the public and industry experts. The timeline for the application of these measures will depend on their adoption by the European Commission, as well as approval by the European Parliament and the Council of the EU.

💡If you find yourself overwhelmed by the multitude of RTSs, their associated deadlines, and the various roles played by the different authorities in MiCA, this article will serve as a valuable comprehensive resource.

You'll discover everything you need know about the various RTSs topics , who are publishing them, where to find them, their consultation deadlines, how to contribute to them and lastly the different roles EBA and ESMA are having within the implementation of MiCA.

1. What is EBA’s role?

Within MiCA, the EBA is assigned the responsibility of overseeing significant ARTs and EMTs.

The EBA's functions can be categorised into several key areas, including:

•      Coordinating and facilitating measures taken by competent authorities, ensuring they are justified and proportionate.

•      Collaboration in Technical Standards Development: EBA collaborates with ESMA in developing technical standards for information exchange and cooperation among competent authorities.

•      Supervisory activities related to ARTs and EMTs: EBA’s role is focused on ARTs and EMTs, coordinating investigations and supervisory activities related to these specific types of crypto-assets. 

•      Monitoring crypto-assets and collaborating with major financial organizations for global standard-setting. 

•      Advisory and coordinative role: EBA advises and coordinates with competent authorities, particularly in situations involving ARTs and EMTs.

While reading through the title VII about competent authorities, EBA and ESMA, we can notice in more details EBA’s functions such as:

• Conducting investigations into issuers of significant asset-referenced and e-money tokens, gathering evidence.
• Conducting on-site inspections at business premises of significant asset-referenced and e-money token issuers.
• Exchanging information related to significant asset-referenced and e-money tokens, service providers, and entities.
• Imposing supervisory measures against issuers of significant asset-referenced and e-money tokens for infringements.
• Imposing fines for infringements committed by issuers of significant asset-referenced and e-money tokens.
• Administering periodic penalty payments for non-compliance with EBA's decisions.
• Reviewing and modifying decisions on fines and penalty payments.
• Charging fees to issuers of significant asset-referenced and e-money tokens to cover supervisory expenses.
• Delegating specific supervisory tasks to competent authorities with consultation, task scope, and reimbursement.

1.1 What is EBA’s technical standard agenda?

The EBA is responsible for developing 17 technical standards and guidelines to further specify the requirements for ARTs and EMTs. It’s also mandated to produce 2 regulatory products jointly with ESMA and one jointly with ESMA and EIOPA.

The 1st set of consultation papers published on 12 July 2023 focusing on the:

• Authorisation as issuers of ARTs
• Assessment of a proposed acquisition of qualifying holdings in issuers of ARTs
• Complaints handling for ARTs issuers

🗓 Consultation deadline: October 12th 2023

The second set published on 20 October 2023 and covers mandates on the

• Procedure for the approval of white papers of ARTs issued by credit institutions
• Suitability assessment of the members of the management body of issuers of ARTs and of CASPs
• Suitability assessment of shareholders and members with qualifying holdings in issuers of ARTs and in CASPs
• The minimum content of the governance arrangements on the remuneration policy
• Internal governance arrangements for ARTs issuers

🗓Consultation deadline: January 1st 2024

The 3d set published on 08 November 2023 covers the:

• Specification on the adjustment of own funds requirements and stress testing of ARTs and EMTs issuers
• Liquidity requirements of the reserve of assets
• Specification the highly liquid financial instruments in the reserve of assets
• Specification of the minimum contents of the liquidity management policy and procedures
• The procedure and timeframe to adjust own funds requirements for ‘significant’ issuers
• Liquidity stress testing
• Recovery plan
• Supervisory colleges
• The use of ARTs and EMTs denominated in a non-EU currency as a means of exchange
• The reporting on ARTs and EMTs denominated in a non-EU currency under MiCAR

🗓Consultation deadline: February 8th 2023

What are the remainining ones?

The remaining 2 EBA's consultation papers will be published shortly, on

• conflicts of interest and
• redemption plans

1.2 What are EBA’s supervisory activities related to ARTs and EMTs?

In parallel with the policy development, in 2023 and 2024, the EBA will be undertaking actions to prepare for its supervision tasks related to significant ARTs and EMTs and other tasks.

Supervisory colleges and collaboration: The EBA is mandated to establish supervisory colleges for issuers of significant asset-referenced tokens (sARTs) and significant e-money tokens (sEMTs) under Article 119 of MiCAR. These colleges serve as forums for enhanced cooperation and information exchange among supervisory authorities. They may also issue non-binding opinions on various critical matters, including own funds requirements, issuer updates, recovery and redemption plans, and supervisory measures, as outlined in Article 120 of MiCAR.

Promoting cooperation and convergence: The EBA plays an active role in fostering continuous knowledge exchange among competent authorities regarding market developments, regulatory updates, and supervisory practices. It is also driving efforts to achieve supervisory convergence as MiCAR transitions into the application phase for asset-referenced tokens (ARTs) and e-money tokens (EMTs) on June 30, 2024. The EBA initiated this process with its statement in July 2023 and maintains a watchful eye on market trends while engaging in ongoing dialogues with competent authorities.

Temporary intervention powers: In specific circumstances outlined in Article 104 of MiCAR, the EBA possesses the authority to temporarily restrict or prohibit the marketing, distribution, or sale of certain ARTs or EMTs, or activities and practices related to them. These temporary intervention powers are designed to mitigate potential risks associated with these crypto-assets.

Supervision of significant ARTs and EMTs: The EBA is entrusted with the task of conducting assessments to determine whether ARTs and EMTs meet the criteria for being classified as "significant" according to Article 43(1) of MiCAR. When an ART or EMT is classified as significant, the EBA assumes responsibility for performing relevant supervisory tasks mandated by MiCAR. This includes the establishment and leadership of supervisory colleges for all significant ARTs and sEMTs.

Opinions on crypto-asset classification: Collaborating with other European Supervisory Authorities (ESAs), the EBA plays a pivotal role in encouraging discussions among competent authorities about the classification of crypto-assets. This discussion encompasses not only crypto-assets falling within the scope of MiCAR but also those outside of it. Additionally, under Article 97(3) of MiCAR, competent authorities have the authority to request opinions from the EBA (and other ESAs) regarding the classification of a specific crypto-asset.

The EBA remains committed to its ongoing efforts to monitor the crypto-assets landscape, diligently assessing the opportunities and risks associated with emerging market developments. It maintains close partnerships with key stakeholders, including the European Commission, ESMA, EIOPA, and the European Systemic Risk Board (ESRB).

Plus, the EBA actively participates in international standard-setting bodies, such as the Basel Committee on Banking Supervision and the Financial Stability Board, to ensure a coordinated and comprehensive approach to crypto-asset oversight.

2. What is ESMA’s role?

ESMA’s functions can be categorised into several key areas, including:

• Publication of a competent authorities list designated by Member States.

• Development of Regulatory Technical Standards in collaboration with EBA.

• Supervisory Convergence during the Transitional Phase.
• Establishment of a register of crypto-asset white papers, issuers of asset-referenced and e-money tokens, and service providers.
• Establishment of a register of non-compliant entities providing crypto-asset services.
• Reporting on market developments and application of MiCA annually, including data on issuances, market capitalization, and fraud cases.
• Issuing non-binding opinions on various supervisory and regulatory matters.
• Facilitating the development of cooperation arrangements between competent authorities and third countries.
• Collaborating with EBA on reporting and assessments related to MiCA.

2.1 What is ESMA’s technical standard agenda?

The 1st consultation package published in July 2023. This package includes technical standards for the following mandates:

• Article 60(13): RTS on content of notification from selected entities to NCAs
• Article 60(14): ITS on forms and templates for notification from entities to NCAs
• Article 62(5): RTS on the content of the application for authorisation for CASPs
• Article 62(6): ITS on forms and templates for CASP authorisation application
• Article 71(5): RTS on complaint handling procedure
• Article 72(5): RTS on management and prevention, disclosure of conflict of interest
• Article 84(4): RTS on intended acquisition information requirements

🗓 Consultation deadline: September 20th 2023

🗓 ESMA deadline: ESMA will consider the feedback received to this consultation and expect to publish a final report and submit the draft technical standards to the European Commission for endorsement by 30 June 2024.

The 2d consultation package published in October 2023. This package will likely cover all those remaining mandates with a 12-month deadline, including:

• The content, methodologies and presentation of sustainability indicators and adverse impacts on climate.
• Continuity and regularity in the performance of CASP services.
• Offering pre- and post- trade data to the public.
• Content and format of order book records and record keeping by CASPs.
• Machine readability of white papers and the register of white papers
• The technical means for appropriate public disclosure of inside information.

🗓 Consultation deadline: December 14th 2023

🗓 ESMA deadline: ESMA will consider the feedback received during this consultation and expect to publish a final report and submit the draft technical standards to the European Commission for endorsement by June 2024.

The 3d and final consultation package is expected to be published in Q1 2024. This package will likely cover all those remaining mandates with an 18-month deadline, including:

• Qualification of crypto-assets as financial instruments.
• Monitoring, detection, and notification of market abuse.
• Investor protection: Reverse solicitation, suitability of advice and portfolio management services to the client, policies and procedures for crypto-asset transfer services, including clients' rights.
• System resilience and security access protocols.

🗓Consultation deadline: will be known once published

2.2 What is the supervisory convergence in the MiCA transitional phase

While technical standards are being developed, ESMA is collaborating with national competent authorities (NCAs) to foster a harmonized approach to authorizing crypto-asset service providers (CASPs) during the transitional phase of MiCA.

The primary goal of this supervisory convergence effort is to establish a shared understanding of supervisory expectations for entities offering crypto-asset services across EEA jurisdictions during MiCA's transitional period. This proactive approach aims to ensure consistent practices right from the beginning, starting with the authorization process.

Throughout the transitional phase, Member States will maintain a mix of regulatory regimes, including MiCA and existing bespoke frameworks. This diversity could potentially result in varying levels of consumer protection within different jurisdictions. To address this challenge, ESMA is actively promoting supervisory convergence among Member States through three key initiatives:

• Knowledge exchange forum: ESMA provides a platform for NCA supervisors to discuss practical cases in their respective jurisdictions. This forum not only facilitates the exchange of views but also identifies best practices that can drive convergence.
• Landscape mapping: ESMA is conducting an assessment of the current landscape of entities offering crypto-asset services across Member States. This includes understanding how each jurisdiction intends to approach the optional transitional measures outlined in MiCA.
• Consultations with the Commission: ESMA engages in ongoing consultations with the European Commission to establish a common understanding, as early as possible, regarding MiCA provisions that may require further clarification.

💡More on lastest updates on MiCA's implementation by ESMA

3. What are MiCA’s transitional measures?

MiCA introduces the concept of 'transitional measures' (as per Article 143 of MiCA) that Member States can choose to implement. These measures enable entities or undertakings already providing crypto-asset services under their national laws to continue doing so during MiCA's transitional phase, spanning 18 months after full application in December 2024. These transitional measures encompass:

• Grandfathering Clause (Article 143(3)): This clause allows entities providing crypto-asset services in accordance with national applicable laws before December 30, 2024, to continue operating until July 1, 2026, or until they receive or are denied a MiCA authorization.
• Simplified Authorization Procedure (Article 143(6)): Entities that were already authorized under national applicable law on December 30, 2024, to provide crypto-asset services benefit from a streamlined authorization process under MiCA.

The roles of the EBA and ESMA are crucial in implementing MiCA, with each authority responsible for specific aspects of regulation and supervision.

For professionals and entities in the crypto-assets market, staying informed and engaged with the ongoing developments in MiCA is essential. This includes understanding the roles of EBA and ESMA, the themes of the RTSs, consultation deadlines, and how to contribute to the regulatory process. As MiCA moves towards full application, its transitional measures provide a framework for existing entities to adapt to the new regulatory environment.

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