Welcome to our fourth part of exploring the Markets in Crypto-Assets (MiCA) regulation requirements for asset-referenced tokens. In this installment, we turn our focus towards significant asset-referenced token issuers. These tokens wield considerable influence within the market and, consequently, come under additional regulatory scrutiny. If you're new to our series or wish to revisit earlier parts, you can access Part 1, Part 2, and Part 3.
Classification of asset-referenced tokens as significant
Let's break down Article 43 of MiCA, which provides a roadmap to classifying asset-referenced tokens as 'significant.' The token in question must meet at least three of the following criteria:
The token has more than 10 million holders.
The value of the token, its market capitalization, or the issuer's reserve of assets exceeds EUR 5 billion.
The average daily number and total value of transactions in the token during the relevant period exceed 2.5 million transactions and EUR 500 million, respectively.
The token issuer is recognized as a gatekeeper in providing core platform services.
The issuer's activities, including the use of the token for payments and remittances, are significant on an international scale.
The token or its issuer is interconnected with the financial system.
The issuer also issues at least one additional asset-referenced or e-money token and provides at least one crypto-asset service.
If multiple issuers issue the same token, the classification is based on aggregated data from all issuers. The European Banking Authority (EBA) classifies a token as significant when it meets these criteria either following authorization or during two consecutive reporting periods.
Once a token is classified as significant, supervisory responsibilities are transferred from the issuer's home Member State's competent authority to the EBA. This classification and associated supervisory responsibilities are reassessed annually.
The Commission will determine further specifications of the criteria for a token to be classified as significant through delegated acts.
Voluntary classification of asset-referenced tokens as significant
Article 44 of MiCA sets out the provisions regarding the voluntary classification of asset-referenced tokens as significant asset-referenced tokens. These provisions are essential as they allow issuers to opt for their tokens to be recognized as significant, opening up a different regulatory landscape.
Issuers can express their desire for their asset-referenced tokens to be deemed significant. This desire is to be notified immediately to the European Banking Authority (EBA), the European Central Bank (ECB), and, in certain cases, the central bank of the issuer's home Member State.
For an asset-referenced token to be voluntarily classified as significant, the issuer must illustrate, through a detailed program of operations, that it will likely meet at least three of the criteria specified above. Upon receiving such a request, the EBA has 20 working days to prepare a draft decision based on the operational program, determining whether the token fulfills or is likely to fulfill the necessary criteria. This draft is then notified to the competent authority of the issuer's home Member State, the ECB, and, in certain cases, to the central bank of the Member State.
All these authorities have 20 working days to provide observations and comments on the draft decision. The EBA will duly consider these before arriving at a final decision. The final decision is made within 60 working days of the initial notification, which is immediately conveyed to the issuer and its competent authority.
If a token is classified as significant, the supervisory responsibilities shift from the competent authority to the EBA on the authorization date or when the crypto-asset white paper is approved.
Specific Obligations
Article 45 of MiCA deals with additional specific obligations that issuers of significant asset-referenced tokens must comply with. This extends to the basic requirements, with increased scrutiny given the potential systemic risks such tokens pose.
Issuers of significant asset-referenced tokens must formulate, implement, and maintain a remuneration policy that encourages robust and efficient risk management. This policy must not incentivize the relaxation of risk standards.
The issuers must ensure these tokens can be held in custody by various authorized crypto-asset service providers. This includes service providers outside of their group and should be done fairly, reasonably, and non-discriminately.
Monitoring liquidity needs is vital. The issuers must assess and continuously keep track of liquidity requirements to fulfill token redemption requests. A comprehensive liquidity management policy and procedures should be implemented to maintain a resilient liquidity profile capable of withstanding stressful scenarios.
Regular liquidity stress tests need to be conducted by these issuers. Depending on these tests, the European Banking Authority (EBA) might decide to bolster liquidity requirements. The stress test must cover all activities if an issuer offers more than one token or provides other crypto services.
The reserve requirement percentage stated in Article 35(1) (own funds requirements) is set at 3% of the average reserve assets amount for these issuers.
If multiple issuers offer the same significant token or an issuer offers multiple tokens with at least one classified as significant, all the above apply to each issuer.
The EBA, in cooperation with the European Securities and Markets Authority (ESMA), will develop regulatory technical standards that specify the minimum requirements of the remuneration policy, liquidity management policy, and liquidity requirements, including setting a minimum deposit amount in each official currency. Furthermore, it will detail the process and timeframe for an issuer to adjust the amount of its own funds.
Lastly, EBA, ESMA, and the European Central Bank (ECB) will issue guidelines for the common reference parameters of stress test scenarios to be included in the stress tests. These guidelines will be periodically updated, considering the latest market developments.
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DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.
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