ESMA’s opinion focusses on Multifunction Crypto-asset Intermediaries (MCIs), ie those offering a large variety of services, products, and functions, at the level of an individual entity or group of affiliated entities, typically centred around the operation of a crypto-asset trading platform.

In particular, ESMA identifies a risk in that MCIs located outside the EU are, under MiCA, able to gain access to EU-based clients through EU-based brokers who are licensed as CASPs, without the MCIs themselves moving the operation of their trading platforms in the EU. This would allow MCIs to achieve “regulatory arbitrage” by avoiding compliance with MiCAR, leading to an “unlevel playing field” at the expense of EU-based trading platforms.

ESMA in turn provides guidance for NCAs to ensure a uniform approach across the EU in terms of how MiCA is applied to MCIs. Key recommendations include:

NCAs must ensure outsourcing and delegation arrangements from EU CASPs to non-EU entities must be strictly framed and supervised and avoid resulting in EU CASPs effectively becoming letter-box entities. ESMA considers that Brexit-related guidance on outsourcing to non-EU entities to also be relevant in the context of assessing MiCA authorisation applications.

NCAs must ensure that non-EU MCIs do not exploit the reverse solicitation exemption to circumvent MiCAR through the use of an EU CASP soliciting EU-based clients. The following factors should be considered as “very likely indications of unlawful solicitation of EU clients and consequent provision of services”:

• An EU CASP systematically routes orders to a non-EU entity of the same group for execution.
• An EU CASP does not analyse the availability of other suitable unaffiliated execution venues or is unable to provide a sound and substantiated justification for considering other unaffiliated execution venues.
• When promoting or advertising its services, the EU CASP relies on the reputation and brand of a non-EU MCI to attract business from EU clients.
• The EU CASP has no or very limited sources of revenues for its brokerage activities with EU clients or has revenue flows that significantly diverge from what would be expected when an independent broker and independent execution venue interact.
• The EU CASP engages in riskless back-to-back transactions with / on a non-EU execution venue of the same group.
• The EU CASP streams quotes to its clients from a non-EU liquidity provider.

Additionally, NCAs must ensure that EU CASPs are able to discharge their obligations under MiCAR when dealing with non-EU entities of the same group, including in the areas of:

• Conflicts of interests which may arise in the course of dealings with non-EU entities of the same group.
• Best execution practices.
• Acting honestly, fairly and professionally in the best interests of clients.
• Custody and administrative of crypto-assets of clients.

As a conclusion, ESMA's opinion forces the harmonised application of MiCA across the EU. ESMA’s opinion aims to ensure a uniform application of MICAR across the EU and a level playing field between EU and non-EU CASPs.

ESMA’s press release can be found here and the opinion here.

If you are unsure whether MiCA Regulation may apply to you, you can use our MiCA Assessment Tool to obtain a free preliminary assessment here.