The 'MiCAR Top-Up' for Fund Managers

Abstract

Recently, a new amended MiCAR draft proposal has been published. The proposal provides for a dedicated and harmonized framework for crypto-assets and related activities and services and includes all types of crypto-assets that are not yet covered by EU financial law (especially Directive 2014/65/EU, as amended (“MiFID II”). This also means, however, that “security tokens” (tokens that function like existing securities, such as company stocks or bonds) and qualify as “financial instruments” under MiFID II do not fall within the scope of MiCAR. For all other forms of crypto-assets, various asset categories are defined, such as utility tokens, a “catch-all” crypto-asset category, asset-referenced tokens and E-money tokens. MiCAR includes rules for issuers and service providers. Except for several types of EU regulated institutions, such as credit institutions, MiFID II investment firms, alternative investment fund managers (“AIFM”), as well as, UCITS management companies (“UCITS ManCo”) (hereinafter collectively referred to as “ManCos”), services based on crypto-assets will require prior approval from national supervisory authorities to offer crypto asset services under MiCAR. Crypto-asset services for which a license is required under the MiCAR includes activities such as custody, brokerage, trading, or investment advice. Furthermore, regulatory requirements concern, among other things, the initial capital reserves, the security of the IT infrastructure, the corporate governance structure, and the suitability of the management board. Article 53a MiCAR determines whether and to what extent ManCos may provide a number of cryp-to-asset services, what MiCAR “top-up” requirements apply and the ongoing compliance obligations that apply to ManCos under MiCAR providing one or more crypto-asset services. This contribution continues to clarify the impact of a possible “MiCAR top-up regime”, on fund managers in the context of the “MiFID II top-up regime”. In the light thereof, it also discusses (i) license extension formalities, (ii) on-going compliance duties and (iii) the impact of MiCAR on fund managers in the light of the current draft proposal. It then concludes.