MiCAR: ESMA finds CASP model based exclusively on fiat payouts non-compliant with the Regulation

ESMA has clearly confirmed that a CASP business model based solely on offering clients fiat settlements- without the possibility of transferring crypto-assets- is non-compliant with MiCAR. 

This interpretation has direct implications for entities providing exchange services, as well as those planning to apply for CASP authorisation, as it requires adjustments to operational models and infrastructure to enable the actual transfer of crypto-assets.

CASP model based exclusively on fiat payouts – scope of the question submitted to ESMA

The doubt reported to ESMA concerned the admissibility of a business model in which a CASP provides exchange services, but allows its clients to collect their accumulated funds exclusively in funds (fiat).

In practice, this means a situation where a client theoretically buys crypto-assets, but the provider never enables their actual transfer to an external wallet, compelling the client to settle exclusively through the payout of the equivalent of funds in fiat.

ESMA’s position on the crypto-asset exchange model

According to the answer provided by ESMA, this type of business model is not permitted under the MiCAR provisions concerning the crypto-asset exchange service. According to the definition contained in MiCAR, “exchange services” performed by a CASP mean the professional activity of exchanging crypto-assets for fiat currency (which falls within the definition of ‘funds’).

ESMA emphasises that a CASP may propose to clients that their balance be paid out in fiat instead of crypto-assets (which is completely legal). However, this does not change the fact that the very moment of purchasing a crypto-asset by a client gives rise to an absolute obligation on the part of the CASP to fulfil the possibility of transferring the acquired crypto-asset to that client. 

Additionally, it was pointed out that the white paper, drawn up in accordance with MiCAR, must mandatorily contain information on the method and time schedule of transferring the purchased tokens (e.g., asset-referenced tokens) to their holders. Thus, a CASP cannot limit itself exclusively to the payout of monetary funds.

Implications for the market and entities applying for CASP authorisation

ESMA’s answer is unequivocal and should be assessed positively, as being significant for market practice. A service in which an entity offers clients to “buy” a crypto-asset that in reality is never delivered, and the client can only and exclusively receive the equivalent of that crypto-asset in fiat currency, cannot be considered a permitted crypto-asset exchange service.

This interpretation provides a very important guideline for the market and supervisory authorities. It closes the door to the functioning under a CASP licence of so-called “closed-loop” models, in which crypto-assets exist solely as a digital record within the provider’s internal system, without the possibility of disposing of them outside.

Entities planning to apply for a CASP authorisation must therefore ensure that their technological infrastructure and terms of service provide for the actual capability for users to withdraw crypto-assets to their own wallets.

Is your CASP model compliant with MiCAR?

Entities operating in the crypto-asset market should promptly verify whether their business model and operational infrastructure comply with the requirements resulting from ESMA’s interpretation. In particular, this concerns the actual ability to transfer crypto-assets to users, as well as the compliance of documentation (including the white paper) with MiCAR requirements.

We support CASPs in analysing business models, preparing for authorisation, and ensuring compliance with regulatory requirements. Contact us to assess regulatory risks and prepare your business for full MiCAR implementation.