Crypto Services Demystified: ESMA Explains Exchange, Transmission & Execution

ESMA’s latest Q&A on differentiating between crypto-asset exchange services and the services of executing, receiving, and transmitting orders on behalf of clients makes one point abundantly clear: it is not enough for a CASP to characterise its own activities in an authorisation application, in its terms and conditions, or in marketing materials.

The real assessment turns on the actual sequence of events-who receives the order, who ultimately concludes the transaction, whose assets are being used, and whether, and to whom, the order is further transmitted.

Against this background, a supervisory authority must determine whether a given provider is offering a service of exchanging crypto-assets for funds or for other crypto-assets, a service of executing orders on behalf of clients, or rather a service of receiving and transmitting orders.

Services under MiCA – the regulatory context

MiCA establishes distinct service definitions that, in real-world market practice, often overlap.

An exchange of crypto-assets for other crypto-assets or for funds is, by design, a principal-based activity. The CASP concludes contracts for the purchase or sale of crypto-assets with clients using its own capital, determines the price or pricing mechanism, and operates a trading policy pursuant to Article 77 MiCA.

It acts as a dealer, bureau de change, or market maker: it publishes its terms, and the client simply decides whether to accept the offered price or seek better conditions elsewhere. The client does not expect a “best possible result,” but rather adherence to the disclosed terms.

The service of executing orders on behalf of clients is structured differently. Its essence is the agency nature of the relationship. The CASP acts as the client’s representative and concludes purchase or sale transactions in crypto-assets on the client’s behalf.

Such a provider is subject to the full best execution regime and must organise its order-handling process to secure the best possible result for the client, taking into account price, costs, speed, and other relevant factors.

Receiving and transmitting orders in relation to crypto-assets, in turn, does not involve the CASP entering into transactions on behalf of the client or trading on its own account. The CASP merely receives the client’s order and forwards it to a third party that either executes it or transmits it further.

How does ESMA propose to distinguish these services in practice?

ESMA takes a highly pragmatic approach: what matters is the actual lifecycle of an order and the function performed by the CASP within that chain. The analysis cannot stop at labels such as “broker,” “exchange,” or “liquidity provider” used in a sales presentation.

In essence, a CASP is performing an execution service when it genuinely acts as an agent of the client and enters into a purchase or sale transaction in crypto-assets on the client’s behalf, regardless of whether the execution occurs bilaterally with another party or via a trading platform.

A service of receiving and transmitting orders arises when the CASP’s role ends with receiving the client’s order and forwarding it to another entity that ultimately concludes the transaction or further transmits the order.

An exchange service is provided by the entity that becomes a counterparty to the transaction, uses its own capital, and maintains a non-discriminatory trading policy within the meaning of MiCA.

ESMA stresses that different services may coexist within a single chain of events: entity A may receive and transmit the order, entity B may execute the order as the client’s agent, while simultaneously internalising the trade in its own book and thereby also performing an exchange service. Such configurations will be typical of complex models involving multiple liquidity providers and trading venues.

CASP as the client’s counterparty – exchange or execution?

Recital 87 MiCA addresses the situation in which a CASP executes a client order while simultaneously acting as the client’s counterparty. The Regulation distinguishes between two logics: where an exchange service is concerned, the CASP enjoys broad discretion in setting prices and trading policy; where the CASP executes the order on behalf of the client-even as counterparty-it is bound by the best execution obligation. Acting “on own account” does not, by itself, determine the classification of the service.

Two tests are decisive. The first is the perspective of the reasonable client: does the client, based on the documentation, interface, and marketing communications, have grounds to expect that the CASP acts as a broker seeking the best available market conditions? Or is it clear that the CASP is acting as a dealer simply offering its own price without promising “the best offer available”?

The second is the CASP’s degree of discretion. Under an exchange model, the CASP enjoys substantial flexibility in setting prices and trading policy, and the client is informed of the conditions ex ante and decides whether to accept them.

Under an execution model, the CASP undertakes to use all available means and tools to achieve the best possible outcome for the client-even where it ultimately becomes the counterparty. Recital 87 MiCA clarifies that a dealer may simultaneously act as an executing agent but, in that case, cannot avoid the full best execution regime.

ESMA also advocates a client-protective approach: in cases of doubt, particularly in dealings with retail clients, it is more appropriate to classify the CASP as acting in an agency capacity rather than purely as a dealer. In practice, this means that hybrid models in which the product proposition resembles brokerage but the technical implementation relies on proprietary books will be viewed with caution by supervisors unless fully compliant with the execution regime.

Why will proper service classification be challenging for CASPs?

From a market-practice perspective, this aspect of the Q&A exposes a core challenge embedded in MiCA: the distinctions between exchange, execution, and order transmission are nuanced, yet they carry profoundly different regulatory consequences.

There is no such thing as a “typical CASP model.” Even seemingly straightforward service models may contain elements characteristic of other services regulated under MiCA.

This makes it easy to underestimate the required scope of authorisation. A provider that declares only exchange services may, in reality, be executing orders or receiving and transmitting them if the actual order flow and communications with clients point to a more broker-like than dealer-like role. The result may be an allegation of operating outside the authorised perimeter and a need for expensive post-MiCA restructuring.

Best Execution vs. Dealer Models: A Structural Conflict Under MiCA

Furthermore, the tension between the best execution regime and a dealer model introduces business-model friction. If a platform’s algorithms are designed primarily to maximise proprietary trading margins, yet the product proposition promises clients the best market conditions, the supervisory authority will have strong grounds to challenge the model.

Recital 87 MiCA requires such arrangements to be designed from the outset as execution services, complete with a full best execution policy and transparent client communication.

In sum, ESMA’s Q&A gives concrete shape to MiCA’s previously high-level definitions and demonstrates that, for CASPs, the central regulatory design challenge will be the accurate and pragmatic delineation between exchange services, execution services, and the service of receiving and transmitting orders. This is not a matter of cosmetic classification-it is a decision that, in practice, determines the very DNA of a MiCA-compliant business model.

The latest ESMA Q&A clearly shows how important it is to correctly distinguish between crypto exchange, execution, and order transmission services. If you operate or plan to operate in this area, contact us to ensure your business complies with MiCA regulations.