July ESMA Q&A Session on MiCAR

The European Securities and Markets Authority (ESMA) has published new responses as part of its Q&A session dedicated to selected aspects of the provision of certain crypto-asset services under the Markets in Crypto-Assets Regulation (MiCAR).

The questions concerned two practical aspects of MiCAR’s application:

• staking on own account
• the pre-funding of clients’ orders using their crypto-assets.

Staking on own account

The question submitted to ESMA concerned the lawfulness of staking performed by a crypto-asset service provider (CASP) for its own account. In its response, the European regulator stated that such activity is directly contrary to Article 70(1) of MiCAR.

In addition, ESMA referred to its earlier reply concerning the lawfulness of staking services (Q&A No. 2067). ESMA reiterated that staking is, in principle legal, but provided that the following conditions are met:

• The CASP is excluded from obtaining profits solely for itself (i.e. the client staking the crypto-assets must receive some form of remuneration).
• The CASP must act in the best interests of its clients, i.e. provide services professionally, in accordance with Article 66(1) of MiCAR.
• The CASP must inform clients of the costs associated with the service, in accordance with Article 66(2) of MiCAR (in particular within the content of marketing communications), including costs, fees or commissions payable by clients to the CASP or any third parties involved in the provision of the service.

Pre-funding Clinets’ orders using their crypto assets

In another MiCAR-related question, ESMA analysed the lawfulness of pre-funding transactions ordered by clients using their own crypto-assets.
According to ESMA, a business model whereby, in order to execute a sale or purchase of crypto-assets, a CASP uses crypto-assets deposited by a client to perform the transaction and transfers them to another CASP is permissible, provided that the CASP receiving the crypto-assets is authorised to provide the service of custody and administration of crypto-assets.

ESMA classified the described pre-funding element as temporary safekeeping (sub-custody) of the transferred crypto-assets, as referred to in Article 75(9) of MiCAR. Furthermore, ESMA emphasised that the client must be informed in advance about the transfer of crypto-assets to another provider.

In summary, the pre-funding of clients’ orders using their own crypto-assets is consistent with MiCAR, provided that the CASP receiving the client’s crypto-assets is authorised to provide the service of custody and administration of crypto-assets.

ESMA on staking and pre-financing- key conclusions for the market

ESMA addressed issues that are both significant and highly practical for the functioning of the crypto-asset market. Regarding staking, it is worth noting the evolution in the assessment of this service under MiCAR. The currently presented position can undoubtedly be described as considerably more liberal than that expressed at the beginning of this year.

ESMA emphasised that staking, as a service, is in principle compliant with MiCAR (although the legal nature of this service is not straightforward under MiCAR and does not lend itself to simple classification – if only because of the many different forms of staking) when the requirements on profit sharing, cost disclosure and acting in the best interests of clients are met.

In other words, staking will be contrary to MiCAR where the staking profits are obtained solely by the CASP, even if the client were to consent to a unilateral remuneration structure.

With regard to the pre-funding of clients’ orders, ESMA underlined that the model is compliant with MiCAR where the CASP receiving the crypto-assets is also authorised to provide the service of custody and administration of crypto-assets.

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