Licensing ART Issuers and Evaluating Share Acquisitions. What do you need to know?

Information required for ART issuers

The new Regulatory Technical Standards (RTS) detail what information must be included in an application for authorization to offer asset-linked tokens (ART) to the public or to apply for admission to trading.

Here are the key elements that must be included in the application

• Issuer Identification Data – detailed information about the issuer submitting the application.
• Business program – the main features of the proposed issuance, specification of the mechanism for issuing and redeeming ARTs, business model, strategy and risk assessment, financial projections, calculation of capital and asset reserve requirements. Description of the interaction between the business model and the risk of exposure of the issuer or the sector to money laundering/financing of terrorism. (including risk assessment of the issuer or other entities involved in the issuer’s business mechanisms),
• Financial information – data on the issuer’s historical financial performance.
• Risk management – Internal governance arrangements and structural organization – including information on critical external suppliers and a description of key functions, including the internal control framework. This takes into account the obligations imposed on the company by Regulation 2022/2554/EU on the resilience of digital operations of the financial sector (DORA)).
• Liquidity management – description of liquidity management, asset reserve and redemption rights, ART stabilization mechanism.
• Directors’ evaluation – Information on directors and shareholders with significant shareholdings.

What information is included in the ITS?

The Implementing Technical Standards (ITS) document outlines the procedures for submitting applications to the relevant authorities. Applications can be submitted electronically via the relevant authority’s portal or in paper form (e.g., when submitting a criminal record certificate).

The ITS project also defines the circumstances under which an application can be considered complete.

How to evaluate a proposed acquisition of significant shareholdings?

For potential acquirers of significant stakes in ART issuers, the RTS specifies the detailed content of the information that must be submitted with the acquisition notification.

The prudential assessment must be carried out by the competent authority in accordance with the criteria set forth in Article 42(1) of the MiCA. The assessment is then subject to the following criteria:

• Reputation of the acquirer: The integrity and professional competence of the potential acquirer.
• Management persons: The competence of the persons who will manage the business.
• Financial condition: The financial stability of the potential buyer.
• Compliance: The compliance of the acquired business with prudential requirements.
• Anti-money laundering: The exclusion of circumstances that the proposed acquisition could result in an attempt or increase the risk of money laundering or terrorist financing.

In accordance with the aforementioned criteria, issuers are required to furnish pertinent information on the following:

• The identity, integrity, financial soundness, and financial and non-financial holdings of the target ART issuer or individuals or legal entities intending to acquire a significant stake must be disclosed.
• In the event that the potential acquirer intends to appoint or replace members of the target entity’s management body, the disrepute, knowledge, skills, and experience of the members must be disclosed. In the event that the potential acquirer intends to appoint or replace members of the target entity’s management body, the following information should be provided:
• Information on the proposed acquisition, including the potential acquirer’s strategy for the acquisition and the new group structure after the acquisition of a significant stake.
• Reasonable sources of financing for the acquisition.

What are the RTS for ARTs issued by credit institutions?

The draft RTS also defines the practical aspects of information exchange between a credit institution and the competent supervisory authority. For further information, please refer to this link.

The regulations will be available in documents published by the EBA and will be submitted to the European Commission for approval by June 30, 2024.

Implications for ART issuers

The RTS and ITS drafts are designed to standardize and streamline the process of submitting required information to regulators. ART issuers are advised to carefully review the new standards and adjust their internal procedures to avoid any issues associated with incomplete documentation.

It is advisable to create or update internal procedures to include all the assumptions required by the draft RTS. Should the issuer require further information, they will be contacted separately.

Are you ready for the upcoming changes?

Do you have questions about licensing ART issuers and evaluating share acquisitions? Not sure how the new technical standards affect your business?

Contact us now! Our team of experts will help you understand and implement the new regulations so you can focus on growing your business without worrying about compliance. Take action today!

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