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What investment firms, AIFMD, and UCITS management companies need to know about notifications and requirements under MiCA

23 October 2023

As the Markets in Crypto Assets Regulation (“MiCA”) becomes fully applicable for issuers of crypto assets and Crypto Assets Service Providers (”CASPs”) on December 30 2024, it is essential to understand the impact of this framework on the issuance and regulation of crypto assets within the EU.

In this fourth article in our series on MiCA, we cover the notification process and requirements for MIFID investment funds, Alternative Investment Fund Manager (“AIFM”), and Undertakings for Collective Investments in Transferable Securities (“UCITS”) management companies that engage in crypto services.

Notification process

Under MiCA and European Securities and Markets Authority’s July 2023 proposed Regulatory Technical Standards, investment firms, AIFMs, and UCITS management companies would need to notify their Competent Authority (“CA”) of their plans to engage in any activities involving crypto assets at least 40 days before providing the services.

Firm types

MiCA activity type

MiFID equivalent

Investment firm

Providing custody and administration of crypto assets on behalf of clients

Safekeeping and administration of financial instruments for the account of clients, including custodianship, and related services such as cash/collateral management and excluding maintaining securities accounts at the top tier level

Operation of a trading platform for crypto assets

Operation of a multilateral trading facility (“MTF”) and operation of an organised trading facility (“OTF”)

Exchange of crypto assets for funds and other crypto assets

Dealing on own account

Execution of orders for crypto assets on behalf of clients

Executing orders on behalf of clients

Placing of crypto assets

Underwriting or placing of financial instruments on a firm commitment basis and placing of financial instruments without a firm commitment basis

Providing portfolio management on crypto assets

Portfolio management

Providing advice on crypto assets

Investment advice

UCITS Managers and AIFMs

Reception and transmission of orders for crypto assets on behalf of clients

Reception and transmission of orders in relation to one or more financial instruments

Providing advice on crypto assets

Investment advice


Article 60 of MiCA
sets out the notification requirements for investment firms, AIFMs, and UCITS management companies that intend to engage in any activities involving crypto assets.

The notification must include the following information:

  • The type of crypto asset activities the firm intends to engage in;
  • The risks associated with these activities;
  • The measures the firm will take to mitigate these risks;
  • A three-year program of operations;
  • An Anti-Money Laundering / Countering the Financing of Terrorism (“AML/CFT”) framework;
  • A description of the firm's information technology and communication (“ICT”) systems;
  • Asset segregation policies;
  • Procedures and system to detect market abuse.

Requirement

 Description

Three-year program of operations

 

  • Types of crypto assets the firm plans to engage in
  • Markets in which the firm plans to operate
  • Services the firm plans to offer
  • Resources the firm will allocate to its crypto asset activities

AML/CFT framework

 

  • Customer identification and verification procedures
  • Transaction monitoring procedures
  • Risk assessment procedures

ICT systems

 

  • Hardware and software systems
  • Security measures
  • Business continuity plan

Asset segregation

  • Procedures for the segregation of clients’ assets funds
  • Description of the approval cryptographic keys and safeguarding of cryptographic key

Custody and administration policy

 

  • Description of the custody and administration policy
  • Information on arrangements to secure the clients crypto assets

Trading platform policies and procedures

  • Description of the operating rules of the trading platform and of the procedures and system to detect market abuse, where it is intended to operate a trading platform for crypto assets
  • Procedures adopted to assess the suitability of crypto assets in accordance with MiCA

Market abuse

  • Description of the procedures and systems to detect and prevent market abuse, including information on the communications to the competent authority of market abuse cases

Crypto asset exchanges

  • Description of the non-discriminatory commercial policy governing the relationship with clients as well as a description of the methodology for determining the price of the crypto assets they propose to exchange for funds or other crypto assets, where it is intended to exchange crypto assets for funds or other crypto assets

Execution policy

  • Description of the execution policy, where it is intended to execute orders for crypto assets on behalf of clients
  • Information on the arrangements to prevent the misuse of any information relating to clients’ orders by the employees of the entity

Crypto asset portfolio management advice

  • Evidence that the natural persons giving advice or managing portfolios have knowledge and expertise to fulfil their obligations


Example:

An investment firm in Ireland wants to start offering custody and administration of crypto assets on behalf of its clients. The firm must first notify the Central Bank of Ireland (“CBI”), which is Ireland's CA.

The notification must include the following information:

  • The type of crypto asset activities the firm intends to engage in (custody and administration of crypto assets on behalf of clients)
  • The risks associated with these activities (e.g., the risk of loss of crypto assets due to theft or hack)
  • The measures the firm will take to mitigate these risks (e.g., implementing strong security measures and using reputable third-party custodians)
  • A three-year program of operations (outlining the firm's plans for growing its crypto asset business)
  • An AML/CFT framework (describing how the firm will prevent and detect money laundering and terrorist financing)
  • A description of the firm's ICT systems (outlining the systems and controls that the firm will use to manage its crypto asset business)
  • Asset segregation policies
  • Procedures and system to detect market abuse

The CBI would review the notification and notify the firm of its decision within 40 days. If the CBI does not object within 40 days, the firm would be deemed to have been authorised to offer custody and administration of crypto assets on behalf of its clients.

Once the firm has been authorised, it must comply with all the requirements of MiCA, including the requirements for ongoing reporting and supervision.

MICA will have a significant impact on investment firms, AIFMs, UCITS management companies, and CASPs. These firms will need to invest in systems and processes to comply with the requirements. The requirements will also increase the costs associated with operating in the crypto asset market.

The notification and reporting obligations under MiCA are designed to ensure that investment firms, AIFMs, UCITS management companies, and CASPs are properly managing the risks associated with crypto assets. These obligations will also help to promote transparency and accountability in the crypto asset market.

Follow our Global Regulations Tracker

Over the coming months, we will release a series of articles that delve deeper into MiCA through expert opinion and analysis. Make sure to read our articles on MiCA and understanding cryptoassets.

Apex Group can help

We can help you stay compliant with the latest regulations and protect your business from financial crime. Get in touch for further information on:

  • Crypto/Virtual asset/VASP-CASP licensing
  • Crypto assets Due Diligence services
  • Crypto AML compliance support
  • Crypto Compliance Training

 

 

 

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