ESMA Publishes Second Consultation Package on MiCA

On 5 October 2023, the European Securities and Markets Authority (ESMA) published its second consultation package on the Markets in Crypto-Assets Regulation (MiCA). In the consultation package, ESMA seeks input on five sets of proposed rules, namely:

• • sustainability indicators for distributed ledgers;
  • disclosures of inside information;
  • technical requirements for white papers;
  • trade transparency measures; and
  • record-keeping and business continuity requirements for crypto-asset service providers.

Sustainability indicators for distributed ledgers

MiCA requires that crypto-asset white papers include disclosures on the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the crypto-asset. In addition, crypto-asset service providers are required to make such information available on their website for all crypto-assets in relation to which they provide services. 

In the second consultation package, ESMA considers that the features of the individual nodes participating in the distributed network are key to assessing the sustainability impact of the underlying consensus mechanisms. In particular, ESMA focuses on three main features of nodes: (1) the energy consumption of each node, (2) their location and (3) the devices that each node uses to take part in the network (e.g., ASICs) and to hold a replica of records of all transactions on a distributed ledger (e.g., servers and equipment).

A proposed template for the presentation of the information on the climate and environment-related adverse impacts of the consensus mechanism is provided in an annex to the consultation package.

Disclosures of inside information

With respect to trading of crypto-assets, MiCA prohibits insider dealing, unlawful disclosure of inside information, and market manipulation and includes an obligation to publicly disclose inside information. MiCA mandates ESMA with developing guidance on the technical means for disclosing insider information or delaying such disclosure when appropriate. 

ESMA's proposed guidance mirrors its guidance provided in connection with the Market Abuse Regulation (MAR). In a nutshell, ESMA differentiates between 'active dissemination' of insider information and publication on a website, noting that these are two separate obligations. In both cases, the information has to be provided free of charge and on a non-discriminatory basis.

Technical requirements for white papers 

MiCA requires that crypto-asset white papers are made available in machine-readable format. The term 'machine-readable', as defined in the EU Open Data Directive, means a file format structured so that software applications can easily identify, recognize and extract specific data. It does not necessarily mean that the file is readable by humans. Notably, PDF documents are not machine-readable. 

Considering that the main purpose of MiCA's white paper requirement is to inform prospective holders of the characteristics, functions and risks of the crypto-assets they intend to purchase, ESMA concludes that white papers should be made available in a format that is both machine-readable and human-readable. Accordingly, ESMA proposes that white papers are made available in iXBRL (inline eXtensible Business Reporting Language) format. This format has been used since 2021 for the preparation of annual financial reports of companies admitted to trading on a regulated market in the EU. 

Trade transparency measures

Under MiCA, trading platforms for crypto-assets are required to lay down, maintain and implement clear and transparent operating rules. This includes making available certain pre- and post-trade transparency information such as bid and ask prices as well as price, volume and time information concerning transactions executed on the platform.  

Considering the similarities between centralized crypto exchanges and traditional exchanges (e.g., use of central limit order books), ESMA proposes leveraging the existing rules under the Markets in Financial Instruments Regulation (MiFIR) to the MiCA transparency framework. To that end, the draft guidance distinguishes between continuous auction order books as well as other types of trading systems such as quote-driven, periodic auction, and hybrid systems, to determine the accompanying transparency requirements. 

Record-keeping and business continuity requirements for CASPs 

MiCA requires crypto-asset service providers (CASPs) to keep detailed records of all crypto-asset services, activities, orders and transactions undertaken by them. The records must allow competent authorities to supervise the company and to perform enforcement measures, when necessary. 

The record keeping requirements in MiCA are similar to those applicable to investment firms in the Markets in Financial Instruments Directive (MiFID II), for which extensive guidance already exists. ESMA therefore proposes that the same guidance, as adapted for MiCA, is used. 

Conclusion 

Stakeholders are encouraged to provide feedback on the proposed rules by 14 December 2023. If you have a question about ESMA's second consultation package or about MiCA in general, please do not hesitate to contact us.