According to the taxonomy introduced by MiCAR, (i) CASPs are defined as legal persons or other undertakings engaging in the provision of one or more crypto-asset services (CAS) to clients on a professional basis and (ii) ART Issuers are defined as natural or legal person, or other undertaking, who issues ART crypto-assets.

This edition of our “MiCAR under the microscope” series analyses the authorization (or non-opposition) regime applicable to the proposed acquirers of a qualifying holding in ART Issuers and CASPs. The legal regime applicable to ART Issuers and CASPs is similar to other regulated entities, such as investment firms, credit institutions or insurance entities. The MiCAR regime is largely inspired by the Directive 2014/65/EU on markets in financial instruments² (MiFID II) and Directive 2013/36/EU of the European Parliament and of the Council of June 23, 2013³ (CRD IV).

It is important to note that the regime set out under MiCAR⁴ is applicable to CASPs that are not listed under Article 60 MiCAR. The financial entities listed in Articles 60.1 to 60.6 MiCAR are subject to their own sectorial rules similar to the ones set out in MiCAR⁵.

1. Acquisition of a qualifying holding

1.1 Acquisition of a qualifying holding

As it happens with other financial regulated entities, the acquisition of qualifying holding is subject to the non-opposition of the competent authority supervising the ART Issuer and the CASP. The MiCAR regime is only applicable to CASPs that are not listed under Article 60 (paragraphs one to six) MiCAR⁶. Notably, this list includes financial entities like credit institutions, MiFID II investment firms, EMIs, asset management companies and central securities depositories which, although allowed to provide crypto-asset services under MiCAR, nonetheless remain subject to the regulatory framework applicable to them in light of their pre-existing regulatory status, including with respect to the regime concerning the acquisition or disposal of the qualified holdings.  Therefore, investors should check the particular qualifying holdings rules applicable to entities listed under Article 60 (paragraphs one to six) MiCAR and comply with such rules when acquiring a qualifying holding. The MiCAR regime applies to both foreign (both EEA and non-EEA) and domestic investors.

(A) Threshold

Non-opposition from the competent authority supervising ART Issuers and CASPs is required if a qualifying holding stake (at least 10% of the voting share capital or of the voting rights of the company or an lower than 10% acquisition leading to a considerable influence in the company) is acquired by a natural person or legal entity, directly or indirectly, in an ART Issuer or a  CASP, as a result of the projected acquisition (the Proposed Acquirer). The non-objection procedure is also required for the increase of participation, direct or indirect, in the company's share capital resulting in a proportion of possessed voting rights or share capital of equal to or greater than 20%, 30% or 50% or in the fact that such acquisition may give rise to the control of the CASP in question.

It is important to note that MiCAR captures the definition of capital and voting rights of Articles nine and ten of Directive 2004/109/EC of the European Parliament and of the Council (Transparency Directive). Therefore, not only holdings in share capital would qualify as voting rights, the following situations should be also taken into account:

Voting rights held by a third party with whom the Proposed Acquired has concluded an agreement, which obliges them to adopt a lasting common policy towards the management of the ART Issuer or CASP;

• Voting rights held by a third party under an agreement concluded with the Proposed Acquired providing for the temporary transfer for consideration of the voting rights of the ART Issuer or CASP;
• Voting rights attaching to shares which are lodged as collateral, provided the Proposed Acquired controls the voting rights of the ART Issuer or CASP and declares its intention of exercising them;
• Voting rights attaching to shares in which the Proposed Acquired has the life interest;
• Voting rights attaching to shares deposited with the Proposed Acquired which the Proposed Acquired can exercise at its discretion in the absence of specific instructions from the shareholders; and
• Voting rights which Proposed Acquired may exercise as a proxy where Proposed Acquired can exercise the voting rights at its discretion in the absence of specific instructions from the shareholders.

(B) Competent authority

The non-opposition application has to be filed with the competent authority of the ART Issuer or CASP. Article 3(1)35 MiCAR defines as “one or more authorities: designated by each Member State in accordance with Article 93 concerning […] issuers of asset-referenced tokens, crypto-asset service providers”. Article 93.1 MiCAR sets out that “Member States shall designate the competent authorities responsible for carrying out the functions and duties provided for in this Regulation. Member States shall notify those competent authorities to EBA and ESMA” and Article 93.3 MiCAR “ESMA shall publish on its website a list of the competent authorities designated in accordance with paragraphs one and two”.

ESMA has not published the list of competent authorities within the European Union yet. We recommend investors to check with the relevant EU A&O Shearman jurisdictions which is the EU competent authority supervising the target ART Issuer or CASP.

1.2 Disposal of a qualifying holding

Articles 41.2 and 83.2 MiCAR set out the obligation of prior notification when a company decides to stop having, directly or indirectly, a qualifying holding participation in an ART Issuer or CASP share capital or when it decides to reduce it in a proportion so that its remaining voting rights and share capital possessed represent less than 10%, 20%, 30% or 50% or it may entail the loss of control of the ART Issuer or CASP. Those reductions are subject to prior notification but not to authorization.

2. Process of non-objection

Articles 41.3 et seq. and 83.3 et seq. MiCAR set out the non-opposition process of the acquisition of qualifying holding ART Issuer or CASP before a competent authority:

• Acknowledgement of receipt: Upon receiving the notification from the Proposed Acquirer, the competent authority acknowledges receipt in writing within two working days. In practice, in our experience, this period lasts more than two working days as the competent authority will only acknowledge the receipt if the Proposed Acquirer files all the required documentation with the competent authority. The competent authority usually requests more information or further clarifications prior to acknowledge the application.
• Period to resolve the application: The authority then has 60 working days from this acknowledgment to assess the acquisition, informing the Proposed Acquirer of the assessment period’s expiry date.
• Suspension of the application process: During the assessment, the authority may consult anti-money laundering and counter-terrorist financing bodies  (except for ART Issuers) and request additional information from the Proposed Acquirer, suspending the assessment period for up to 20 working days (extendable by 30 days if the acquirer is outside  the Union).

Non-opposition resolution:

1. Opposition Notification: If the competent authority opposes the acquisition, it must notify the Proposed Acquirer within two working days, providing detailed reasons for the opposition (in this respect, please  refer to section three below of this alert).
2. Deemed Approval: If no opposition is made within the specified period, the acquisition is deemed approved.

3.  Content of the assessment of proposed acquisitions

3.1 Assessment qualifying holding

When considering a proposed acquisition in an ART Issuer or a CASP, it is crucial to be aware of the assessment criteria and regulatory considerations set forth by the competent authority.

(A) Assessment criteria

The competent authority will evaluate the proposed acquisition against the following criteria:

• Reputation of the Proposed Acquirer: The integrity,  ethical standing, and overall reputation of the Proposed Acquirer. For example, in this respect, the competent authority will ask/investigate if the Proposed  Acquirer have been charged with criminal or administrative penalties.
• Qualifications of Key Personnel: The reputation, knowledge, skills, and experience of any person who  will direct the business of the crypto-asset service provider post-acquisition. This ensures that the leadership is competent and capable of managing  the business effectively.
• Financial Soundness: The financial stability and robustness of the proposed acquirer, particularly  in relation to the type of business envisaged for  the crypto-asset service provider. This includes an assessment of the acquirer’s financial health and  its ability to support the business.
• Regulatory Compliance: The ability of the ART Issuer  or CASP to comply with and continue to adhere to  the relevant regulatory provisions post-acquisition.  This ensures that the business remains compliant  with all applicable laws and regulations.
• Money Laundering and Terrorist Financing Risks:  Any reasonable grounds to suspect that the proposed acquisition is connected to money laundering or terrorist f inancing activities, or that it could increase the risk of such activities.

(B) Authority's right to oppose

The competent authority has the right to oppose the proposed acquisition under the following conditions:

• Reasonable Grounds: If there are reasonable grounds based on the assessment criteria mentioned above.
• Incomplete or False Information: If the information provided set out in section 3(B) below is incomplete  or false.

(C) No prior conditions on holding levels

Member States are prohibited from imposing any prior conditions regarding the level of qualifying holding required for acquisition. Additionally, competent authorities are not allowed to examine the proposed acquisition based on the economic needs of the market. This ensures a level playing field and prevents unnecessary barriers to market entry.

3.2 Information to be provided.

Article 84.4 MiCAR instructs ESMA to prepare the regulatory technical standards specifying the detailed content of the information that is necessary to carry out the non-opposition assessment for CASPs. ESMA published the RTS last July 2023 within the Consultation Package one (ESMA RTS). We are still waiting the European Commission to approve and publish the Delegated Regulation. Having said that, the RTS replicates the information to be submitted with other financial regulated entities. In fact, the content is similar to the Commission Delegated Regulation (EU) 2017/1946 of 11 July 2017  for MiFID II investment firms.

Article 42.4 MiCAR instructs EBA to prepare the regulatory technical standards specifying the detailed content  of the information that is necessary to carry out the  non-opposition assessment for ART Issuers. EBA published the RTS last July 2023. We are still waiting the European Commission to approve and publish the Delegated Regulation. The content of the EBA RTS is similar to the ESMA RTS.

4. Practical considerations

4.1 Indirect acquisitions

For indirect acquisitions (i.e. acquisitions through legal entities within a group), the Proposed Acquired has to aggregate, at the parent level, the direct holdings (as a whole) of each of its subsidiaries where the Proposed Acquire exercises control. The subsidiary directly holding a qualifying holding in the ART Issuer or CASP may not be required to submit the prior notification. The supervisor of the ART Issuer or CASP may allow the person or persons at the top of the corporate control chain to submit the prior notification also on behalf of the intermediate holders. We suggest having a prior call with the competent authority to clarify which entities within the group are required to submit the application.

Even though the European Supervisory Authorities (ESAs) have not formally extended the application of the Joint ESAs Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector to the ART Issuers and CASPs (the  ESAs Guidelines)⁷, they are a good guidance for investors to assess whether they have a qualifying holding in an ART Issuers or CASP.  In particular, the ESAs Guidelines provides guidance and clarification regarding (i) the definition of acting in concert (ii) the definition of acting in concert and (iii) the determination of indirect acquisitions of qualifying holdings.

4.2 Pre-formal meeting with the competent authority

MiCAR does not set out that is mandatory to hold a pre-formal meeting with the competent authority prior to submitting the non-opposition filing. However, in some jurisdictions, with respect to the acquisition of a qualifying holding in other financial institutions, it is market practice  or a legal requirement to hold a pre-formal meeting with.

4.3 Non-opposition resolution

In practice, even if the 60 working days lapse and the acquisition is legally deemed approved, we encourage investors to obtain formal approval from the competent authority. In this respect, we recommend investors to contact the competent authority if they have not received a formal non-opposition within the deadline. This ensures clarity and avoids potential future disputes.

Footnotes

1. ART means a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or combination thereof, including one or more official currencies

2. Article 11 et seq. MiFID II

3. Article 22 et seq. CRD IV

4. Articles 83 and 84 MiCAR.

5. This is line with Article 60.10 MiCAR which specifies that Articles 83 and 84 MiCAR do not apply to CASPs that are f inancial entities under Article 60.10 MiCAR.

6. Credit institutions, Central Securities Depositories, Investment Firms, Electronic Money Institutions, Asset Management Companies  (both, UCITS  Managers and AIFMs and market operators.

7. https://www.eba.europa.eu/activities/single-rulebook/regulatory-activities/market-access/joint-guidelines-prudential