The current regulation of cryptocurrencies in Germany and Europe is particularly grotesque because it regulates a market only at the national level that has always been international. Cross-border business models must therefore be regularly harmonized with all affected national regulatory regimes. One of the most important objectives of the European Union is the advancement of the European single market and the reduction of legal hurdles for the realization of cross-border cooperation of the European economy. It is therefore about time that the patchwork of crypto regulation that still exists within the EU is abolished and that the European single market is realized also in the crypto market. To this effect, the future EU Regulation on Markets in Crypto Assets (MiCAR) provides rules and regulations for the uniform offering of crypto services in more than one Member State. The legislator bases the new rules for cross-border crypto services largely on the rules of the so-called EU passporting in the area of investment services. As a result, crypto service providers will be able to offer their services in other EU states with comparatively little effort in the future, without requiring additional permits under MiCAR in the target countries.

MiCAR Passporting Requirements for Crypto Services

Providers who intend to offer crypto services across borders in the European Union are in any case required to be authorized in one of the member states in accordance with MiCAR. The responsible authority for the passporting procedure will initially be the authority that issued the MiCAR permit, i.e. BaFin in Germany. In order to successfully apply for passporting, the crypto service provider must submit a list to the authority indicating in which specific member states which specific crypto services are to be provided. It must also indicate from which time onwards the provider intends to actively offer the crypto services in the respective target countries. In addition, it is necessary to specify which other business activities that are not regulated under MiCAR the crypto service provider intends to offer. This includes activities that are not regulated at all as well as those that are subject to authorization and supervision under other regimes. Examples include payment services as defined in the Second Payment Services Directive (PSD2), investment services under the Markets in Financial Instruments Directive (MiFiD2), or other commercial activities not subject to authorization, such as e.g. the manufacture of hardware or the rental of buildings.

Short Procedure Period in MiCAR Passporting

BaFin will have to forward the information received to the national competent authorities in each of the target countries as well as to the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) within 10 working days. ESMA will subsequently publish the information on its single European crypto service provider registry maintained on its website in order to allow all market participants in Europe to verify whether a provider’s offering is legal and covered by a MiCAR authorization. Immediately after forwarding the information to the aforementioned bodies, BaFin will inform the crypto service provider about the forwarding that has taken place. As soon as the crypto service provider has received this notification from BaFin, but no later than 15 calendar days after the information has been forwarded to BaFin, the crypto service provider may actively offer its crypto services regulated under MiCAR in the selected target countries. The requirements for successful passporting under MiCAR are thus the existence of a MiCAR license in the home country and the transmission of the aforementioned information to BaFin. If this information is not complete, for example because the crypto service provider has concealed another commercial activity it provides, passporting under MiCAR may be inadmissible. Applications for MiCAR passporting will thus have to be prepared with maximum diligence.

Atty. Lutz Auffenberg, LL.M. (London)