Crypto asset services are expected to be subject to authorization by the competent supervisory authority once the provisions of the new Markets in Crypto Assets Regulation (MiCAR) come into force presumably at the end of 2024. The crypto asset service providers who will then be regulated will only receive the authorizations necessary to conduct business if they comply with the comprehensive regulatory requirements provided by MiCAR. A key requirement will be the obligation of crypto asset service providers to hold at all times sufficient capital to back up the business operations. However, despite MiCAR being fundamentally similar to securities regulation, the actual amount to be held is regulated differently than under the second Markets in Financial Instruments Directive (MiFID2). This is because under MiCAR there will be two methods for determining the amount of prudential safeguards, of which the one resulting in the higher amount will be applicable to the crypto asset service provider.
Minimum Capitalization Amounts for Crypto Service Providers under MiCAR
Crypto asset service providers will have to maintain at least a regulatory minimum capital level when applying for a MiCAR authorization and also after the authorization has been granted, the amount of which will depend on the specific business model they operate and the crypto asset services they provide. In this respect, there will be three classes of crypto asset service providers, each of which will be subject to a different minimum capital amount for safeguard purposes. Crypto asset service providers who only offer their customers services related to order acceptance and transmission, advice, order execution, placement, portfolio management or transaction execution in relation to crypto assets will be assigned to class 1 and will need to hold a minimum capital of 50,000 euros. In contrast, the minimum capital for crypto custodians and crypto administrators as well as crypto asset exchange providers (class 2) amounts to 125,000 euros. For crypto asset exchange platform operators (class 3), the minimum amount required will be at 150,000 euros according to the wording of MiCAR.
Determination of the Regulatory Minimum Capital via the Fixed Operating Costs
The minimum amount of capital for crypto asset service providers specified in MiCAR will only be sufficient as a safeguard if it is higher than one quarter of the previous year’s fixed overhead costs. On the other hand, if this amount is higher, the crypto asset service provider will have to show this amount as minimum regulatory capital. MiCAR will require all crypto asset service providers to calculate their fixed operating costs annually, so the relevant amount will not be a static amount as it is under the MiFID regulation. In summary, crypto asset service providers can expect that they will always be required to maintain at least one quarter of their fixed overhead costs of the previous year as their minimum regulatory capital, and that this amount shall not be less than the minimum amount as specified in MiCAR for the applicable specific class of crypto asset service providers.
Atty. Lutz Auffenberg, LL.M. (London)