Operators of crypto exchanges will be defined as crypto asset service providers in the European Union as of the Markets in Crypto Assets Regulation (MiCAR) coming into effect and must obtain a license for their business operations from the competent supervisory authority. In Germany, applications for MiCAR licenses will have to be submitted to BaFin. As crypto asset service providers, the operators will be required to have a minimum capital of 150,000 euros and well-qualified and reliable directors. They will also have to provide a professional business organization that is adequate in relation to the size of their company. This includes, among other things, the establishment of functioning business processes, internal procedures and control mechanisms, especially in the areas of risk management and IT security, money laundering prevention and emergency planning. But beyond these minimum requirements applicable to all crypto asset service providers, crypto exchange operators will have to comply with additional regulatory obligations specifically tailored to the operation of a crypto exchange platform.

What Are the Specific Obligations of Crypto Exchanges under MiCAR?

MiCAR requires crypto asset exchange operators to comply with specific regulatory obligations. In particular, MiCAR provides strict requirements for the authorization of crypto assets for trading on crypto exchanges. In this context, crypto asset service providers will have to establish operating rules in a clear and understandable manner, which will have to be updated constantly. Operators of crypto exchanges will furthermore not be allowed to trade on their platforms for their own account. Matched principle trading on the other hand will only be permitted if the operator does so with the knowledge and consent of the customers concerned. To the extent that crypto exchange operators identify cases or attempts of market abuse on their trading venues, they must inform the competent authorities. MiCAR will also introduce strict obligations for crypto exchange operators in terms of trading transparency. For example, the prices, volumes and timing of transactions that have taken place must be published in real time. Operators must also ensure that this data is publicly available free of charge and without barriers for two years. Finally, MiCAR imposes deadlines on crypto exchange operators in the field of final settlement of crypto transactions. On-chain transactions must be settled no later than 24 hours after execution on the crypto exchange, while off-chain transactions are subject to a deadline of the closing of the relevant trading day.

Listing on a Crypto Exchange Available Only for MiCAR Compliant Crypto Assets

Crypto exchange operators will not have unrestricted discretion as to which crypto assets can be authorized for trading under MiCAR. For example, the regulation prohibits the listing of crypto assets for which no white paper has been prepared and published, where this would have been required under MiCAR. Further, operators of crypto exchanges will be required to conduct successful due diligence before authorizing a crypto asset for trading. In this respect, they must ensure that the crypto asset is compatible with the crypto exchange’s operating rules and also clarify the crypto asset’s suitability. As part of this review, platform operators must also investigate whether there could be links to illegal or fraudulent activities. In doing so, they are to include the technical design as well as the experience, references and reputation of the issuer and the development team. Crypto assets that have a built-in anonymization feature may not be authorized for trading on crypto exchanges under MiCAR. An exception applies to those crypto assets that increase the degree of anonymity, where the crypto exchange operator can identify the bearers as well as the transaction history. In this respect, only privacy coins that are acquired and traded on the crypto exchange itself by identified customers should be eligible.

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

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