The Markets in Crypto Assets Regulation (MiCAR) will subject crypto service providers in the European Union to numerous licensing and compliance requirements. The regulations relevant to crypto service providers in this respect will take legal effect on 30 December 2024, following a transition period of 18 months after they have already been published in the Official Journal of the European Union. One of the crypto services regulated by MiCAR in the future is the execution of orders for crypto assets for clients. Without further explanation, the scope of the provision is conceivably broad. According to the definition of crypto services contained in MiCAR, the regulated execution of orders for crypto assets on behalf of clients shall be deemed to occur if the crypto service provider concludes agreements for the purchase or sale of one or more crypto assets on behalf of its client. Also to be included under MiCAR is the subscription of crypto assets for clients that are to be offered to the public for the first time or are to be authorized for regulated trading. It is not mandatory that the agreement to be concluded is merely brokered by the crypto service provider between the client and a third party. Rather, the crypto service provider executing the order may itself also be the counterparty of its customer, for example if it acquires crypto assets in its own name on a crypto exchange for the account of its customer.

MiCAR License Requirements for Order Performing Crypto Service Providers

Crypto service providers executing orders for crypto assets for clients must also meet the general minimum regulatory requirements under MiCAR in order to be able to obtain the required MiCAR license from BaFin. In addition to an appropriate and professional business organization and professionally suitable as well as reliable directors, which all crypto service providers must have according to MiCAR, a regulatory initial capital of at least 50,000 euros must be shown. However, MiCAR also imposes specific regulatory compliance requirements on order-executing crypto service providers. In particular, crypto service providers executing orders for crypto assets for clients are required by MiCAR regulations to implement and comply at all times with a best execution policy. In this respect, it is necessary that the crypto service providers, within the scope of their service provision, always try to achieve the best possible result for their clients in terms of price, costs and speed of order execution. The obligation to provide best execution also relates to the handling of the order execution itself as well as all other factors relevant in the individual case. Only in the case of specific instructions of the customer to the crypto service provider the duty of best execution exists only to a limited extent.

Information Obligations of Order Executing Crypto Service Providers vis-à-vis Clients

Crypto service providers executing orders for crypto assets on behalf of clients must, in accordance with MiCAR regulations, always inform their clients about the principles of order execution established in their business process. The information must be provided clearly, unambiguously and in a manner that is understandable to the client. In this respect, order executing crypto service providers must explain how they specifically execute client orders. Crypto service providers must also inform their customers accordingly in the event of significant changes to their execution policies. Under MiCAR, crypto service providers must continuously monitor the effectiveness of their internal order execution arrangements and their order execution policies in order to identify and, if necessary, remedy any deficiencies. Order-executing crypto service providers must obtain explicit consent to the execution policy from their customers prior to providing the service. Should the customer fail to give its consent, the crypto service provider may not execute orders for the customer.

Attorney Lutz Auffenberg, LL.M. (London)