Do Issuers of Crypto Assets Require a PRIIPs KID in Addition to the MiCAR White Paper?

For more than a decade, EU Regulation No. 1286/2014 (PRIIPs Regulation) has required issuers and providers of packaged retail investment products and insurance-based investment products to prepare, publish, and make available key information documents (PRIIPs KIDs). The key information document is intended to provide retail investors with a clear and easily understandable overview of the underlying investment product. It must therefore not exceed three A4 pages in length and must contain the essential key information and warnings required by the PRIIPs Regulation. The legal form of the investment product is generally irrelevant, which is why a PRIIPs KID may have to be prepared for issues of both securities and, for example, units in investment funds or asset investments in accordance with the German Asset Investment Act (VermAnlG), as long as the product is to be offered to retail investors. Even fundamentally unregulated investment products may fall under the PRIIPs Regulation if the product meets its requirements for a packaged investment product or insurance-based investment product. In this context, the question arises as to whether issuers of crypto assets may also be required to prepare a key information document for a token issue, especially since the regulator of the PRIIPs Regulation in 2014 certainly did not have MiCAR, which will not apply until the end of 2024, in mind.

Prospectus Requirements Under Other Regulations Are Irrelevant for the Applicability of the PRIIPs Regulation

The fact that issuers and providers of investment products may be required by other regulations, such as the Prospectus Regulation, the KAGB or the VermAnlG, to prepare and publish prospectuses or other documentation relating to their products is fundamentally irrelevant to the question of the applicability of the PRIIPs Regulation. The obligation to prepare and publish a key information document may therefore exist in addition to the obligation to prepare a prospectus, provided that the investment product in question meets the requirements of the PRIIPs Regulation. According to Article 4 (1) of the PRIIPs Regulation, the existence of a packaged retail investment product within the meaning of the PRIIPs Regulation requires, in particular, that the amount to be repaid to the retail investor is subject to fluctuations resulting from the performance of reference values that are not directly acquired by the retail investor. According to BaFin’s administrative practice, only external reference values such as the value of precious metals, investment products from third-party providers, or crypto assets are relevant here. Internal reference values such as issuer- or group-related profit figures such as profit after tax or EBITDA, on the other hand, do not constitute a PRIIP. According to these principles, crypto assets within the meaning of Art. 3 (1) No. 5 MiCAR can also qualify as PRIIPs if they are to be distributed to retail investors and provide for a repayment to the investor whose amount depends on an external reference value. In this context, it is important to note that a repayment within the meaning of the PRIIPs Regulation can be not only genuine repayment claims at the end of a term, but also interest or other returns from the investment product during the period of ownership.

PRIIPs KID and Crypto-Asset White Paper Conceivable for Certain Crypto Assets

In cases where a crypto asset meets the requirements outlined above, the issuer and also the persons who advise on or sell the crypto asset may be required to prepare a PRIIPs KID, publish it, and make it available to investors in good time before subscription. The obligations under the PRIIPs Regulation then apply in addition to the obligations under MiCAR, meaning that, in addition to creating the PRIIPs KID, it may also be necessary to create and publish a crypto-asset white paper. The issuer of a crypto asset must therefore take both EU regulations into account when planning its token issuance. In this context, it is also important to note the further obligations under the PRIIPs Regulation and MiCAR, which impose strict requirements on issuers and providers in the area of advertising and marketing communications for the offering of investment products or crypto assets. No advertising statement may relativize or contradict the information contained in the PRIIPs KID or the crypto-asset white paper. It is therefore of considerable importance to ensure that, in the event of the applicability of the PRIIPs Regulation to a token issuance, the crypto-asset white paper in accordance with MiCAR and the key information document in accordance with the PRIIPs Regulation are consistent.

Attorney Dr. Lutz Auffenberg, LL.M. (London)

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