The regulations on the authorization requirement and compliance with specific compliance obligations for crypto asset service providers (CASP) have been in force since December 30, 2024. Companies that were already providing services in an EU or EEA member state prior to this date in accordance with the law applicable at that time, which are now classified as crypto asset services within the meaning of MiCAR, may continue to offer these services to their customers for the time being, even if they have not yet obtained MiCAR authorization from the competent authority. In this respect, the new regulation provides for a transitional arrangement in Article 143(3) MiCAR, also known as grandfathering. Article 143(3) MiCAR provides that the continuation of legal activities prior to December 30, 2024, without the required MiCAR authorization is possible until July 1, 2026, or until the date on which the competent national supervisory authority has made a positive or negative decision on the company’s MiCAR authorization application. Under the MiCAR grandfathering rule, it is not necessary for the company to actually submit the license application at a specific point in time. Nor does the transitional provision specify whether the application for a MiCAR license must have a certain scope, in particular whether it must cover all transactions continued under the grandfathering provision. However, member states alone have the option of limiting the period of grandfathering for their jurisdiction. They are not entitled to restrict the scope of Article 143(3) MiCAR or the specific crypto services eligible for grandfathering.
Dangers Await CASPs with MiCAR Passporting
Shortly before the transitional provision on MiCAR grandfathering came into force, the European Securities and Markets Authority (ESMA) published an opinion in December 2024 on the handling of the MiCAR transitional rule for CASPs. Essentially, ESMA warned both CASPs and the national supervisory authorities responsible for them of problems with the grandfathering regime in the case of companies offering crypto asset rservices in several EU member states. Problems could arise insofar as individual member states have made very different use of their option to impose stricter time limits on grandfathering than the maximum provided for in MiCAR. While, for example, a maximum grandfathering period of 12 months applies in Germany and Austria, the Netherlands, Poland, and Finland allow only six months. France, Denmark, and the Czech Republic, on the other hand, grant CASPs that make use of grandfathering up to 18 months to fully implement the MiCAR requirements and obtain the necessary authorization. These differences pose risks for CASPs operating in countries with both 12-month and six-month periods if, for example, they wish to use their license obtained in Germany for business in the Netherlands by way of passporting, but BaFin does not grant the required MiCAR license until after the six-month transition period applicable in the Netherlands has expired. In this scenario, the crypto asset service provider in question would face the threat of having to cease its business in the Netherlands, as it would no longer be able to invoke Article 143(3) MiCAR after six months.
BaFin is Required to Monitor the Overall Situation Regarding the Processing of License Applications
The ESMA recommendations are addressed to both CASPs and the supervisory authorities responsible for processing MiCAR authorization applications. The crypto asset service providers are strongly advised to submit their MiCAR authorization applications as soon as possible to enable the authorities to process them within the grandfathering period. In addition, CASPs are urged to identify any problems arising from the different durations of the transitional provisions in the individual member states as quickly as possible so that, if necessary, applications for the required MiCAR license can also be submitted in member states with short transition periods. However, ESMA also expects the competent supervisory authorities to act proactively. They should engage in a detailed exchange with applicants at an early stage in order to be informed about business conducted in other member states. In this context, BaFin will have to consult with the supervisory authorities of the other member states as early as possible and on an ongoing basis in order to prevent avoidable disruptions due to a lack of authorizations after the expiry of the grandfathering periods. BaFin will also have to prioritize applications from affected CASPs.
Attorney Lutz Auffenberg, LL.M. (London)
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