The joint EBA and ESMA guidelines outline the competence and reputation criteria for members of the management bodies of issuers of asset-referenced tokens and crypto-asset service providers. These entities must notify any changes in their management to the competent authorities for assessment. Additionally, shareholders holding qualifying holdings must also meet reputation and competence requirements to obtain…
- Title: Joint EBA and ESMA Guidelines on suitability of management body and qualifying holdings under MiCAR
- Author: European Banking Authority (EBA) and European Securities Markets Authority (ESMA)
- Date: 27 June 2024
- Type: regulatory guide
- Scope: assessment of competence and reputation of members of management bodies and shareholders or members holding qualifying holdings in asset-referenced token (ART) issuers and crypto-asset service providers (CASPs), under the European MiCA regulation (Markets in Crypto-Assets Regulation)
- Target population: ART issuers, CASPs, competent supervisory authorities
- Sector: crypto-assets and related services
- Period: applicability from publication, with requirements at authorization and ongoing (p. 1-5, 12-15)
- Subject: These joint EBA-ESMA guidelines define the criteria and methods to assess the suitability of members of management bodies of asset-referenced token (ART) issuers and crypto-asset service providers (CASPs), as well as shareholders or members holding qualifying holdings, in accordance with MiCA requirements.
- Importance: Ensuring that key managers and shareholders are of good reputation, competent, and able to devote necessary time is essential for trust in the crypto-asset market, user protection, and financial stability.
- Key findings:
- Members of management bodies must have good reputation, appropriate individual and collective skills, and sufficient time commitment.
- Shareholders or members with qualifying holdings must be of good reputation, without convictions related to money laundering or terrorism, and maintain this reputation continuously.
- Acquisition of qualifying holdings in authorized entities is subject to strict assessment on five criteria: reputation, competence of management, financial soundness, capacity to comply with prudential requirements, and absence of ML/TF risk.
- Conclusions:
- Two distinct guidelines are published: one for members of management bodies, another for shareholders/members with qualifying holdings.
- These guidelines harmonize assessment practices at European level and clarify key concepts (e.g., concerted action, significant influence).
- Recommendations:
- ART issuers and CASPs must adopt policies for the selection, monitoring, and succession of their management body members.
- Competent authorities must integrate these guidelines into their supervisory processes and ensure rigorous assessment before and after appointment.
- Corrective measures must be taken promptly in case of non-compliance, up to withdrawal of authorization (p. 3-4, 6-10, 23-30, 31-38).
- Context: The MiCA regulation imposes strict requirements on governance and ownership of asset-referenced token issuers and crypto-asset service providers to strengthen market trust and stability.
- Objectives:
- Define a harmonized framework for assessing reputation, skills, and time commitment of management body members.
- Clarify criteria and assessment methodologies for shareholders or members holding qualifying holdings, especially during acquisitions.
- Ensure convergence of supervisory practices within the European Union.
- Issue: The absence of a clear and harmonized framework could lead to risks for governance, regulatory compliance, and crypto-asset market stability.
- Limitations: These guidelines do not apply to credit institutions already subject to equivalent governance frameworks (p. 4-5, 8-10, 33-35).
Suitability of members of management bodies:
- Criteria: good reputation (absence of criminal convictions, sanctions, offenses related to money laundering, terrorism, fraud), appropriate individual and collective skills, sufficient time commitment (p. 16-22).
- Assessment: based on diplomas, professional experience, specific knowledge of crypto-assets, risk management, AML/CFT compliance, governance, DLT technologies, accounting, audit, data protection (p. 17-21).
- Process: assessment before appointment, reassessment upon significant changes, continuous monitoring, documentation of results, adoption of internal selection and succession policy (p. 23-26).
- Proportionality: adaptation of requirements according to size, complexity, nature of activities, volume of tokens issued, type of crypto services offered (p. 15-16).
Suitability of shareholders or members with qualifying holdings:
- Criteria: good reputation, absence of criminal convictions, suspicion of money laundering or terrorism, legitimate origin of funds (p. 8-10, 35-38).
- Acquisition of holdings: strict assessment on five criteria (reputation, competence of management, financial soundness, compliance capacity, absence of ML/TF risk), prior notification to competent authorities (p. 4, 36-38).
- Key concepts: definition of "qualifying holding", "concerted action", "significant influence", "decision to acquire" to identify situations subject to assessment (p. 34-35).
Role of competent authorities:
- Integration of guidelines into their procedures, assessment before and after appointment, setting deadlines (max 4 months, suspended if additional information requested), possibility of interviews and observation of meetings (p. 28-30).
- Measures in case of non-compliance: training, reorganization of responsibilities, replacement of members, administrative sanctions, withdrawal of authorization (p. 29-30).
Corrective measures by entities:
- Rapid identification and treatment of deficiencies in competence, time commitment, or reputation.
- Documentation of measures taken and communication to competent authorities (p. 27-28).
Exclusions and specifics:
- Credit institutions subject to CRD and MiFID II are not concerned.
- CASPs providing only services already covered by their existing authorization are also excluded (p. 6, 33).
Reporting and compliance:
- Authorities must notify their compliance with the guidelines within two months following their publication.
- Financial entities are not required to notify their compliance (p. 12-13, 31-32).
- Established facts:
- Members of management bodies must be of good reputation, individually and collectively competent, and able to devote sufficient time to their duties (p. 16-22).
- Shareholders or members holding qualifying holdings must be of good reputation and maintain this condition continuously (p. 8-10).
- Acquisition of qualifying holdings in authorized entities is subject to rigorous assessment according to five criteria (p. 4, 36-38).
- Competent authorities must integrate these guidelines into their supervisory processes and ensure rigorous assessment (p. 28-30).
- Assumptions:
- Application of the proportionality principle allows adapting requirements to risks and entity size (p. 15-16).
- Alignment with existing guidelines on qualifying holdings in the financial sector ensures regulatory consistency (p. 9).
- Interpretations:
- Robust governance and rigorous assessment of key managers and shareholders strengthen trust in the crypto-asset market.
- Documentation and transparency of assessment processes facilitate supervision and compliance.
- Uncertainties:
- The practical impact of these guidelines on small entities or new entrants remains to be observed.
- The rapid evolution of the crypto sector may require future adjustments of assessment criteria (p. 6-7).
- The EBA-ESMA guidelines provide a harmonized and detailed framework for assessing the suitability of members of management bodies and shareholders or members with qualifying holdings in ART issuers and CASPs, in accordance with MiCA.
- They recommend entities adopt clear internal policies for selection, monitoring, succession, and reassessment of management body members.
- Competent authorities must integrate these guidelines into their supervisory procedures, ensure rigorous assessment before and after appointment, and have appropriate corrective measures.
- Corrective measures may range from training to member replacement, up to withdrawal of authorization in case of serious non-compliance.
- Continuous monitoring is essential to ensure competence, reputation, and time commitment requirements are maintained.
- The publication of these guidelines aims to strengthen trust in the European crypto ecosystem and ensure market stability and integrity (p. 3-4, 23-30, 31-38).
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