In this fourth article in our series on MiCA, we cover the notification process and requirements for MIFID investment funds, Alternative Investment Fund Manager (“AIFM”), and Undertakings for Collective Investments in Transferable Securities (“UCITS”) management companies that engage in crypto services.
Notification process
Under MiCA and European Securities and Markets Authority’s July 2023 proposed Regulatory Technical Standards, investment firms, AIFMs, and UCITS management companies would need to notify their Competent Authority (“CA”) of their plans to engage in any activities involving crypto assets at least 40 days before providing the services.
|
Firm types |
MiCA activity type |
MiFID equivalent |
|
Investment firm |
Providing custody and administration of crypto assets on behalf of clients |
Safekeeping and administration of financial instruments for the account of clients, including custodianship, and related services such as cash/collateral management and excluding maintaining securities accounts at the top tier level |
|
Operation of a trading platform for crypto assets |
Operation of a multilateral trading facility (“MTF”) and operation of an organised trading facility (“OTF”) |
|
|
Exchange of crypto assets for funds and other crypto assets |
Dealing on own account |
|
|
Execution of orders for crypto assets on behalf of clients |
Executing orders on behalf of clients |
|
|
Placing of crypto assets |
Underwriting or placing of financial instruments on a firm commitment basis and placing of financial instruments without a firm commitment basis |
|
|
Providing portfolio management on crypto assets |
Portfolio management |
|
|
Providing advice on crypto assets |
Investment advice |
|
|
UCITS Managers and AIFMs |
Reception and transmission of orders for crypto assets on behalf of clients |
Reception and transmission of orders in relation to one or more financial instruments |
|
Providing advice on crypto assets |
Investment advice |
Article 60 of MiCA sets out the notification requirements for investment firms, AIFMs, and UCITS management companies that intend to engage in any activities involving crypto assets.
The notification must include the following information:
- The type of crypto asset activities the firm intends to engage in;
- The risks associated with these activities;
- The measures the firm will take to mitigate these risks;
- A three-year program of operations;
- An Anti-Money Laundering / Countering the Financing of Terrorism (“AML/CFT”) framework;
- A description of the firm's information technology and communication (“ICT”) systems;
- Asset segregation policies;
- Procedures and system to detect market abuse.
|
Requirement |
Description |
|
Three-year program of operations
|
|
|
AML/CFT framework
|
|
|
ICT systems
|
|
|
Asset segregation |
|
|
Custody and administration policy
|
|
|
Trading platform policies and procedures |
|
|
Market abuse |
|
|
Crypto asset exchanges |
|
|
Execution policy |
|
|
Crypto asset portfolio management advice |
|
Example:
An investment firm in Ireland wants to start offering custody and administration of crypto assets on behalf of its clients. The firm must first notify the Central Bank of Ireland (“CBI”), which is Ireland's CA.
The notification must include the following information:
- The type of crypto asset activities the firm intends to engage in (custody and administration of crypto assets on behalf of clients)
- The risks associated with these activities (e.g., the risk of loss of crypto assets due to theft or hack)
- The measures the firm will take to mitigate these risks (e.g., implementing strong security measures and using reputable third-party custodians)
- A three-year program of operations (outlining the firm's plans for growing its crypto asset business)
- An AML/CFT framework (describing how the firm will prevent and detect money laundering and terrorist financing)
- A description of the firm's ICT systems (outlining the systems and controls that the firm will use to manage its crypto asset business)
- Asset segregation policies
- Procedures and system to detect market abuse
The CBI would review the notification and notify the firm of its decision within 40 days. If the CBI does not object within 40 days, the firm would be deemed to have been authorised to offer custody and administration of crypto assets on behalf of its clients.
Once the firm has been authorised, it must comply with all the requirements of MiCA, including the requirements for ongoing reporting and supervision.
MICA will have a significant impact on investment firms, AIFMs, UCITS management companies, and CASPs. These firms will need to invest in systems and processes to comply with the requirements. The requirements will also increase the costs associated with operating in the crypto asset market.
The notification and reporting obligations under MiCA are designed to ensure that investment firms, AIFMs, UCITS management companies, and CASPs are properly managing the risks associated with crypto assets. These obligations will also help to promote transparency and accountability in the crypto asset market.
Follow our Global Regulations Tracker
Over the coming months, we will release a series of articles that delve deeper into MiCA through expert opinion and analysis. Make sure to read our articles on MiCA and understanding cryptoassets.
Apex Group can help
We can help you stay compliant with the latest regulations and protect your business from financial crime. Get in touch for further information on:
- Crypto/Virtual asset/VASP-CASP licensing
- Crypto assets Due Diligence services
- Crypto AML compliance support
- Crypto Compliance Training
