Av Matteo Alessandro explains in detail facts about the MiCAR and Custodians. What does the MiCAR mean for Crypto Asset Service Providers? And even further, for Custodians? Continue reading to find answers to these questions and do not hesitate to check out our Crypto Services or contact us directly on contactmkfintech@kyprianou.com
What is MiCA?
The proposed Markets in Crypto-assets ("MiCA") regulation is the EU's new comprehensive framework for the regulation of crypto-asset related activities, covering key areas such as transparency, disclosure, authorisation and supervision of transactions. The proposal is due to be voted on by the European Parliament, in Q1 of 2023, and will come into effect in mid-2024. The latest accessible version is an interinstitutional document circulated by the General Secretariat of the Council of the European Union (2020/0264(COD)).
What does MiCA Mean for Custodians?
CASPS AND CRYPTO CUSTODIANS
The MiCAR sets out a number of obligations for Crypto-Asset Service Providers ("CASPs"), particularly custodians, describing the service as "custody and administration of crypto-assets on behalf of third parties." With its custody-specific requirements, MiCA has made an effort to resolve the contentious, ongoing discussion around custody as a crypto asset service provided by CASPs. In detail, custody services are defined as "safekeeping or controlling, on behalf of third parties, crypto-assets or the means of access to such crypto-assets, where applicable in the form of private cryptographic keys."
Service Agreements and Custody Police
THE MICAR, CASPS AND CRYPTO CUSTODIANS
The first considerable obligation which MiCA places on custodians is that they must enter into an agreement with their clients, which specifies their duty and responsibilities in offering the service. This agreement must include:
- The parties to the agreement;
- The service being provided, including a description of such service;
- The mode by which the CASP and the client shall communicate;
- The client's authentication system;
- A description of the security systems used by the Crypto Asset Service Provider;
- Fees, costs and charges applied by the Crypto Asset Service Provider;
- The law applicable to the agreement; and
- The custody policy.
Further, under MiCA, custodians are obliged to protect and facilitate their client's rights of entitlements over their crypto-assets, as well as to any assets or rights which are newly created, or which may be amended by the underlying blockchain, as was recently seen in the case of Ether being changed to Ethereum PoW.
Register of Positions
THE MICAR, CASPS AND CRYPTO CUSTODIANS
Custodians will also be obliged to create and maintain a register of positions which records each of their clients' rights to the respective crypto-assets. This register must include any movements of the crypto assets that the CASP holds in custody for the client, as recorded in regular transactions. At least once every quarter, the CASP must provide its clients with a statement of their position in the register upon request. This statement must include the balance, value, and transfers of all crypto assets under the account.
Segregation of Crypto-assets and Third Party Custodians
THE MICAR, CASPS AND CRYPTO CUSTODIANS
Custodians must keep their own crypto-assets separate from those held for their clients. To comply with MiCA regulations, custodians must use different addresses to hold cryptocurrency for their clients and for their own holdings. Further, the crypto-assets held for clients must also be protected and kept separate from the custodian's own estate. This means that if the custodian were to face insolvency proceedings, the crypto-assets held for clients would not be subject to claims from creditors.Article 53 of the latest version of MiCA also requires CASPs to be authorised to function as third party custodians. If a custodian decides to use the services of a third party custodian, they are obliged to make their client's aware of any such arrangements.
How Can We Help?
Over the past few years, MK Fintech has operated as a licensed VFA Agent in Malta, assisting clients with all their regulatory needs. We have a dedicated team who can help train your team, to ensure they understand your obligations under MiCA and other ancillary regulations.
We are currently offering the following training services:
A) Virtual training sessions; and
B) In-person training sessions.
Feel free to get in touch with contactmkfintech@kyprianou.com for your training request! Precaution is better than cure – get ahead of the game and prepare for these changes ahead of time. This will also decrease potential business disruption you may endure.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.