EUROPEAN COMMISSION Brussels, 24.9.2020 COM(2020) 593 final 2020/0265(COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Markets in Crypto-assets, and amending Directive (EU) 2019/1937 (Text with EEA relevance) {SEC(2020) 306 final} - {SWD(2020) 380 final} - {SWD(2020) 381 final}



EXPLANATORY MEMORANDUM 1.CONTEXT OF THE PROPOSAL •Reasons for and objectives of the proposal This proposal is part of the Digital Finance package, a package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks. It is in line with the Commission priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people. The digital finance package includes a new Strategy on digital finance for the EU financial sector with the aim to ensure that the EU embraces the digital revolution and drives it with innovative European firms in the lead, making the benefits of digital finance available to European consumers and businesses. In addition to this proposal, the package also includes a proposal for a pilot regime on distributed ledger technology (DLT) market infrastructures, a proposal for digital operational resilience, and a proposal to clarify or amend certain related EU financial services rules. One of the strategy’s identified priority areas is ensuring that the EU financial services regulatory framework is innovation-friendly and does not pose obstacles to the application of new technologies. This proposal, together with the proposal on a DLT pilot regime, represents the first concrete action within this area. Crypto-assets are one of the major applications of blockchain technology in finance. Since the publication of the Commission’s Fintech Action plan, in March 2018, the Commission has been examining the opportunities and challenges raised by crypto-assets. Following a big surge in the market capitalisation of crypto-assets during 2017, in December 2017, Executive Vice-President Dombrovskis, in a letter addressed to the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA), urged them to reiterate their warnings to investors. In the 2018 FinTech Action plan, the Commission mandated the EBA and ESMA to assess the applicability and suitability of the existing EU financial services regulatory framework to crypto-assets. The advice, issued in January 2019, argued that while some crypto-assets could fall within the scope of EU legislation, effectively applying it to these assets is not always straightforward. Moreover, the advice noted that provisions in existing EU legislation may inhibit the use of DLT. At the same time, the EBA and ESMA underlined that – beyond EU legislation aimed at combating money laundering and terrorism financing – most crypto-assets fall outside the scope of EU financial services legislation and therefore are not subject to provisions on consumer and investor protection and market integrity, among others, although they give rise to these risks. In addition, a number of Member States have recently legislated on issues related to crypto-assets leading to market fragmentation. A relatively new subset of crypto-assets – the so-called ‘stablecoins’ – has recently emerged and attracted the attention of both the public and regulators around the world. While the crypto-asset market remains modest in size and does not currently pose a threat to financial stability, this may change with the advent of ‘global stablecoins’, which seek wider adoption by incorporating features aimed at stabilising their value and by exploiting the network effects stemming from the firms promoting these assets. Given these developments and as part of the Commission’s broader digital agenda, President Ursula von der Leyen has stressed the need for “a common approach with Member States on cryptocurrencies to ensure we understand how to make the most of the opportunities they create and address the new risks they may pose”. While acknowledging the risks they may present, the Commission and the Council also jointly declared in December 2019 that they “are committed to put in place a framework that will harness the potential opportunities that some crypto-assets may offer”. More recently, the European Parliament is working on a report on digital finance, which has a particular focus on crypto assets. To respond to all of these issues and create an EU framework that both enables markets in crypto-assets as well as the tokenisation of traditional financial assets and wider use of DLT in financial services, this Regulation will be accompanied by other legislative proposals: the Commission is also proposing a clarification that the existing definition of ‘financial instruments’ - which defines the scope of the Markets in Financial Instruments Directive (MiFID II) - includes financial instruments based on DLT, as well as a pilot regime on DLT market infrastructures for these instruments. The pilot regime will allow for experimentation within a safe environment and provide evidence for possible further amendments. This proposal, which covers crypto-assets falling outside existing EU financial services legislation, as well as e-money tokens, has four general and related objectives. The first objective is one of legal certainty. For crypto-asset markets to develop within the EU, there is a need for a sound legal framework, clearly defining the regulatory treatment of all crypto-assets that are not covered by existing financial services legislation. The second objective is to support innovation. To promote the development of crypto-assets and the wider use of DLT, it is necessary to put in place a safe and proportionate framework to support innovation and fair competition. The third objective is to instil appropriate levels of consumer and investor protection and market integrity given that crypto-assets not covered by existing financial services legislation present many of the same risks as more familiar financial instruments. The fourth objective is to ensure financial stability. Crypto-assets are continuously evolving. While some have a quite limited scope and use, others, such as the emerging category of ‘stablecoins’, have the potential to become widely accepted and potentially systemic. This proposal includes safeguards to address potential risks to financial stability and orderly monetary policy that could arise from ‘stablecoins’. •Consistency with existing policy provisions in the policy area This proposal is part of a broader framework on crypto-assets and distributed ledger technology (DLT), as it is accompanied by proposals ensuring that existing legislation does not present obstacles to the uptake of new technologies while still reaching the relevant regulatory objectives. The proposal builds on extensive and long-standing market monitoring and participation in international policy work, for example, in such fora as the Financial Stability Board, the Financial Action Task Force and the G7. As part of the FinTech Action plan adopted in March 2018, the Commission mandated the European Supervisory Authorities (ESAs) to produce advice on the applicability and suitability of the existing EU financial services regulatory framework on crypto-assets. This proposal builds on the advice received from the EBA and ESMA. •Consistency with other Union policies As stated by President von der Leyen in her Political Guidelines, and set out in the Communication ‘Shaping Europe’s digital future’, it is crucial for Europe to reap all the benefits of the digital age and to strengthen its industrial and innovation capacity within safe and ethical boundaries. In addition, the mission letter provided to Executive Vice-President Dombrovskis calls for a common approach with Member States on cryptocurrencies to ensure Europe can make the most of the opportunities they create and address the new risks they may pose. This proposal is closely linked with wider Commission policies on blockchain technology, since crypto-assets, as the main application of blockchain technologies, are inextricably linked to the promotion of blockchain technology throughout Europe. This proposal supports a holistic approach to blockchain and DLT, which aims at positioning Europe at the forefront of blockchain innovation and uptake. Policy work in this area has included the creation of the European Blockchain Observatory and Forum, and the European Blockchain Partnership, which unites all Member States at political level, as well as the public-private partnerships envisaged with the International Association for Trusted Blockchain Applications. This proposal is also consistent with the Union policies aimed at creating a Capital Markets Union (CMU). It notably responds to the High-level Forum’s final report, which stressed the underused potential of crypto-assets and called on the Commission to bring legal certainty and establish clear rules for the use of crypto-assets. This proposal is consistent with the SME strategy adopted on 10 March 2020, which also highlights DLT and crypto-assets as innovations that can enable SMEs to engage directly with investors. Finally, the proposal is fully in line with the recommendation in the Security Union Strategy for the development of a legislative framework in crypto-assets given the growing effect of these new technologies on how financial assets are issued, exchanged, shared and accessed.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY •Legal basis The proposal is based on Article 114 TFEU, which confers on the European institutions the competence to lay down appropriate provisions for the approximation of laws of the Member States that have as their objective the establishment and functioning of the internal market. The proposal aims to remove obstacles to establishment and improve the functioning of the internal market for financial services by ensuring that the applicable rules are fully harmonised. Today, crypto-asset issuers and service providers cannot fully reap the benefits of the internal market, due to a lack of both legal certainty about the regulatory treatment of crypto-assets as well as the absence of a dedicated and coherent regulatory and supervisory regime at EU level. While a few Member States have already implemented a bespoke regime to cover some crypto-asset service providers or parts of their activity, in most Member States they operate outside any regulatory regime. In addition, an increasing number of Member States are considering bespoke national frameworks to cater specifically for crypto-assets and crypto-asset service providers. The divergent frameworks, rules and interpretations of both crypto-assets and crypto-asset services throughout the Union hinder the service providers’ ability to scale up their activity at EU level. This means that service providers of these inherently cross-border products and services are forced to familiarise themselves with several Member States’ legislations, obtain multiple national authorisations or registrations and comply with often divergent national laws, sometimes adjusting their business model throughout the Union. This results in high costs, legal complexity and uncertainty for service providers operating in the crypto-assets space, limiting the development and scaling up of crypto-asset activities in the Union. Additionally, the lack of applicable regimes to crypto-asset service providers in many Member States limits the availability of funding and sometimes even wider access to necessary financial services, such as banking services, due to the regulatory uncertainty associated with crypto-assets and therefore crypto-asset service providers. These divergences also create an uneven playing field for crypto-asset service providers depending on their location, creating further barriers to the smooth functioning of the internal market. Finally, this adds to the lack of legal certainty, which, combined with the absence of a common EU framework, leaves consumers and investors exposed to substantial risks. Through the introduction of a common EU framework, uniform conditions of operation for firms within the EU can be set, overcoming the differences in national frameworks, which is leading to market fragmentation and reducing the complexity and costs for firms operating in this space. At the same time, it will offer firms full access to the internal market and provide the legal certainty necessary to promote innovation within the crypto-asset market. Lastly, it will cater for market integrity and provide consumers and investors with appropriate levels of protection and a clear understanding of their rights as well as ensuring financial stability. •Subsidiarity The different approaches taken by Member States makes cross-border provision of services in relation to crypto-assets difficult. Proliferation of national approaches also poses risks to level playing field in the single market in terms of consumer and investor protection, market integrity and competition. Furthermore, while some risks are mitigated in the Member States that have introduced bespoke regimes on crypto-assets, consumers, investors and market participants in other Member States remain unprotected against some of the most significant risks posed by crypto-assets (e.g. fraud, cyber-attacks, market manipulation). Action at EU level, such as this proposal for a Regulation, would create an environment in which a larger cross-border market for crypto-assets and crypto-asset service providers could develop, thereby reaping the full benefits of the internal market. An EU framework would significantly reduce the complexity as well as the financial and administrative burdens for all stakeholders, such as service providers, issuers and consumers and investors. Harmonising operational requirements for service providers as well as the disclosure requirements imposed on issuers could also bring clear benefits in terms of consumer and investor protection and financial stability. •Proportionality Under the principle of proportionality, the content and form of EU action should not exceed what is necessary to achieve the objectives of the Treaties. The proposed rules will not go beyond what is necessary in order to achieve the objectives of the proposal. They will cover only the aspects that Member States cannot achieve on their own and where the administrative burden and costs are commensurate with the specific and general objectives to be achieved. The proposed Regulation will ensure proportionality by design, differentiating clearly between each type of services and activities in accordance with the associated risks, so that the applicable administrative burden is commensurate with the risks involved. Notably, the requirements set out in this regulation are proportionate to the limited associated risks, given the relatively small market size to date. At the same time, the proposal imposes more stringent requirements on ‘stablecoins’, which are more likely to grow quickly in scale and possibly result in higher levels of risk to investors, counterparties and the financial system. •Choice of the instrument Article 114 TFEU allows the adoption of acts in the form of a Regulation or Directive. For this proposal, a Regulation was chosen in order to lay down a single set of immediately applicable rules throughout the Single Market. The proposed Regulation establishes harmonised requirements for issuers that seek to offer their crypto-assets across the Union and crypto-asset service providers wishing to apply for an authorisation to provide their services in the Single Market. These issuers and service providers must not be subject to specific national rules. Therefore, a Regulation is more appropriate than a Directive. 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •Ex-post evaluations/fitness checks of existing legislation N/A •Stakeholder consultations

The Commission has consulted stakeholders throughout the process of preparing this proposal. In particular: i)The Commission carried out a dedicated open public consultation (19 December 2019 - 19 March 2020) ii)The Commission consulted the public on an inception impact assessment (19 December 2019 - 16 January 2020) iii)The Commission services consulted Member State experts in the Expert Group on Banking, Payments and Insurance (EGBPI) on two occasions (18 May 2020 and 16 July 2020). iv)The Commission services held a dedicated webinar on an EU framework for crypto- assets, as part of the Digital Finance Outreach 2020 (“DFO”) series of events (19 May 2020) The purpose of the public consultation was to inform the Commission on the development of a potential EU framework for crypto-assets. It covered both questions on crypto-assets not covered by the existing EU financial services legislation, crypto-assets covered by the existing EU financial services legislation (e.g. qualifying as transferable securities or electronic money/e-money), specific questions on so-called ‘stablecoins’ as well as more general questions on the application of DLT in financial services. Most respondents stressed that the creation of a bespoke regime for crypto-assets not currently covered by the EU financial services legislation, including non-regulated ‘stablecoins’, would be beneficial for the establishment of a sustainable crypto-asset ecosystem in the EU. The majority of respondents confirmed that there is a need for legal certainty and harmonisation across national legislations, and many stakeholders were in favour of the bulk of the exemplified requirements that could be set for crypto-asset service providers. Member State representatives in the EGBPI expressed overall support for the approach chosen, to create an appropriate bespoke regulatory framework for unregulated crypto-assets. They highlighted the need to avoid regulatory arbitrage, avoid circumvention of rules by crypto-asset issuers, and to ensure that all relevant rules from existing legislation on payments and e-money is also present in a bespoke regime for the so-called ‘stablecoins’. The need to provide a redemption right for ‘stablecoins’ was also mentioned whilst there were differing opinions about the preferred solution in relation to supervision. As part of a series of outreach events, the Commission hosted a webinar specifically on crypto-assets. A wide range of industry stakeholders and public authorities participated in the webinar, providing additional input from the sector on the interaction with the financial services legislation. The proposal also builds on and integrates feedback received through meetings with stakeholders and EU authorities. Most stakeholders, including crypto-asset service providers, have been overall supportive, underlining once again that the sector is very much looking for legal certainty in order to develop further. •Collection and use of expertise In preparing this proposal, the Commission has relied on qualitative and quantitative evidence collected from recognised sources, including the two reports from the EBA and ESMA. This has been complemented with publicly available reports from supervisory authorities, international standard setting bodies and leading research institutes, as well as quantitative and qualitative input from identified stakeholders across the global financial sector. •Impact assessment This proposal is accompanied by an impact assessment, which was submitted to the Regulatory Scrutiny Board (RSB) on 29 April 2020 and approved on 29 May 2020. The RSB recommended improvements in some areas with a view to: (i) put the initiative in the context of ongoing EU and international regulatory efforts; (ii) provide more clarity as to how the initiative will mitigate the risks of fraud, hacking and market abuse and also explain the coherence with the upcoming revision of the anti-money laundering legislation; and (iii) explain better the financial stability concerns relating to ‘stablecoins’ and clarify how supervisory bodies will ensure investor and consumer protection. The impact assessment has been amended accordingly, also addressing the more detailed comments made by the RSB. First, the Commission considered two policy options for developing a crypto-asset framework for crypto-assets not covered by existing EU financial services legislation (except ‘stablecoins’ for which a different set of options was considered – see below): ·Option 1 - ‘Opt-in’ regime for unregulated crypto-assets Under Option 1, issuers and service providers that opt in to the EU regime would benefit from an EU passport to expand their activities across borders. Service providers, which decide not to opt in, would remain unregulated or would be subject to national bespoke regimes without being granted the EU passport. ·Option 2 - Full harmonisation Under Option 2, all issuers (except those making small offerings) and service providers would be subject to EU law and would benefit from an EU passport. The national bespoke regimes on crypto-assets would no longer be applicable. While Option 1 could be less burdensome for small issuers and service providers that can decide not to opt in, Option 2 would ensure a higher level of legal certainty, investor protection, market integrity and financial stability, and would reduce market fragmentation across the Single Market. Full harmonisation represents a more coherent approach compared to an opt-in regime. Therefore, Option 2 was the preferred option.

In addition, the Commission also assessed specific options for the so-called ‘stablecoins’ where these would also be considered crypto-assets not covered by existing EU financial services legislation: ·Option 1 – bespoke legislative regime aimed at addressing the risks posed by ‘stablecoins’ and ‘global stablecoins’ By following a strict risk-based approach and building on recommendations currently being developed by, for example, the FSB, this option would address vulnerabilities to financial stability posed by stablecoins, while allowing for the development of different types of ‘stablecoin’ business models. These would include specific disclosure requirements for ‘stablecoin’ issuers as well as requirements imposed on the reserve backing the ‘stablecoin’. ·Option 2 – regulating ‘stablecoins’ under the Electronic Money Directive ‘Stablecoins’ whose value is backed by one single currency that is legal tender are close to the definition of e-money under the Electronic Money Directive. The aim of many ‘stablecoins’ is to create a “means of payments” and, when backed by a reserve of assets, some ‘stablecoins’ could become a credible means of exchange and store of value. In that sense, ‘stablecoins’ can arguably have common features with e-money. However, this option would require ‘stablecoin’ issuers to comply with existing legislation that may not be fit for purpose. Although the Electronic Money Directive and, by extension the Payment Services Directive, could cover some ‘stablecoin’ service providers, it might not mitigate adequately the most significant risks to consumer protection, for example, those raised by wallet providers. In addition, the Electronic Money Directive does not set specific provisions for an entity that would be systemic, which is what ‘global stablecoins’ could potentially become. ·Option 3 – measures aimed at limiting the use of ‘stablecoins’ within the EU’ Option 3 would be to restrict the issuance of ‘stablecoins’ and the provision of services related to this type of crypto-asset. This approach could potentially be justified, as the risks posed by ‘stablecoins’ and in particular those that could reach global scale (including risks to financial stability, monetary policy and monetary sovereignty) would exceed the benefits offered to EU consumers in terms of fast, cheap, efficient and inclusive means of payment. However, Option 3 would not only create costs for ‘stablecoins’ already in operation, but it would also prevent the reaping of any benefits related to this new type of crypto-assets. Option 3 would not be consistent with the objectives set at EU level to promote innovation in the financial sector. Furthermore, Option 3 could leave some financial stability risks unaddressed, should EU consumers widely use ‘stablecoins’ issued in third countries. The Commission considered that Option 1 was the preferred option for ‘stablecoins’ in combination with Option 2, to avoid regulatory arbitrage between ‘stablecoins’ that are indistinguishable from e-money and the treatment of e-money issued on a distributed ledger. Together with Option 2 (full harmonisation as described above) for other types of crypto-assets not covered by existing EU financial services legislation, these would create a comprehensive and holistic EU framework on ‘stablecoins’, capable of mitigating the risks identified by the Financial Stability Board, in particular financial stability risks. The structure of ‘stablecoins’ is complex and comprises many interdependent functions and legal entities. The regulatory approach under Option 1 (in combination with Option 2 for hitherto unregulated crypto-assets) would cover the different functions usually present in ‘stablecoin’ structures (governance body, asset management, payment and customer-interface functions) and would also capture those interactions between entities that can amplify the risk to financial stability. •Regulatory fitness and simplification This Regulation imposes an obligation on issuers of crypto-assets to publish an information document (called white paper) with mandatory disclosure requirements. In order to avoid the creation of administrative burden, small and medium-sized enterprises (SMEs) will be exempted from the publication of such an information document where the total consideration of the offering of crypto-assets is less than €1,000,000 over a period of 12 months. Issuers of ‘stablecoins’ will not be subject to authorisation by a national competent authority (NCA) if the outstanding amount of ’stablecoins’ is below €5,000,000. Furthermore, the requirements imposed on crypto-asset service providers are proportionate to the risks created by the services provided. •Fundamental rights The EU is committed to high standards of protection of fundamental rights and is signatory to a broad set of conventions on human rights. In this context, the proposal is not likely to have a direct impact on these rights, as listed in the main UN conventions on human rights, the Charter of Fundamental Rights of the European Union, which is an integral part of the EU Treaties, and the European Convention on Human Rights (ECHR). 4.BUDGETARY IMPLICATIONS This proposal holds implications in terms of costs and administrative burden for NCAs, the EBA and ESMA. The magnitude and distribution of these costs will depend on the precise requirements placed on crypto-asset issuers and service providers and the related supervisory and monitoring tasks. The estimated supervisory costs for each Member State (including staff, training, IT infrastructure and dedicated investigative tools) can range from €350.000 to €500.000 per year, with one-off costs estimated at €140.000. However, this would be partially offset by the supervisory fees that NCAs would levy on crypto-asset service providers and issuers. For the EBA, it will require over time a total of 18 full-time employees (FTE) to take on the supervision of issuers of significant asset-referenced tokens or e-money tokens. The EBA will also incur additional IT costs, mission expenses for the on-site inspections and translation costs. However, all of these costs would be fully covered by the fees levied on the issuers of significant asset-referenced tokens and issuers of significant e-money tokens. For ESMA, the estimated costs of establishing a register of all crypto-asset service providers and maintaining this with the information received from NCAs and the EBA is to be covered within their operating budget. The financial and budgetary impacts of this proposal are explained in detail in the legislative financial statement annexed to this proposal. 5.OTHER ELEMENTS •Implementation plans and monitoring, evaluation and reporting arrangements

Providing for a robust monitoring and evaluation mechanism is crucial to ensure that the regulatory actions undertaken are effective in achieving their respective objectives. The Commission has therefore established a programme for monitoring the outputs and impacts of this Regulation. The Commission will be in charge of monitoring the effects of the preferred policy options on the basis of the non-exhaustive list of indicators indicated in the impact assessment (p.64-65). The Commission will also be in charge of assessing the impact of this Regulation and will be tasked with preparing a report to the Council and Parliament (Article 122 of the proposal). •Detailed explanation of the specific provisions of the proposal This proposal seeks to provide legal certainty for crypto-assets not covered by existing EU financial services legislation and establish uniform rules for crypto-asset service providers and issuers at EU level. The proposed Regulation will replace existing national frameworks applicable to crypto-assets not covered by existing EU financial services legislation and also establish specific rules for so-called ‘stablecoins’, including when these are e-money. The proposed Regulation is divided into nine Titles. Title I sets the subject matter, the scope and the definitions. Article 1 sets out that the Regulation applies to crypto-asset service providers and issuers, and establishes uniform requirements for transparency and disclosure in relation to issuance, operation, organisation and governance of crypto-asset service providers, as well as establishes consumer protection rules and measures to prevent market abuse. Article 2 limits the scope of the Regulation to crypto-assets that do not qualify as financial instruments, deposits or structured deposits under EU financial services legislation. Article 3 sets out the terms and definitions that are used for the purposes of this Regulation, including ‘crypto-asset’, ‘issuer of crypto-assets’, ‘asset-referenced token’ (often described as ‘stablecoin’), ‘e-money token’ (often described as ‘stablecoin’), ‘crypto-asset service provider’, ‘utility token’ and others. Article 3 also defines the various crypto-asset services. Importantly, the Commission may adopt delegated acts to specify some technical elements of the definitions, to adjust them to market and technological developments. Title II regulates the offerings and marketing to the public of crypto-assets other than asset-referenced tokens and e-money tokens. It indicates that an issuer shall be entitled to offer such crypto-assets to the public in the Union or seek an admission to trading on a trading platform for such crypto-assets if it complies with the requirements of Article 4, such as the obligation to be established in the form of a legal person or the obligation to draw up a crypto-asset white paper in accordance with Article 5 (with Annex I) and the notification of such a crypto-asset white paper to the competent authorities (Article 7) and its publication (Article 8). Once a whitepaper has been published, the issuer of crypto-assets can offer its crypto-assets in the EU or seeks an admission of such crypto-assets to trading on a trading platform (Article 10). Article 4 also includes some exemptions from the publication of a whitepaper, including for small offerings of crypto-assets (below €1 million within a twelve-month period) and offerings targeting qualified investors as defined by the Prospectus Regulation (Regulation EU 2017/1129). Article 5 and Annex I of the proposal set out the information requirements regarding the crypto-asset white paper accompanying an offer to the public of crypto-assets or an admission of crypto-assets to a trading platform for crypto-assets, while Article 6 imposes some requirements related to the marketing materials produced by the issuers of crypto-assets, other than asset-referenced tokens or e-money tokens. The crypto-asset white paper will not be subject to a pre-approval process by the national competent authorities (Article 7). It will be notified to the national competent authorities with an assessment whether the crypto-asset at stake constitutes a financial instrument under the Markets in Financial Instruments Directive (Directive 2014/65/EU), in particular. After the notification of the crypto-asset white paper, competent authorities will have the power to suspend or prohibit the offering, require the inclusion of additional information in the crypto-asset white paper or make public the fact that the issuer is not complying with the Regulation (Article 7). Title II also includes specific provisions on the offers of crypto-assets that are limited in time (Article 9), the amendments of an initial crypto-asset white paper (Article 11), the right of withdrawal granted to acquirers of crypto-assets (Article 12), the obligations imposed on all issuers of crypto-assets (Article 13) and on the issuers’ liability attached to the crypto-asset white paper (Article 14). Title III, Chapter 1 describes the procedure for authorisation of asset-referenced token issuers and the approval of their crypto-asset white paper by national competent authorities (Articles 16 to 19 and Annexes I and II). To be authorised to operate in the Union, issuers of asset-referenced tokens shall be incorporated in the form of a legal entity established in the EU (Article 15). Article 15 also indicates that no asset-referenced tokens can be offered to the public in the Union or admitted to trading on a trading platform for crypto-assets if the issuer is not authorised in the Union and it does not publish a crypto-asset white paper approved by its competent authority. Article 15 also includes exemptions for small-scale asset-referenced tokens and for asset-referenced tokens that are marketed, distributed and exclusively held by qualified investors. Withdrawal of an authorisation is detailed in Article 20 and Article 21 sets out the procedure for modifying the crypto-asset white paper. Title III, Chapter 2 sets out the obligations for issuers of asset-referenced tokens. It states they shall act honestly, fairly and professionally (Article 23). It lays down the rules for the publication of the crypto-asset white paper and potential marketing communications (Article 24) and the requirements for these communications (Article 25). Further, issuers are subject to ongoing information obligations (Article 26) and they are required to establish a complaint handling procedure (Article 27). They shall also comply with other requirements, such as rules on conflicts of interest (Article 28), notification on changes to their management body to its competent authority (Article 29), governance arrangements (Article 30), own funds (Article 31), rules on the reserve of assets backing the asset-referenced tokens (Article 32) and requirements for the custody of the reserve assets (Article 33). Article 34 explains that an issuer shall only invest the reserve assets in assets that are secure, low risk assets. Article 35 also imposes on issuers of asset-referenced tokens the disclosure of the rights attached to the asset-referenced tokens, including any direct claim on the issuer or on the reserve of assets. Where the issuer of asset-referenced tokens does not offer direct redemption rights or claims on the issuer or on the reserve assets to all holders of asset-reference tokens, Article 35 provides holders of asset-referenced tokens with minimum rights. Article 36 prevents issuers of asset-referenced tokens and crypto-asset service providers from granting any interest to holders of asset-referenced tokens. Title III, Chapter 4, sets out the rules for the acquisition of issuers of asset-referenced tokens, with Article 37 detailing the assessment of an intended acquisition, and Article 38 the content of such an assessment. Title III, Chapter 5, Article 39 sets out the criteria that EBA shall use when determining whether an asset-referenced token is significant. These criteria are: the size of the customer base of the promoters of the asset-referenced tokens, the value of the asset-referenced tokens or their market capitalisation, the number and value of transactions, size of the reserve of assets, significance of the issuers’ cross-border activities and the interconnectedness with the financial system. Article 39 also includes an empowerment for the Commission to adopt a delegated act in order to specify further the circumstances under which and thresholds above which an issuer of asset-referenced tokens will be considered significant. Article 39 includes some minimum thresholds that the delegated act shall in any case respect. Article 40 details the possibility for an issuer of an asset-referenced token to classify as significant at the time of applying for an authorisation on their own initiative. Article 41 lists the additional obligations applicable to issuers of significant asset-referenced tokens, such as additional own funds requirements, liquidity management policy and interoperability. Tittle III, Chapter 6, Article 42 obliges the issuer to have a procedure in place for an orderly wind-down of their activities. Title IV, Chapter 1 describes the procedure for authorisation as an issuer of e-money tokens. Article 43 describes that no e-money tokens shall be offered to the public in the Union or admitted to trading on a crypto-asset trading platform unless the issuer is authorised as a credit institution or as an ‘electronic money institution’ within the meaning of Article 2(1) of Directive 2009/110/EC. Article 43 also states that ‘e-money tokens’ are deemed electronic money for the purpose of Directive 2009/110/EC. Article 44 describes how holders of e-money tokens shall be provided with a claim on the issuer: e-money tokens shall be issued at par value and on the receipt of funds, and upon request by the holder of e-money tokens, the issuers must redeem them at any moment and at par value. Article 45 prevents issuers of e-money tokens and crypto-asset service providers from granting any interest to holders of e-money tokens. Article 46 and Annex III sets out the requirements for the crypto-asset white paper accompanying the issuance of e-money tokens, for example: description of the issuer, detailed description of the issuer’s project, indication of whether it concerns an offering of e-money tokens to the public or admission of these to a trading platform, as well as information on the risks relating to the e-money issuer, the e-money tokens and the implementation of any potential project. Article 47 includes provision on the liability attached to such crypto-asset white paper related to e-money tokens. Article 48 sets requirements for potential marketing communications produced in relation to an offer of e-money tokens and Article 49 states that any funds received by an issuer in exchange for e-money tokens, shall be invested in assets denominated in the same currency as the one referenced by the e-money token. Title IV, Chapter 2, Article 50 states that the EBA shall classify e-money tokens as significant on the basis of the criteria listed in Article 39. Article 51 details the possibility of an issuer of an e-money token to classify as significant at the time of applying for an authorisation on their own initiative. Article 52 contains the additional obligations applicable to issuers of significant e-money tokens. Issuers of significant e-money tokens must apply Article 33 on the custody of the reserve assets and Article 34 on the investment of these assets instead of Article 7 of Directive 2009/110/EC, Article 41, paragraphs 1, 2, and 3 on remuneration, interoperability and liquidity management, Article 41, paragraph 4 instead of Article 5 of Directive 2009/110/EC and Article 42 on an orderly wind-down of their activities. Title V sets out the provisions on authorisation and operating conditions of crypto-asset service providers. Chapter 1 defines the provisions on authorisation (Article 53), detailing the content of such an application (Article 54), the assessment of the application (Article 55) and the rights granted to competent authorities to withdraw an authorisation (Article 56). The chapter also includes a mandate for ESMA to establish a register of all crypto-asset service providers (Article 57), which will also include information on the crypto-asset white papers notified by competent authorities. For the cross-border provision of crypto-asset services, Article 58 sets out the details and the way information about cross-border activities of crypto-assets should be communicated from the competent authority of the home Member State to that of the host Member State. Chapter 2 imposes requirements on all crypto-asset service providers, such as the obligation to act honestly, fairly and professionally (Article 59) prudential safeguards (Article 60 and Annex IV), organisational requirements (Article 61), rules on the safekeeping of clients’ crypto-assets and funds (Article 63) the obligation to establish a complaint handling procedure (Article 64), rules on conflict of interests (Article 65) and rules on outsourcing (66). Title V, Chapter 3 sets out requirements for specific services: custody of crypto-assets (Article 67), trading platforms for crypto-assets (Article 68), exchange of crypto-assets for fiat currency or for other crypto-assets (Article 69), execution of orders (Article 70), placing of crypto-assets (Article 71), reception and transmission of orders on behalf of third parties (Article 72) and advice on crypto-assets (Article 73). Chapter 4 specifies the rules on acquisition of crypto-assets service providers. Title VI puts in place prohibitions and requirements to prevent market abuse involving crypto-assets. Article 76 defines the scope of market abuse rules. Article 77 defines the notion of inside information and indicates that an issuer whose crypto-assets are admitted to trading on a trading platform for crypto-assets shall disclose inside information. Other provisions of the title ban insider dealing (Article 78), unlawful disclosure of inside information (Article 79) and market manipulation (Article 80). Title VII provides details on the powers of national competent authorities, the EBA and ESMA. Title VII, Chapter 1 imposes on Member States the obligation to designate one or several competent authorities for the purpose of this regulation, including one competent authority designated as a single point of contact (Article 81). Chapter 1 also sets out detailed provisions on the powers of national competent authorities (Article 82), cooperation between competent authorities (Article 83), with the EBA and ESMA (Article 84) or with other authorities (Article 85). It also details the notification duties of Member States (Article 86), rules on professional secrecy (Article 87), data protection (Article 88) and on precautionary measures that can be taken by national competent authorities of host Member States (Article 89). Article 90 sets out rules on cooperation with third countries and Article 91 specifies complaint handling by competent authorities. Title VII, Chapter 2 details the administrative sanctions and measures that can be imposed by competent authorities (Article 92), the exercise of their supervisory powers and powers to impose penalties (Article 93), the right of appeal (Article 94), the publication of decisions (Article 95), the reporting of penalties to the EBA and ESMA (Article 96) and the reporting of breaches and protection of persons reporting such breaches (Article 97). Title VII, Chapter 3 sets out detailed provisions on the EBA's powers and competences related to the supervision of issuers of significant asset-referenced tokens and significant e-money tokens, including supervisory responsibilities (Article 98) and rules on supervisory colleges for issuers of significant asset-referenced tokens are mentioned in Article 99. The college shall consist of, among others, the competent authority of the home Member State where the issuer of the asset-referenced tokens has been authorised, the EBA, ESMA, the competent authorities with supervision of the most relevant crypto-asset trading platforms, custodians, credit institutions etc. providing services in relation to the significant asset-referenced token and the ECB. Where the issuer of significant asset-referenced tokens is established in a Member State the currency of which is not the euro, or where a currency that is not euro is included in the reserve assets, the national central bank of that Member State is part of the college. Competent authorities not belonging to the college may request from the college all information relevant to perform their supervisory duties. Article 99 also describes how the EBA, in cooperation with ESMA and the European System of Central Banks, must develop draft regulatory standards to determine the most relevant trading platforms and custodians and the details of the practical arrangements of the college.

Powers to issue non-binding opinions are conferred to the college in Article 100. These opinions can be related to require an issuer to hold a higher amount of own funds, an amended crypto-asset white paper, envisaged withdrawal of authorisation, envisaged agreement of exchange of information with a third-country supervisory authority etc. Competent authorities or the EBA shall duly consider the opinions of the college and where they do not agree with the opinion, including any recommendations, their final decision shall contain explanations for any significant deviation from the opinion or recommendations. Article 101 sets out the rules for supervisory colleges for issuers of significant e-money tokens, which functions in the same way as the colleges for asset-referenced tokens (additional participants include competent authorities of most relevant payment institutions providing payment services in relation to the significant e-money tokens) and Article 102 the powers to issues non-binding opinions of such a college. Chapter 4 specifies the EBA’s powers and competences on issuers of significant asset-referenced tokens and issuers of significant e-money tokens. Legal privilege (Article 103), request for information (Article 104), general investigative powers (Article 105), on-site inspections (Article 106), exchange of information (Article 107), agreement on exchange of information with third countries (Article 108), disclosure of information from third countries (Article 109) and cooperation with other authorities (Article 110). The obligation of professional secrecy is mentioned in Article 111 and supervisory measures by the EBA, in Article 112. Administrative sanctions and other measures, in particular, fines are detailed in Article 113, with the consequent Articles regulating periodic penalty payments (Article 114), the disclosure, nature and enforcement of fines (Article 115) and the corresponding procedural rules for taking supervisory measures and imposing fines (Article 116). Article 117 and Article 118 set out the requirements on the hearing of persons concerned and the unlimited jurisdiction of the Court of Justice over the EBA's decisions, respectively. In accordance with Article 119, the EBA should be able to charge fees to the issuers of significant asset-referenced tokens and the issuers of significant e-money tokens based on a delegated act adopted pursuant to the Regulation. Article 120 gives powers to the EBA to delegate specific supervisory tasks to competent authorities where necessary for the proper supervision of an issuer of a significant asset-referenced token or an issuer of a significant e-money token. The exercise of the delegation with a view to adopt Commission's delegated acts is covered in Title VIII. The proposal for a Regulation contains empowerments for the Commission to adopt delegated acts specifying certain details, requirements and arrangements as set out in the Regulation (Article 121). Title IX includes the transitional and final provisions, including the obligation for the Commission to produce a report evaluating the impact of the Regulation (Article 122). Transitional measures include a grandfathering clause for crypto-assets issued before the entry into force of this Regulation, with the exception of asset-referenced tokens and e-money tokens, are listed in Article 123. Article 124 amends the directive on the protection of persons who report breaches of Union law (Directive (EU) 2019/1937) by adding this Regulation to it and Article 125 specifies that this amendment must be transposed into national law 12 months after the entry into force of this Regulation. Article 126 indicates that this Regulation shall enter into application 18 months after its entry into force, except for the provisions related to e-money tokens and asset-referenced tokens that shall enter into application on the date of entry into force of this Regulation. 2020/0265 (COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Markets in Crypto-assets, and amending Directive (EU) 2019/1937 (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Central Bank, Having regard to the opinion of the European Economic and Social Committee, Acting in accordance with the ordinary legislative procedure, Whereas: (1)The Commission’s communication on a Digital Finance Strategy aims to ensure that the Union’s financial services legislation is fit for the digital age, and contributes to a future-ready economy that works for the people, including by enabling the use of innovative technologies. The Union has a stated and confirmed policy interest in developing and promoting the uptake of transformative technologies in the financial sector, including blockchain and distributed ledger technology (DLT). (2)In finance, crypto-assets are one of the major DLT applications. Crypto-assets are digital representations of value or rights that have the potential to bring significant benefits to both market participants and consumers. By streamlining capital-raising processes and enhancing competition, issuances of crypto-assets can allow for a cheaper, less burdensome and more inclusive way of financing small and medium-sized enterprises (SMEs). When used as a means of payment, payment tokens can present opportunities in terms of cheaper, faster and more efficient payments, in particular on a cross-border basis, by limiting the number of intermediaries.

(3)Some crypto-assets qualify as financial instruments as defined in Article 4(1), point (15), of Directive 2014/65/EU of the European Parliament and of the Council. The majority of crypto-assets, however, fall outside of the scope of Union legislation on financial services. There are no rules for services related to crypto-assets, including for the operation of trading platforms for crypto-assets, the service of exchanging crypto-assets against fiat currency or other crypto-assets, or the custody of crypto-assets. The lack of such rules leaves holders of crypto-assets exposed to risks, in particular in areas not covered by consumer protection rules. The lack of such rules can also lead to substantial risks to market integrity in the secondary market of crypto-assets, including market manipulation. To address those risks, some Member States have put in place specific rules for all – or a subset of – crypto-assets that fall outside Union legislation on financial services. Other Member States are considering to legislate in this area. (4)The lack of an overall Union framework for crypto-assets can lead to a lack of users’ confidence in those assets, which will hinder the development of a market in those assets and can lead to missed opportunities in terms of innovative digital services, alternative payment instruments or new funding sources for Union companies. In addition, companies using crypto-assets will have no legal certainty on how their crypto-assets will be treated in the different Member States, which will undermine their efforts to use crypto-assets for digital innovation. The lack of an overall Union framework on crypto-assets could also lead to regulatory fragmentation, which will distort competition in the Single Market, make it more difficult for crypto-asset service providers to scale up their activities on a cross-border basis and will give rise to regulatory arbitrage. The crypto-asset market is still modest in size and does not yet pose a threat to financial stability. It is, however, likely that a subset of crypto-assets which aim to stabilise their price by linking their value to a specific asset or a basket of assets could be widely adopted by consumers. Such a development could raise additional challenges to financial stability, monetary policy transmission or monetary sovereignty. (5)A dedicated and harmonised framework is therefore necessary at Union level to provide specific rules for crypto-assets and related activities and services and to clarify the applicable legal framework. Such harmonised framework should also cover services related to crypto-assets where these services are not yet covered by Union legislation on financial services. Such a framework should support innovation and fair competition, while ensuring a high level of consumer protection and market integrity in crypto-asset markets. A clear framework should enable crypto-asset service providers to scale up their business on a cross-border basis and should facilitate their access to banking services to run their activities smoothly. It should also ensure financial stability and address monetary policy risks that could arise from crypto-assets that aim at stabilising their price by referencing a currency, an asset or a basket of such. While increasing consumer protection, market integrity and financial stability through the regulation of offers to the public of crypto-assets or services related to such crypto-assets, a Union framework on markets in crypto-assets should not regulate the underlying technology and should allow for the use of both permissionless and permission-based distributed ledgers. (6)Union legislation on financial services should not favour one particular technology. Crypto-assets that qualify as ‘financial instruments’ as defined in Article 4(1), point (15), of Directive 2014/65/EU should therefore remain regulated under the general existing Union legislation, including Directive 2014/65/EU, regardless of the technology used for their issuance or their transfer. (7)Crypto-assets issued by central banks acting in their monetary authority capacity or by other public authorities should not be subject to the Union framework covering crypto-assets, and neither should services related to crypto-assets that are provided by such central banks or other public authorities. (8)Any legislation adopted in the field of crypto-assets should be specific, future-proof and be able to keep pace with innovation and technological developments. ‘Crypto-assets’ and ‘distributed ledger technology’ should therefore be defined as widely as possible to capture all types of crypto-assets which currently fall outside the scope of Union legislation on financial services. Such legislation should also contribute to the objective of combating money laundering and the financing of terrorism. Any definition of ‘crypto-assets’ should therefore correspond to the definition of ‘virtual assets’ set out in the recommendations of the Financial Action Task Force (FATF). For the same reason, any list of crypto-asset services should also encompass virtual asset services that are likely to raise money-laundering concerns and that are identified as such by the FATF. (9)A distinction should be made between three sub-categories of crypto-assets, which should be subject to more specific requirements. The first sub-category consists of a type of crypto-asset which is intended to provide digital access to a good or service, available on DLT, and that is only accepted by the issuer of that token (‘utility tokens’). Such ‘utility tokens’ have non-financial purposes related to the operation of a digital platform and digital services and should be considered as a specific type of crypto-assets. A second sub-category of crypto-assets are ‘asset-referenced tokens’. Such asset-referenced tokens aim at maintaining a stable value by referencing several currencies that are legal tender, one or several commodities, one or several crypto-assets, or a basket of such assets. By stabilising their value, those asset-referenced tokens often aim at being used by their holders as a means of payment to buy goods and services and as a store of value. A third sub-category of crypto-assets are crypto-assets that are intended primarily as a means of payment aim at stabilising their value by referencing only one fiat currency. The function of such crypto-assets is very similar to the function of electronic money, as defined in in Article 2, point 2, of Directive 2009/110/EC of the European Parliament and of the Council. Like electronic money, such crypto-assets are electronic surrogates for coins and banknotes and are used for making payments. These crypto-assets are defined as ‘electronic money tokens’ or ‘e-money tokens’. (10)Despite their similarities, electronic money and crypto-assets referencing a single fiat currency differ in some important aspects. Holders of electronic money as defined in Article 2, point 2, of Directive 2009/110/EC are always provided with a claim on the electronic money institution and have a contractual right to redeem their electronic money at any moment against fiat currency that is legal tender at par value with that currency. By contrast, some of the crypto-assets referencing one fiat currency which is legal tender do not provide their holders with such a claim on the issuers of such assets and could fall outside the scope of Directive 2009/110/EC. Other crypto-asset referencing one fiat currency do not provide a claim at par with the currency they are referencing or limit the redemption period. The fact that holders of such crypto-assets do not have a claim on the issuers of such assets, or that such claim is not at par with the currency those crypto-assets are referencing, could undermine the confidence of users of those crypto-assets. To avoid circumvention of the rules laid down in Directive 2009/110/EC, any definition of ‘e-money tokens’ should be as wide as possible to capture all the types of crypto-assets referencing one single fiat currency that is legal tender. To avoid regulatory arbitrage, strict conditions on the issuance of e-money tokens should be laid down, including the obligation for such e-money tokens to be issued either by a credit institution as defined in Regulation (EU) No 575/2013 of the European Parliament and of the Council, or by an electronic money institution authorised under Directive 2009/110/EC. For the same reason, issuers of such e-money tokens should also grant the users of such tokens with a claim to redeem their tokens at any moment and at par value against the currency referencing those tokens. Because e-money tokens are also crypto-assets and can also raise new challenges in terms of consumer protection and market integrity specific to crypto-assets, they should also be subject to rules laid down in this Regulation to address these challenges to consumer protection and market integrity. (11)Given the different risks and opportunities raised by crypto-assets, it is necessary to lay down rules for issuers of crypto-assets that should be any legal person who offers to the public any type of crypto-assets or seeks the admission of such crypto-assets to a trading platform for crypto-assets. (12)It is necessary to lay down specific rules for entities that provide services related to crypto-assets. A first category of such services consist of ensuring the operation of a trading platform for crypto-assets, exchanging crypto-assets against fiat currencies that are legal tender or other crypto-assets by dealing on own account, and the service, on behalf of third parties, of ensuring the custody and administration of crypto-assets or ensuring the control of means to access such crypto-assets. A second category of such services are the placing of crypto-assets, the reception or transmission of orders for crypto-assets, the execution of orders for crypto-assets on behalf of third parties and the provision of advice on crypto-assets. Any person that provides such crypto-asset services on a professional basis should be considered as a ‘crypto-asset service provider’. (13)To ensure that all offers to the public of crypto-assets, other than asset-referenced tokens or e-money tokens, in the Union, or all the admissions of such crypto-assets to trading on a trading platform for crypto-assets are properly monitored and supervised by competent authorities, all issuers of crypto-assets should be legal entities. (14)In order to ensure consumer protection, prospective purchasers of crypto-assets should be informed about the characteristics, functions and risks of crypto-assets they intend to purchase. When making a public offer of crypto-assets in the Union or when seeking admission of crypto-assets to trading on a trading platform for crypto-assets, issuers of crypto-assets should produce, notify to their competent authority and publish an information document (‘a crypto-asset white paper’) containing mandatory disclosures. Such crypto-asset white paper should contain general information on the issuer, on the project to be carried out with the capital raised, on the public offer of crypto-assets or on their admission to trading on a trading platform for crypto-assets, on the rights and obligations attached to the crypto-assets, on the underlying technology used for such assets and on the related risks. To ensure fair and non-discriminatory treatment of holders of crypto-assets, the information in the crypto-asset white paper, and where applicable in any marketing communications related to the public offer, shall be fair, clear and not misleading. (15)In order to ensure a proportionate approach, the requirements to draw up and publish a crypto-asset white paper should not apply to offers of crypto-assets, other than asset-referenced tokens or e-money tokens, that are offered for free, or offers of crypto-assets that are exclusively offered to qualified investors as defined in Article 2, point (e), of Regulation (EU) 2017/1129 of the European Parliament and of the Council and can be exclusively held by such qualified investors, or that, per Member State, are made to a small number of persons, or that are unique and not fungible with other crypto-assets. (16)Small and medium-sized enterprises and start-ups should not be subject to excessive administrative burdens. Offers to the public of crypto-assets in the Union that do not exceed an adequate aggregate threshold over a period of 12 months should therefore be exempted from the obligation to draw up a crypto-asset white paper. However, EU horizontal legislation ensuring consumer protection, such as Directive 2011/83/EU of the European Parliament and of the Council, Directive 2005/29/EC of the European Parliament and of the Council or the Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, including any information obligations contained therein, remain applicable to these offers to the public of crypto-assets where involving business-to-consumer relations. (17)Where an offer to the public concerns utility tokens for a service that is not yet in operation, the duration of the public offer as described in the crypto-asset white paper shall not exceed twelve months. This limitation on the duration of the public offer is unrelated to the moment when the product or service becomes factually operational and can be used by the holder of a utility token after the end of the public offer. (18)In order to enable supervision, issuers of crypto-assets should, before any public offer of crypto-assets in the Union or before those crypto-assets are admitted to trading on a trading platform for crypto-assets, notify their crypto-asset white paper and, where applicable, their marketing communications, to the competent authority of the Member State where they have their registered office or a branch. Issuers that are established in a third country should notify their crypto-asset white paper, and, where applicable, their marketing communication, to the competent authority of the Member State where the crypto-assets are intended to be offered or where the admission to trading on a trading platform for crypto-assets is sought in the first place. (19)Undue administrative burdens should be avoided. Competent authorities should therefore not be required to approve a crypto-asset white paper before its publication. Competent authorities should, however, after publication, have the power to request that additional information is included in the crypto-asset white paper, and, where applicable, in the marketing communications. (20)Competent authorities should be able to suspend or prohibit a public offer of crypto-assets or the admission of such crypto-assets to trading on a trading platform for crypto-assets where such an offer to the public or an admission to trading does not comply with the applicable requirements. Competent authorities should also have the power to publish a warning that an issuer has failed to meet those requirements, either on its website or through a press release. (21)Crypto-asset white papers and, where applicable, marketing communications that have been duly notified to a competent authority should be published, after which issuers of crypto-assets should be allowed to offer their crypto-assets throughout the Union and to seek admission for trading such crypto-assets on a trading platform for crypto-assets. (22)In order to further ensure consumer protection, the consumers who are acquiring crypto-assets, other than asset-referenced tokens or e-money tokens, directly from the issuer or from a crypto-asset service provider placing the crypto-assets on behalf of the issuer should be provided with a right of withdrawal during a limited period of time after their acquisition. In order to ensure the smooth completion of an offer to the public of crypto-assets for which the issuer has set a time limit, this right of withdrawal should not be exercised by the consumer after the end of the subscription period. Furthermore, the right of withdrawal should not apply where the crypto-assets, other than asset-referenced tokens or e-money tokens, are admitted to trading on a trading platform for crypto-assets, as, in such a case, the price of such crypto-assets would depend on the fluctuations of crypto-asset markets.

(23)Even where exempted from the obligation to publish a crypto-asset white paper, all issuers of crypto-assets, other than asset-referenced tokens or e-money tokens, should act honestly, fairly and professionally, should communicate with holders of crypto-assets in a fair, clear and truthful manner, should identify, prevent, manage and disclose conflicts of interest, should have effective administrative arrangements to ensure that their systems and security protocols meet Union standards. In order to assist competent authorities in their supervisory tasks, the European Securities and Markets Authority (ESMA), in close cooperation with the European Banking Authority (EBA) should be mandated to publish guidelines on those systems and security protocols in order to further specify these Union standards. (24)To further protect holders of crypto-assets, civil liability rules should apply to crypto-asset issuers and their management body for the information provided to the public through the crypto-asset white paper. (25)Asset-referenced tokens aim at stabilising their value by reference to several fiat currencies, to one or more commodities, to one or more other crypto-assets, or to a basket of such assets. They could therefore be widely adopted by users to transfer value or as a means of payments and thus pose increased risks in terms of consumer protection and market integrity compared to other crypto-assets. Issuers of asset-referenced tokens should therefore be subject to more stringent requirements than issuers of other crypto-assets. (26)So-called algorithmic ‘stablecoins’ that aim at maintaining a stable value, via protocols, that provide for the increase or decrease of the supply of such crypto-assets in response to changes in demand should not be considered as asset-referenced tokens, provided that they do not aim at stabilising their value by referencing one or several other assets. (27)To ensure the proper supervision and monitoring of offers to the public of asset-referenced tokens, issuers of asset-referenced tokens should have a registered office in the Union. (28)Offers to the public of asset-referenced tokens in the Union or seeking an admission of such crypto-assets to trading on a trading platform for crypto-assets should be possible only where the competent authority has authorised the issuer of such crypto-assets and approved the crypto-asset white paper regarding such crypto-assets. The authorisation requirement should however not apply where the asset-referenced tokens are only offered to qualified investors, or when the offer to the public of asset-referenced tokens is below a certain threshold. Credit institutions authorised under Directive 2013/36/EU of the European Parliament and of the Council should not need another authorisation under this Regulation in order to issue asset-referenced tokens. In those cases, the issuer of such asset-referenced tokens should be still required to produce a crypto-asset white paper to inform buyers about the characteristics and risks of such asset-referenced tokens and to notify it to the relevant competent authority, before publication. (29)A competent authority should refuse authorisation where the prospective issuer of asset-referenced tokens’ business model may pose a serious threat to financial stability, monetary policy transmission and monetary sovereignty. The competent authority should consult the EBA and ESMA and, where the asset-referenced tokens is referencing Union currencies, the European Central Bank (ECB) and the national central bank of issue of such currencies before granting an authorisation or refusing an authorisation. The EBA, ESMA, and, where applicable, the ECB and the national central banks should provide the competent authority with a non-binding opinion on the prospective issuer’s application. Where authorising a prospective issuer of asset-referenced tokens, the competent authority should also approve the crypto-asset white paper produced by that entity. The authorisation by the competent authority should be valid throughout the Union and should allow the issuer of asset-referenced tokens to offer such crypto-assets in the Single Market and to seek an admission to trading on a trading platform for crypto-assets. In the same way, the crypto-asset white paper should also be valid for the entire Union, without possibility for Member States to impose additional requirements. (30)To ensure consumer protection, issuers of asset-referenced tokens should always provide holders of asset-referenced tokens with clear, fair and not misleading information. The crypto-asset white paper on asset-referenced tokens should include information on the stabilisation mechanism, on the investment policy of the reserve assets, on the custody arrangements for the reserve assets, and on the rights provided to holders. Where the issuers of asset-referenced tokens do not offer a direct claim or redemption right on the reserve assets to all the holders of such asset-referenced tokens, the crypto-asset white paper related to asset-referenced tokens should contain a clear and unambiguous warning in this respect. Marketing communications of an issuer of asset-referenced tokens should also include the same statement, where the issuers do not offer such direct rights to all the holders of asset-referenced tokens. (31)In addition to information included in the crypto-asset white paper, issuers of asset-referenced tokens should also provide holders of such tokens with information on a continuous basis. In particular, they should disclose the amount of asset-referenced tokens in circulation and the value and the composition of the reserve assets, on at least a monthly basis, on their website. Issuers of asset-referenced tokens should also disclose any event that is likely to have a significant impact on the value of the asset-referenced tokens or on the reserve assets, irrespective of whether such crypto-assets are admitted to trading on a trading platform for crypto-assets. (32)To ensure consumer protection, issuers of asset-referenced tokens should always act honestly, fairly and professionally and in the best interest of the holders of asset-referenced tokens. Issuers of asset-referenced tokens should also put in place a clear procedure for handling the complaints received from the holders of crypto-assets. (33)Issuers of asset-referenced tokens should put in place a policy to identify, manage and potentially disclose conflicts of interest which can arise from their relations with their managers, shareholders, clients or third-party service providers. (34)Issuers of asset-referenced tokens should have robust governance arrangements, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility and effective processes to identify, manage, monitor and report the risks to which they are or might be exposed. The management body of such issuers and their shareholders should have good repute and sufficient expertise and be fit and proper for the purpose of anti-money laundering and combatting the financing of terrorism. Issuers of asset-referenced tokens should also employ resources proportionate to the scale of their activities and should always ensure continuity and regularity in the performance of their activities. For that purpose, issuers of asset-referenced tokens should establish a business continuity policy aimed at ensuring, in the case of an interruption to their systems and procedures, the performance of their core payment activities. Issuers of asset-referenced tokens should also have a strong internal control and risk assessment mechanism, as well as a system that guarantees the integrity and confidentiality of information received. (35)Issuers of asset-referenced tokens are usually at the centre of a network of entities that ensure the issuance of such crypto-assets, their transfer and their distribution to holders. Issuers of asset-referenced tokens should therefore be required to establish and maintain appropriate contractual arrangements with those third-party entities ensuring the stabilisation mechanism and the investment of the reserve assets backing the value of the tokens, the custody of such reserve assets, and, where applicable, the distribution of the asset-referenced tokens to the public. (36)To address the risks to financial stability of the wider financial system, issuers of asset-referenced tokens should be subject to capital requirements. Those capital requirements should be proportionate to the issuance size of the asset-referenced tokens and therefore calculated as a percentage of the reserve of assets that back the value of the asset-referenced tokens. Competent authorities should however be able to increase or decrease the amount of own fund requirements required on the basis of, inter alia, the evaluation of the risk-assessment mechanism of the issuer, the quality and volatility of the assets in the reserve backing the asset-referenced tokens or the aggregate value and number of asset-referenced tokens. (37)In order to stabilise the value of their asset-referenced tokens, issuers of asset-referenced tokens should constitute and maintain a reserve of assets backing those crypto-assets at all times. Issuers of asset-referenced tokens should ensure the prudent management of such a reserve of assets and should in particular ensure that the creation and destruction of asset-referenced tokens are always matched by a corresponding increase or decrease in the reserve assets and that such increase or decrease is adequately managed to avoid adverse impacts on the market of the reserve assets. Issuers of asset-backed crypto-assets should therefore establish, maintain and detail policies that describe, inter alia, the composition of the reserve assets, the allocation of assets, the comprehensive assessment of the risks raised by the reserve assets, the procedure for the creation and destruction of the asset-referenced tokens, the procedure to purchase and redeem the asset-referenced tokens against the reserve assets and, where the reserve assets are invested, the investment policy that is followed by the issuer. (38)To prevent the risk of loss for asset-referenced tokens and to preserve the value of those assets issuers of asset-referenced tokens should have an adequate custody policy for reserve assets. That policy should ensure that the reserve assets are entirely segregated from the issuer’s own assets at all times, that the reserve assets are not encumbered or pledged as collateral, and that the issuer of asset-referenced tokens has prompt access to those reserve assets. The reserve assets should, depending on their nature, be kept in custody either by a credit institution within the meaning of Regulation (EU) No 575/2013 or by an authorised crypto-asset service provider. Credit institutions or crypto-asset service providers that keep in custody the reserve assets that back the asset-referenced tokens should be responsible for the loss of such reserve assets vis-à-vis the issuer or the holders of asset-referenced tokens, unless they prove that such loss has arisen from an external event beyond reasonable control. (39)To protect holders of asset-referenced tokens against a decrease in value of the assets backing the value of the tokens, issuers of asset-referenced tokens should invest the reserve assets in secure, low risks assets with minimal market and credit risk. As the asset-referenced tokens can be used as a means of payment, all profits or losses resulting from the investment of the reserve assets should be borne by the issuer of the asset-referenced tokens. (40)Some asset-referenced tokens may offer all their holders rights, such as redemption rights or claims on the reserve assets or on the issuer, while other asset-referenced tokens may not grant such rights to all their holders and may limit the right of redemption to specific holders. Any rules regarding asset-referenced tokens should be flexible enough to capture all those situations. Issuers of asset-referenced tokens should therefore inform the holders of asset-referenced tokens on whether they are provided with a direct claim on the issuer or redemption rights. Where issuers of asset-referenced tokens grant direct rights on the issuer or on the reserve assets to all the holders, the issuers should precisely set out the conditions under which such rights can be exercised. Where issuers of asset-referenced tokens restrict such direct rights on the issuer or on the reserve assets to a limited number of holders of asset-referenced tokens, the issuers should still offer minimum rights to all the holders of asset-referenced tokens. Issuers of asset-referenced tokens should ensure the liquidity of those tokens by concluding and maintaining adequate liquidity arrangements with crypto-asset service providers that are in charge of posting firm quotes on a predictable basis to buy and sell the asset-referenced tokens against fiat currency. Where the value of the asset-referenced tokens varies significantly from the value of the reserve assets, the holders of asset-referenced tokens should have a right to request the redemption of their asset-referenced tokens against reserve assets directly from the issuer. Issuers of asset-referenced tokens that voluntarily stop their operations or that are orderly wound-down should have contractual arrangements in place to ensure that the proceeds of the reserve assets are paid to the holders of asset-referenced tokens. (41)To ensure that asset-referenced tokens are mainly used as a means of exchange and not as a store of value, issuers of asset-referenced tokens, and any crypto-asset service providers, should not grant interests to users of asset-referenced tokens for time such users are holding those asset-referenced tokens. Some asset-referenced tokens and e-money tokens should be considered significant due to the potential large customer base of their promoters and shareholders, their potential high market capitalisation, the potential size of the reserve of assets backing the value of such asset-referenced tokens or e-money tokens, the potential high number of transactions, the potential interconnectedness with the financial system or the potential cross-border use of such crypto-assets. Significant asset-referenced tokens or significant e-money tokens, that could be used by a large number of holders and which could raise specific challenges in terms of financial stability, monetary policy transmission or monetary sovereignty, should be subject to more stringent requirements than other asset-referenced tokens or e-money tokens. (42)Due to their large scale, significant asset-referenced tokens can pose greater risks to financial stability than other crypto-assets and asset-referenced tokens with more limited issuance. Issuers of significant asset-referenced tokens should therefore be subject to more stringent requirements than issuers of other crypto-assets or asset-referenced tokens with more limited issuance. They should in particular be subject to higher capital requirements, to interoperability requirements and they should establish a liquidity management policy.

(43)Issuers of asset-referenced tokens should have an orderly wind-down plan to ensure that the rights of the holders of the asset-referenced tokens are protected where issuers of asset-referenced tokens stop their operations or when they are orderly winding down their activities according to national insolvency laws. (44)Issuers of e-money tokens should be authorised either as a credit institution under Directive 2013/36/EU or as an electronic money institution under Directive 2009/110/EC and they should comply with the relevant operational requirements of Directive 2009/110/EC, unless specified otherwise in this Regulation. Issuers of e-money tokens should produce a crypto-asset white paper and notify it to their competent authority. Where the issuance of e-money tokens is below a certain threshold or where e-money tokens can be exclusively held by qualified investors, issuers of such e-money tokens should not be subject to the authorisation requirements. However, issuers should always draw up a crypto-asset white paper and notify it to their competent authority. (45)Holders of e-money tokens should be provided with a claim on the issuer of the e-money tokens concerned. Holders of e-money tokens should always be granted with a redemption right at par value with the fiat currency that the e-money token is referencing and at any moment. Issuers of e-money tokens should be allowed to apply a fee, where holders of e-money tokens are asking for the redemptions of their tokens for fiat currency. Such a fee should be proportionate to the actual costs incurred by the issuer of electronic money tokens. (46)Issuers of e-money tokens, and any crypto-asset service providers, should not grant interests to holders of e-money tokens for the time such holders are holdings those e-money tokens. (47)The crypto-asset white paper produced by an issuer of e-money tokens should contain all the relevant information concerning that issuer and the offer of e-money tokens or their admission to trading on a trading platform for crypto-assets that is necessary to enable potential buyers to make an informed purchase decision and understand the risks relating to the offer of e-money tokens. The crypto-asset white paper should also explicitly indicate that holders of e-money tokens are provided with a claim in the form of a right to redeem their e-money tokens against fiat currency at par value and at any moment. (48)Where an issuer of e-money tokens invests the funds received in exchange for e-money tokens, such funds should be invested in assets denominated in the same currency as the one that the e-money token is referencing to avoid cross-currency risks. (49)Significant e-money tokens can pose greater risks to financial stability than non-significant e-money tokens and traditional electronic money. Issuers of such significant e-money tokens should therefore be subject to additional requirements. Issuers of e-money tokens should in particular be subject to higher capital requirements than other e-money token issuers, to interoperability requirements and they should establish a liquidity management policy. Issuers of e-money tokens should also comply with certain requirements applying to issuers of asset-referenced tokens, such as custody requirements for the reserve assets, investment rules for the reserve assets and the obligation to establish an orderly wind-down plan. (50)Crypto-asset services should only be provided by legal entities that have a registered office in a Member State and that have been authorised as a crypto-asset service provider by the competent authority of the Member State where its registered office is located. (51)This Regulation should not affect the possibility for persons established in the Union to receive crypto-asset services by a third-country firm at their own initiative. Where a third-country firm provides crypto-asset services at the own initiative of a person established in the Union, the crypto-asset services should not be deemed as provided in the Union. Where a third-country firm solicits clients or potential clients in the Union or promotes or advertises crypto-asset services or activities in the Union, it should not be deemed as a crypto-asset service provided at the own initiative of the client. In such a case, the third-country firm should be authorised as a crypto-asset service provider. (52)Given the relatively small scale of crypto-asset service providers to date, the power to authorise and supervise such service providers should be conferred to national competent authorities. The authorisation should be granted, refused or withdrawn by the competent authority of the Member State where the entity has its registered office. Such an authorisation should indicate the crypto-asset services for which the crypto-asset service provider is authorised and should be valid for the entire Union. (53)To facilitate transparency for holders of crypto-assets as regards the provision of crypto-asset services, ESMA should establish a register of crypto-asset service providers, which should include information on the entities authorised to provide those services across the Union. That register should also include the crypto-asset white papers notified to competent authorities and published by issuers of crypto-assets. (54)Some firms subject to Union legislation on financial services should be allowed to provide crypto-asset services without prior authorisation. Credit institutions authorised under Directive 2013/36/EU should not need another authorisation to provide crypto-asset services. Investment firms authorised under Directive 2014/65/EU to provide one or several investment services as defined under that Directive similar to the crypto-asset services they intend to provide should also be allowed to provide crypto-asset services across the Union without another authorisation. (55)In order to ensure consumer protection, market integrity and financial stability, crypto-asset service providers should always act honestly, fairly and professionally in the best interest of their clients. Crypto-asset services should be considered ‘financial services’ as defined in Directive 2002/65/EC of the European Parliament and of the Council. Where marketed at distance, the contracts between crypto-asset service providers and consumers should be subject to that Directive. Crypto-asset service providers should provide their clients with clear, fair and not misleading information and warn them about the risks associated with crypto-assets. Crypto-asset service providers should make their pricing policies public, should establish a complaint handling procedure and should have a robust policy to identify, prevent, manage and disclose conflicts of interest. (56)To ensure consumer protection, crypto-asset service providers should comply with some prudential requirements. Those prudential requirements should be set as a fixed amount or in proportion to their fixed overheads of the preceding year, depending on the types of services they provide. (57)Crypto-asset service providers should be subject to strong organisational requirements. Their managers and main shareholders should be fit and proper for the purpose of anti-money laundering and combatting the financing of terrorism. Crypto-asset service providers should employ management and staff with adequate skills, knowledge and expertise and should take all reasonable steps to perform their functions, including through the preparation of a business continuity plan. They should have sound internal control and risk assessment mechanisms as well as adequate systems and procedures to ensure integrity and confidentiality of information received. Crypto-asset service providers should have appropriate arrangements to keep records of all transactions, orders and services related to crypto-assets that they provide. They should also have systems in place to detect potential market abuse committed by clients. (58)In order to ensure consumer protection, crypto-asset service providers should have adequate arrangements to safeguard the ownership rights of clients’ holdings of crypto-assets. Where their business model requires them to hold funds as defined in Article 4, point (25), of Directive (EU) 2015/2366 of the European Parliament and of the Council in the form of banknotes, coins, scriptural money or electronic money belonging to their clients, crypto-asset service providers should place such funds with a credit institution or a central bank. Crypto-assets service providers should be authorised to make payment transactions in connection with the crypto-asset services they offer, only where they are authorised as payment institutions in accordance with Directive (EU) 2015/2366. (59)Depending on the services they provide and due to the specific risks raised by each type of services, crypto-asset service providers should be subject to requirements specific to those services. Crypto-asset service providers providing the service of custody and administration of crypto-assets on behalf of third parties should have a contractual relation with their clients with mandatory contractual provisions and should establish and implement a custody policy. Those crypto-asset service providers should also be held liable for any damages resulting from an ICT-related incident, including an incident resulting from a cyber-attack, theft or any malfunctions. (60)To ensure an orderly functioning of crypto-asset markets, crypto-asset service providers operating a trading platform for crypto-assets should have detailed operating rules, should ensure that their systems and procedures are sufficiently resilient and should be subject to pre-trade and post-trade transparency requirements adapted to the crypto-asset market. Crypto-asset service providers should ensure that the trades executed on their trading platform for crypto-assets are settled and recorded on the DLT swiftly. Crypto-asset service providers operating a trading platform for crypto-assets should also have a transparent fee structure for the services provided to avoid the placing of orders that could contribute to market abuse or disorderly trading conditions. (61)To ensure consumer protection, crypto-asset service providers that exchange crypto-assets against fiat currencies or other crypto-assets by using their own capital should establish a non-discriminatory commercial policy. They should publish either firm quotes or the method they are using for determining the price of crypto-assets they wish to buy or sell. They should also be subject to post-trade transparency requirements. Crypto-asset service providers that execute orders for crypto-assets on behalf of third parties should establish an execution policy and should always aim at obtaining the best result possible for their clients. They should take all necessary steps to avoid the misuse of information related to clients’ orders by their employees. Crypto-assets service providers that receive orders and transmit those orders to other crypto-asset service providers should implement procedures for the prompt and proper sending of those orders. Crypto-assets service providers should not receive any monetary or non-monetary benefits for transmitting those orders to any particular trading platform for crypto-assets or any other crypto-asset service providers. (62)Crypto-asset service providers that place crypto-assets for potential users should communicate to those persons information on how they intend to perform their service before the conclusion of a contract. They should also put in place specific measures to prevent conflicts of interest arising from that activity.

(63)To ensure consumer protection, crypto-asset service providers that provide advice on crypto-assets, either at the request of a third party or at their own initiative, should make a preliminary assessment of their clients’ experience, knowledge, objectives and ability to bear losses. Where the clients do not provide information to the crypto-asset service providers on their experience, knowledge, objectives and ability to bear losses, or it is clear that those clients do not have sufficient experience or knowledge to understand the risks involved, or the ability to bear losses, crypto-asset service providers should warn those clients that the crypto-asset or the crypto-asset services may not be suitable for them. When providing advice, crypto-asset service providers should establish a report, summarising the clients’ needs and demands and the advice given. (64)It is necessary to ensure users’ confidence in crypto-asset markets and market integrity. It is therefore necessary to lay down rules to deter market abuse for crypto-assets that are admitted to trading on a trading platform for crypto-assets. However, as issuers of crypto-assets and crypto-asset service providers are very often SMEs, it would be disproportionate to apply all the provisions of Regulation (EU) No 596/2014 of the European Parliament and of the Council to them. It is therefore necessary to lay down specific rules prohibiting certain behaviours that are likely to undermine users’ confidence in crypto-asset markets and the integrity of crypto-asset markets, including insider dealings, unlawful disclosure of inside information and market manipulation related to crypto-assets. These bespoke rules on market abuse committed in relation to crypto-assets should be applied, where crypto-assets are admitted to trading on a trading platform for crypto-assets. (65)Competent authorities should be conferred with sufficient powers to supervise the issuance of crypto-assets, including asset-referenced tokens or e-money tokens, as well as crypto-asset service providers, including the power to suspend or prohibit an issuance of crypto-assets or the provision of a crypto-asset service, and to investigate infringements of the rules on market abuse. Given the cross-border nature of crypto-asset markets, competent authorities should cooperate with each other to detect and deter any infringements of the legal framework governing crypto-assets and markets for crypto-assets. Competent authorities should also have the power to impose sanctions on issuers of crypto-assets, including asset-referenced tokens or e-money tokens and crypto-asset service providers. (66)Significant asset-referenced tokens can be used as a means of exchange and to make large volumes of payment transactions on a cross-border basis. To avoid supervisory arbitrage across Member States, it is appropriate to assign to the EBA the task of supervising the issuers of significant asset-referenced tokens, once such asset-referenced tokens have been classified as significant. (67)The EBA should establish a college of supervisors for issuers of significant asset-referenced tokens. Those issuers are usually at the centre of a network of entities that ensure the issuance of such crypto-assets, their transfer and their distribution to holders. The members of the college of supervisors should therefore include all the competent authorities of the relevant entities and crypto-asset service providers that ensure, among others, the custody of the reserve assets, the operation of trading platforms for crypto-assets where the significant asset-referenced tokens are admitted to trading and the crypto-asset service providers ensuring the custody and administration of the significant asset-referenced tokens on behalf of holders. The college of supervisors should facilitate the cooperation and exchange of information among its members and should issue non-binding opinions on supervisory measures or changes in authorisation concerning the issuers of significant asset-referenced tokens or on the relevant entities providing services or activities in relation to the significant asset-referenced tokens. (68)Competent authorities in charge of supervision under Directive 2009/110/EC should supervise issuers of e-money tokens. However, given the potential widespread use of significant e-money tokens as a means of payment and the risks they can pose to financial stability, a dual supervision by both competent authorities and the EBA of issuers of significant e-money tokens is necessary. The EBA should supervise the compliance by issuers of significant e-money tokens with the specific additional requirements set out in this Regulation for significant e-money tokens. (69)The EBA should establish a college of supervisors for issuers of significant e-money tokens. Issuers of significant e-money tokens are usually at the centre of a network of entities which ensure the issuance of such crypto-assets, their transfer and their distribution to holders. The members of the college of supervisors for issuers of significant e-money tokens should therefore include all the competent authorities of the relevant entities and crypto-asset service providers that ensure, among others, the operation of trading platforms for crypto-assets where the significant e-money tokens are admitted to trading and the crypto-asset service providers ensuring the custod