Suitability assessments for crypto-asset service providers and issuers

Regulation (EU) No 2023/1114 on Markets in Crypto Assets (MiCA) entered into force in the EU on 30 June 2024 (with respect to provisions covering asset-referenced tokens and e-money tokens - the remaining parts to come into force on 30 December 2024). MiCA regulates providers of crypto-asset services (CASPs) and issuers of cryptocurrencies, covering a wide range of new definitions, digital currencies, tokens, and financial operators in the market, which necessitates regulatory guidance.

Members of the management body (typically the board of directors) of issuers of asset-referenced tokens (ARTs) and CASPs must be of sufficiently good repute and possess individually and collectively appropriate knowledge, skills and experience. Members of the management body of these companies must also be capable of committing sufficient time to their duties.  

Shareholders with direct or indirect, qualifying holdings in ARTs and CASPs will similarly be required to be of sufficiently good repute and must not have been convicted of offences relating to money laundering or terrorist financing or any other offences that would affect their good repute. Qualifying holdings will include any direct or indirect holding of 10 % of the capital or voting rights of an ART or a CASP, or which makes it possible to exercise a significant influence over the management of the relevant entity. Owners seen as acting in concert will be aggregated for this purpose. 

The assessment of suitability for members of the management body and owners of qualifying holdings will initially be carried out in connection with the authorization process under MiCA, but the requirements are ongoing and will apply also to new members of the management body and new owners of qualifying holdings. Inability to demonstrate suitability of members of the management body or owners of qualifying holdings is a ground for refusal of authorization under MiCA. Also, ARTs and CASPs that are no longer able to fulfil the requirements with respect to members of its management body, may have their authorisations withdrawn. It is therefore important for ARTs and CASPs to handle these issues and processes correctly. 

In order to provide additional guidance with respect to what is actually required with respect to members of the management body and owners of qualifying holdings, the European Banking Authority (EBA) has now published guidelines for these suitability assessments. One guideline deals with the suitability assessment of the members of the management body (the Management Guideline) and one guideline deals with the suitability assessment of shareholders (the Shareholder Guideline). 

The two guidelines outline the different elements that should be considered when assessing the suitability, which information should be considered and the method for the assessment itself. The guideline with respect to suitability assessments of members of the management body includes a template for a matrix to assess the collective competence of the management body which may be used as a useful tool for ARTs and CASPs. The guideline with respect to suitability assessments of owners of qualifying holdings includes an assessment methodology for when two or more acquirers are seen as acting in concert and therefore should be aggregated for the purposes of determining whether they hold a qualifying holding. 

To ensure compliance with the requirements, and also to ensure that the relevant elements are taken into consideration, ARTs and CASPs should adopt a suitability policy containing principles on the selection, monitoring and succession planning of its members and for re-appointing existing members. The suitability policy should ensure the new members are assessed, but also that existing members are re-assessed when events other than the appointment of new members, which may potentially affect the individual or collective suitability of members, occur. This could for example be when the scope of operations is amended, or new rules and regulations come into force.  

The two guidelines will apply at the same time as MiCA, and since suitability will be something that the local supervisor will consider in the authorization process, market participants should acquaint themselves with the two guidelines as soon as possible. 
 

You can read the two guidelines here.
 

If you have any questions relating to the two guidelines or MiCA in general, we are here to assist. 

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