Virtual Assets

On 5 October 2023, ESMA published its second consultation paper (the “Second Consultation Paper”) on the technical standards specifying certain requirements of the Markets in Crypto Assets Regulation (“MiCAR”). Following the first consultation paper, which was published in July 2023, this Second Consultation Paper equally aims to collect views, comments and opinions from stakeholders and market participants on the appropriate implementation of MiCAR.

ESMA will consider the feedback received on this Second Consultation Paper and expect to publish a final report and submit the draft technical standards to the European Commission for endorsement by 30 June 2024.

On 14 December 2023, the Association of the Luxembourg Fund Industry (ALFI) responded to the Second Consultation Paper and the future following regulatory technical standards (RTS):

• Content, methodologies and presentation of sustainability indicators on adverse impacts on the climate and the environment

- ESMA consultation: MiCAR mandates disclosure (content, methodologies and presentation) in respect of sustainability indicators in relation to Principal Adverse Impacts (PAI) on the climate to be included in crypto-asset white papers by persons drawing-up such white papers as well as by Crypto-Asset Service Providers (CASPs) on their websites.

- ALFI comments: ALFI emphasises the importance on the data availability, which is today one of the biggest challenges of the fund industry to ensure the quality, reliability, and comparability of disclosures. Hence the ALFI is advocated for the application of the proportionality principle as not all CASPs will have equal access to ESG information relating to crypto-assets and platforms.

Finally, ALFI has concerns about mandatory disclosure of certain indicators due to potential lack of actual data and recommends making indicators mandatory only when based on actual quality data, not estimates, to prevent misunderstandings.

• Continuity and regularity in the performance of crypto services

- ESMA consultation: MiCAR imposes obligations on CASPs requiring specific governance arrangements and measures to ensure continuity and regularity in service performance. ESMA should create business continuity requirements that CASPs must meet, including organisational arrangements as well as periodically reviewed and tested business continuity policy and plans.

- ALFI comments: ALFI considers that a more flexible approach, consisting in mandatory identification of dedicated resources to ensure management of business continuity, would allow to achieve the same objective while allowing different operational model to emerge and address the divergence in models across CASPs.

• Machine readability of white papers and white papers register

- ESMA consultation: MiCAR mandates crypto-asset white papers to be in a machine-readable format including metadata for improved searchability in its database, aligning with the upcoming Regulation on European Single Access Point (ESAP) to ensure more standardisation.

- ALFI comments: An editable template is deemed useful for quick implementation and comparability.

• Technical means for appropriate public disclosure of inside information

- ESMA consultation: MiCAR introduces rules to prevent market abuse in the trading of crypto assets. It mandates the public disclosure of inside information. ESMA is tasked with developing draft Implementing Technical Standards (ITS) to specify the technical means for appropriate public disclosure and the delay of public disclosure of inside information.

- ALFI comments: The process of allowing specific alerts on the websites of relevant parties is considered a routine practice in the digital and crypto-assets realm. Alternatively, establishing a central EU website for news publications is suggested as a reliable, universally accepted source ensuring information security and trustworthiness across EU jurisdictions.

It has been reported earlier that authorised AIFMs wishing to manage AIFs investing in virtual assets must obtain a prior authorisation from the CSSF for the strategy “Other-Other Fund-Virtual assets” (question 3, CSSF FAQ on virtual assets) and must submit an advance application to the CSSF, which is to include the provision of documents and information listed in the FAQ.

On 18 December 2023, the CSSF updated question 3 of the FAQ on virtual assets, clarifying that a particular emphasis will be placed on the conditions under which the AIFM is involved in the safekeeping of virtual assets including the control of the virtual assets by means of access to/control over the cryptographic keys and in addition, to the provision by the AIFM of discretionary portfolio management.