Legal Digest February

Welcome to the February edition of our Legal Digest in 2024, where we dissect the intricacies of asset tokenization regulations.

Throughout this series, we aim to navigate the complexities of transformative legislation, shedding light on its impact on the tokenization of assets and exploring the implications for investors, financial entities, and the broader market. Join us as we uncover the nuances of this evolving regulatory framework and unravel its implications in the ever-evolving world of asset tokenization.

BaFin has recently updated its guidelines for crypto custody business authorization applications, providing essential insights for entities navigating the authorization process under the German Banking Act. Meanwhile, ESMA has launched a consultation on draft guidelines for categorizing crypto-assets as financial instruments, aiming to establish uniform standards across the EU and aligning with MiCA and MiFID II, enhancing clarity and supporting global regulatory standards for crypto-assets.

BaFin Updates Guidelines for Crypto Custody Business Authorization Applications 

BaFin has recently revised its guidelines regarding applications for authorization for crypto custody business. These guidelines offer insights for entities seeking authorization for crypto custody business under Section 1(1a)(2)(6) of the German Banking Act (Kreditwesengesetz – KWG), outlining key aspects that BaFin deems crucial for the authorization process. 

ESMA Launches Consultation on Draft Guidelines for Crypto-Asset Qualification as Financial Instruments 

ESMA has launched a consultation on proposed guidelines for categorizing crypto-assets as financial instruments. Seeking input, it aims to establish uniform standards across the EU, aligning with MiCA and MiFID II. The guidelines aim to provide flexible criteria for NCAs and market players to classify crypto-assets, balancing guidance with avoiding rigidity. Once finalized, these guidelines will improve clarity and support global regulatory standards for crypto-assets. 

ESMA Updates Q&A on MiCA Regulation 

ESMA has revised its Q&A on the MiCA Regulation, offering guidance on several key aspects. These include the treatment of new crypto-asset service providers established before and after December 30, 2024, passporting rights for grandfathered entities, prohibition of benefits, crypto-asset services by credit institutions, and notifications under Article 60. The updated Q&As, released after January 1st, are now accessible through ESMA’s Q&A IT-tool. 

EBA: Address on the digital finance landscape

EBA Chair José Manuel Campa delivered a speech on digital finance, emphasizing its importance for EU competitiveness and highlighting the benefits of FinTech. The speech outlined the EBA’s plans for 2024, including collaborating with regulatory authorities on overseeing third-party providers, assessing deposit tokenization models, evaluating risks in crypto lending, mapping AI-related regulations, and exploring ‘white-label’ banking product distribution.

ECON Report on Regulation Amendments for Enhanced Data Sharing in Financial Sector Oversight

ECON has released a report concerning a proposed regulation amendment affecting the ESRB, EBA, EIOPA, ESMA, and InvestEU Regulations, particularly focusing on streamlining reporting requirements in financial services and investment support domains. The objective is to alleviate reporting burdens on businesses by minimizing redundant reporting and promoting increased data sharing and reuse among financial regulatory authorities. ECON endorsed the report on January 29th, which includes draft legislative text outlining amendments to the European Commission’s initial proposal.

ESMA Initiates Consultation on Reverse Solicitation Guidelines for MiCA

ESMA has initiated a consultation on draft guidelines for reverse solicitation under MiCA. The consultation seeks input on conditions for using this exemption and supervisory practices to prevent circumvention. ESMA emphasizes that third-country firms providing crypto-asset services are limited under MiCA to cases where the client exclusively initiates the service. This exemption is narrowly defined and should not be exploited as a loophole to bypass MiCA regulations.

New EU Regulations Enhance Oversight of Crowdfunding Practices 

The Commission has issued Regulation (EU) 2024/358, enhancing the Crowdfunding Regulation by detailing requirements on credit scoring, pricing, and risk management for crowdfunding projects. This regulation mandates disclosure of methods for calculating credit scores and pricing, ensures fair loan pricing, establishes governance structures for information disclosure, risk assessment, and loan valuation, and outlines factors for evaluating credit risk and conducting loan valuations throughout the loan lifecycle. 

ESAs Publish Initial Rules for Strengthening Financial Sector Resilience

The ESAs have issued the first set of final draft technical standards under DORA, aimed at enhancing digital operational resilience in the EU financial sector. These standards focus on ICT and third-party risk management, incident classification, and policy specifications for critical ICT services. They emphasize governance arrangements, risk management frameworks, and internal controls for financial entities using third-party ICT services. The EC will review these drafts for potential adoption in the coming months.

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