Regulatory Round-Up: Examining Recent updates in respect of MiCAR

Maltese Parliament debating amendments to the VFA Act

Bill No. 88, Virtual Financial Assets (Amendment) Bill (the “Bill”) is one of the next pending items on the Parliament of Malta’s agenda. The main object and rationale behind this Bill, which will shortly move to the second reading stage in Parliament, is to amend the Virtual Financial Assets Act (Chapter 590 of the laws of Malta ), by aligning the national regulatory framework with the new Markets in Crypto Assets Regulation (Regulation 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in cryptoassets or “MiCAR”). The major changes are namely in relation to removal the role of the VFA Agent from the VFA Framework, which function will become redundant within the context of MiCAR.

 European Banking Authority Consultation Document open Stable Coin Redemption Plans

On the 8 March, the European Banking Authority (EBA) opened a consultation on the Guidelines for orderly redemption plans for asset-referenced tokens (ARTs) and e-money tokens (EMTs) pursuant to Article 47 (5) of Regulation (EU) 2023/1114 (“MiCAR”)

The EBA’s draft Guidelines are designed to safeguard the interests of token holders, ensuring equitable treatment and laying down the procedures for the orderly and timely redemption of ARTs and EMTs if the issuer fails to meet its obligations. The focus is not just on individual issuers but also addresses pooled issuances (i.e. instances where the same token is issued by multiple issuers). Furthermore, the Guidelines delineate the conditions under which competent authorities can activate redemption plans, emphasizing the need for close cooperation with prudential and resolution authorities.

Central to the Guidelines is the requirement for a detailed redemption plan from issuers of ARTs and EMTs. These plans are essential for ensuring that token holders can redeem their tokens in a scenario where the issuer is deemed “unable or likely to be unable to fulfill its obligations.” The Guidelines cover various aspects, including the principles governing the redemption plan, governance requirements, the process for token redemption, and the communication strategy to stakeholders.

Proportionality is a key principle in the development and review of the redemption plan, ensuring that the level of detail and periodicity for review are tailored to the specific context of the issuer. The Guidelines, specify that, although Chapter 6 of Title III of MICA (mandating ART issuers to have recovery and redemption plans in place), certain aspects related to the reserve of assets applicable within the context of ART issuances, do not apply to credit institutions and e-money institutions issuing non-significant EMTs.

The issuance of these Guidelines underlines the EBA’s proactive approach to addressing the complexities of the crypto assets market, ensuring that the operational resilience and investor protection are paramount. By setting out clear expectations for redemption plans, including the activation triggers and the coordination with other regulatory frameworks, the EBA aims to mitigate risks associated with the failure of token issuers, thereby enhancing the stability and trust in the digital financial ecosystem. As the consultation progresses, the EBA’s initiative represents a critical juncture in the regulatory oversight of crypto assets, aligning with broader efforts to integrate digital finance into a coherent regulatory framework. For issuers of ARTs and EMTs, understanding and implementing these Guidelines will be paramount in navigating the evolving regulatory landscape and ensuring the long-term viability and trustworthiness of their offerings.

This period of consultation and subsequent adaptation of the Guidelines will shape the future operational resilience of the crypto assets sector, underscoring the importance of robust regulatory frameworks in fostering innovation while protecting investors and maintaining financial stability.

Author: James Debono (Senior Associate, Ganado Advocates) & Mark Caruana Scicluna (Senior Associate, Ganado Advocates)