Financial Services

ESMA seeks market input on reverse solicitation under MiCAR

Written by

Dr. Michael Huertas

RegCORE Client Alert | Capital Markets Union | EU Digital Single Market


In the EU-27, the advent of the EU’s Markets in Crypto-Assets Regulation (MiCAR),See current and future coverage from our EU RegCORE available here, here and here as well as here.Show Footnote created a new chapter for how the EU’s Single Rulebook aims to provide greater legal and regulatory certainty. MiCAR introduces the world’s largest Single Market for crypto-assets, with uniform concepts and rules applicable to crypto-asset issuers (CAIs) as well as crypto-asset service providers (CASPs). In general, third-country firms may not solicit EU-27 clients as they are not authorised to provide CASP services in the EU but clients are free to use third-country firms if they choose to do so without having been solicited by such firms. 

As offerings of and trading activity in digital-assets, whether regulated or not as “crypto-assets” by MiCAR or traditional EU legislative and regulatory rulemaking regimes continues to grow, so too do the questions on how the reverse solicitation (also known as reverse enquiry) exemption for third-country firms offering crypto-asset services or activities to clients in the EU should apply. 

On 29 January 2024, the European Securities and Markets Authority (ESMA) published a long-awaited consultation paperAvailable here.Show Footnote to seek input from the market on its proposed rules on reverse solicitation. ESMA will consider all comments received by 29 April 2024. The reverse solicitation exemption, as defined in Article 61 of MiCAR, allows third-country firms to provide crypto-asset services or activities to clients in the EU only if such service or activity is “initiated at the own exclusive initiative of the client, without any solicitation by the third-country firm”. ESMA takes the view that the definition of solicitation and the person soliciting should be construed broadly. Accordingly, the exemption, which only applies to third-country firms, is meant to be very narrowly framed, time bound and should not be used to circumvent MiCAR or to harm EU-based investors and MiCAR-compliant CASPs. The draft guidelines that clarify how reverse solicitation may be used in relation to crypto-assets services and activities should also be read in conjunction with ESMA’s earlier supervisory expectations as it applies to traditional financial services activity or services.See Client Alert here.Show Footnote

In addition, ESMA is also consulting on draft guidelines on when a crypto-asset should be treated as a “financial instrument” and be subject to EU traditional financial services legislation notably MiFIR/MiFID II, IFR/IFD, AIFMD, UCITSD as well as EMIR, SFTR but also the Prospectus Regulation (see separate coverage on that development) or instead be treated under MiCAR. Importantly, the ESMA guidelines on reverse solicitation under MiCAR do not reference but are nevertheless taken to apply to activity or services in respect of crypto-assets that are categorised and thus regulated as MiFID II financial instruments. 

As discussed in this Client Alert, ESMA’s draft guidelines aims to clarify the lack of a commonly adopted application of ‘reverse solicitation' definition across EU Member States, and to provide a structured yet flexible approach for national competent authorities (NCAs) and market participants to classify crypto-assets. Once ESMA finalises the guidelines, by 30 December 2024 at the latest, NCAs are expected to adopt them into their supervisory approach. 

Key takeaways from ESMA’s guidelines

The draft guidelines, which are presented in Annex II of the Consultation Paper, specify the situations in which a third-country firm is deemed to solicit clients in the EU, the means of solicitation, the person soliciting, and the timing and scope of the reliance on the reverse solicitation exemption. They also provide guidance on the supervision practices that NCAs may use to detect and prevent the abuse of the exemption, such as monitoring, reporting, cooperation, and enforcement measures. ESMA is clear that solicitation should be construed in a technology neutral way and thus:

  • Includes the promotion, advertisement or offer of crypto-asset services or activities to (prospective) clients in the EU “…by any means including by way of, without limitation, internet commercials, brochures, telephone calls, face-to-face meetings, press releases, or any other form of physical or electronic means, including social media platforms, mobile applications. It may also include participations in road shows and trade fairs, invitations to events, affiliation campaigns, retargeting of advertising, invitations to fill in a response form or to follow a training course and messaging platforms as well as promotions, advertisements and offers of a general nature and addressed to the public (with a broad and large reach) such as, for instance, brand advertisements by way of sponsorship deals.” ESMA’s statements here, which could still be subject to change, fail to address the existing supervisory approach that looks at the nature of content of statements that may relate to the third-country firm but not the actual crypto-assets, activities or services.
  • Should consider language and its use. ESMA states that a website in an official language of the EU – “and which is not customary in the sphere of international finance – should be a strong indication that a third-country firm is soliciting clients” established or located in the EU;
  • Ensure that contractual arrangements or disclaimers cannot be used to supersede or displace facts about whether a client exclusively initiated contact with the third-country firm. As in existing guidance, third-country firms are expected by ESMA to be able to provide records tracking their relationship with a client ordinarily resident in the EU-27 and whether the client has taken the initiative to receive crypto-asset services with respect to a new product; and 
  • Consider how and when to use “geoblocking”, a practice which prevents access to a website by clients established or located in the EU. ESMA considers that geoblocking would be a strong indication that a third-country firm is not soliciting clients in the EU via such website.

The draft guidelines also reiterate ESMA’s earlier stated supervisory guidance that where a third-country firm and an EU-27 client have established a relationship by way of reverse solicitation, such firm cannot provide new products and services to that client unless such additional services have also been expressly been requested at the sole and exclusive initiative of that client. Some ambiguity (and thus regulatory risk) exists as to whether that third-country firm may provide a repeat of similar services/product types for that client. In terms of “same type of crypto-assets” ESMA permits crypto-asset pairs that do not belong to the same “type” of assets. ESMA offers a non-exhaustive list of pairs of crypto-assets which should not be considered as belonging to the same type of crypto-assets for the purpose of the reverse solicitation exemption. These include:

  • utility tokens, asset-referenced tokens (ARTs) or electronic money tokens (EMTs); 
  • crypto-assets not stored or transferred using the same technology; 
  • EMTs not referencing the same official currency; 
  • ARTs based mostly on fiat currencies and ARTs tokens having significant crypto-currency compositions; 
  • liquid and illiquid crypto-assets; and
  • crypto-assets other than ARTs and EMTs with a non-identifiable-offeror and crypto-assets other than ARTs and EMTs with an identifiable offeror.

The draft guidelines expand on earlier supervisory expectations by clarifying that ESMA (and thus NCAs) should treat the term solicitation in the widest possible way. The term includes banner ads, sponsorship arrangements, and solicitation from influencers and celebrities. The broad definition of solicitation, including online activities, banner advertising, and finfluencersSee Client Alert here.Show Footnote, reflects the online nature of crypto-assets and services. A similar broad interpretation should be given to the person soliciting. It could be the third-country firm or its representative. The third-country firm and the person soliciting on its behalf may have an explicit or implicit relationship, not necessarily contractual. Equally, ESMA clarifies that if a third-party is conducting a marketing campaign or promoting a third-country firm's profile in the Union, the firm cannot claim no solicitation and rely on Article 61 of MiCAR. 

Importantly and quite controversially, the current draft guideline 2, paragraph 16 states that “Solicitation done on behalf of a third-country firm by a person or entity regulated in the EU should still be regarded as a breach of MiCAR. For instance, an EU credit institution, investment firm or payment service provider should not redirect clients (for instance, via its website) to payment services provided by a third-country firm (whether that third-country firm is part of the same group or not).” This statement is potentially problematic for a couple of reasons, notably since it would seem to negate legally compliant fronting relationships, introducing and/or whitelabelling arrangements, where the EU regulated person is permitted to offer such services, whether under MiCAR or MiFID II or other traditional financial services legislation.

The draft guidelines also set out encouragement for NCAs to use a broad range of supervisory tools and practices to detect and prevent circumvention of the reverse solicitation exemption. Those specifically names by ESMA include NCAs:

  • searching for third-country firms with telephone numbers starting with EU country codes or mailing, email or website addresses indicating or hinting at their presence, at least virtually, in the EU. A further area of focus also concerns the use of mobile applications and how these are made available and in which app stores;
  • conducting consumer surveys to identify the firms used by consumers in their jurisdiction for crypto-asset services or running mystery shopping exercises. In summary, mystery shopping refers to the carrying out of anonymous tests of “customer journeys” of financial service providers supervised by the respective NCAs; 
  • monitoring social media activity as it gives an indication of the geographic markets targeted by third-country firms;
  • working closely with other (foreign or domestic) as well as tax authorities that have an insight into whether third-country firms are offering services in the relevant market; and
  • reacting to complaints from clients or information from whistleblowers indicating a third-country firm might have been soliciting clients in its jurisdiction. 

What can CAIs and CASPs do now?

Reverse solicitation has long been subject to stricter supervisory scrutiny in the EU. While reverse solicitation remains a permitted means of servicing clients’ requests, it should be seen more the exception than the rule when a third-country firm looks to engage with clients ordinarily domiciled in the EU-27. Third-country firms should continue to: 

  1. observe the boundaries of the relevant regulatory perimeter of MiCAR as well as traditional financial services legislation as sanctions can be levied against third-country firms and key function holders of those firms. In some instances, this can also apply when tied agents or other distributors may be acting for a third-country firm;
    review their existing and new arrangements on a client-by-client as well as a transaction-by-transaction basis and assess whether they can or indeed should rely on reverse solicitation; 
  2. assess all their client facing communications channels and those of distributors (as well as finfluencers) for compliance with the requisite reverse solicitation exemption requirements. As ESMA’s supervisory expectations are that NCAs should cast a wide net in their review, firms should ideally be conducting a comprehensive review irrespective of whether the communications were not conceived as explicitly targeting a specific market or customer type; 
  3. ensure they (as well as other persons they rely on) have sufficiently detailed and robust evidence to show how, when and on what basis for what precise products and services the client approached the (third-country) firm and whether it was at its own exclusive initiative or that there is no evidence to the contrary. Importantly, this may require a periodic review that the own exclusive initiative test is indeed being applied on service by service or product by product basis as opposed to a relationship basis; and 
  4. be sensitive to the supervisory presumption that an overuse of reverse solicitation may be interpreted by the NCAs as a circumvention of the rules or misuse, which will not be tolerated.

Given the above, many firms, in particular third-country firms, may want to draft and maintain a reverse solicitation policy and procedures document that considers the EU-level supervisory expectations along with those as specific to individual Member States as well as client-type and product/service-type specific considerations. Such a policy and/or procedures document may also help in evidencing compliance efforts to supervisors. 


ESMA’s guidelines aim to establish overarching criteria or general principles that can be employed to encourage consistent practices at the national level when classifying crypto-assets as financial instruments. The determination of whether a crypto-asset should be classified as a financial instrument should nevertheless be done on a case-by-case basis applying substance over form. ESMA specifically states that the legal qualification of a digital asset as a MiCAR crypto-asset or a MiFID II financial instrument should not be determined by “its technological envelope”. The purpose of the guidelines is to encourage consistent practices in this regard and to reinforce the technology agnostic approach that MiCAR and other EU financial markets legislation applies. 

Ultimately, ESMA takes the view that it is the responsibility of offerors or those seeking admittance to trading of crypto-assets (i.e. CAIs) to accurately classify these assets. ESMA point out that the categorisation may be disputed by the applicable NCAs, either prior to the offer's publication or at any point subsequently. Accordingly, having a robust legal opinion may be useful and indeed many trading venues as well as investors may request one on the categorisation of crypto-assets as to its type and how it is regulated or unregulated. 

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