MiCAR – Final RTS published on information of a proposed acquisition of qualifying holdings in issuers of ARTs

RegCORE – Client Alert | Digital Single Market

QuickTake

The EU’s Market in Crypto-Assets Regulation (MiCAR) became fully operational as of 30 December 2024. As explored in PwC Legal’s EU RegCORE’ series covering developments across the “EU’s Digital Single Market, financial services and crypto-assets” MiCAR marks a momentous achievement in creating (i) a new chapter of the EU’s Single Rulebook for certain types of crypto-assets that are not classified as “financial instruments” and (ii) concurrently extending existing chapters of the Single Rulebook to those crypto-assets that do qualify as “financial instruments”.

As explored in an earlier Client Alert the European Banking Authority (EBA) had consulted on and published draft Regulatory Technical Standards (RTS) setting out the information required by competent authorities for the assessment of an acquisition of qualifying holdings in issuers of asset-referenced tokens (ARTs). On 18 December 2024 the European Commission adopted a Commission Delegated Regulation (CDR) supplementing MiCAR thus bringing the final version of the RTS into force of law across the EU 20 days after the CDR is published in the Official Journal of the EU (the OJ). This Client Alert assesses the key takeaways for market participants stemming from the CDR and the final RTS.

Qualifying holdings: recap on the rules and regulatory rationale

In the context of the EU’s financial regulatory and supervisory framework, the concept of qualifying holdings is a fundamental aspect of supervision of regulated firms. Ensuring (i) who owns what type and level of qualifying holding in a regulated entity and (ii) what this means for the supervised entity’s prospects is important to ensure the stability and integrity of supervised entities and, by extension, the financial system as a whole. In the EU the qualifying holdings and change in control regime therefore aims to enable:

• Prevention of undue influence: by monitoring qualifying holdings and change in control, competent authorities can prevent any single investor or group of investors from exerting undue influence over the strategic decisions and operations of a regulated firm. This is crucial to avoid situations where the interests of a few could potentially lead to decisions that are not in the best interest of the supervised entity, its customers or the financial system.
• Assessment of suitability and financial soundness: competent authorities assess the suitability of shareholders with qualifying holdings to ensure they meet certain standards of reputation and financial soundness. This is to prevent individuals or entities that may pose a risk to the proper functioning of the regulated firm from gaining significant influence.
• Financial stability and integrity: by requiring approval for significant acquisitions, competent authorities can evaluate the potential impact on the stability and integrity of the supervised entity and the financial system. This includes assessing the source of funds for the acquisition and the financial strength of the acquiring party to support the supervised entity’s ongoing operations.
• Transparency and market confidence: the regulatory oversight of qualifying holdings and changes in control promotes transparency in the ownership structure of regulated firms. This transparency is essential for maintaining market confidence, as stakeholders can be assured that the supervised entity is not subject to opaque or potentially harmful ownership practices.
• Compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) requirements: competent authorities need to ensure that the entities with qualifying holdings are not involved in money laundering or terrorist financing. This is part of a broader effort to prevent the financial system from being misused for furtherance of illicit activities.

Under existing EU rules, which the final RTS roll-out with certain modifications to issuers of ARTs, the term “qualifying holding” refers to a direct or indirect holding in an entity that represents a certain (i.e. qualifying) percentage of the capital or voting rights, which could significantly influence the management of that entity. The specific percentage that constitutes a qualifying holding is set at a threshold of 10% or more of the capital or voting rights.

Any natural or legal person intending directly or indirectly to (i) acquire (whether acting alone or acting in concert) qualifying holdings in issuers of ARTs or (ii) to directly or indirectly increase such qualifying holding, must submit a prior notification to the competent authority of that issuer of ARTs (i.e. the target entity), receive approval from that competent authority following it having completed a regulatory assessment of the proposed acquirer and proposed acquisition.

Additional information is required when such qualifying holding exceeds 10% (i.e., up to 20%) and equally when it is more than 20% and up to 50% (in particular where a change in control is triggered) and lastly when it is more than 50%.

In terms of process, a proposed acquirer of qualifying holdings must:

• submit a complete and accurate notification of the proposed acquisition to the competent authority of the ART issuer (i.e. the target entity), at least 30 working days before the intended date of the acquisition. The notification must include the information specified in the final RTS. The notification must also include any additional information that the competent authority may request, such as evidence of the source of funds, due diligence reports or legal opinions.
• The proposed acquirer must inform the competent authority of any material changes to the information provided in the notification, as soon as possible and no later than 10 working days before the intended date of the acquisition. The proposed acquirer must also cooperate with the competent authority and provide any further information or clarification that the competent authority may require, within the time limit specified by the competent authority.
• The ART issuer must inform the competent authority of the receipt of the notification of the proposed acquisition, within two working days of receipt. The ART issuer must also provide the competent authority with any information that the competent authority may request, within the time limit specified by the competent authority. Equally, the ART issuer must also inform the competent authority of any material changes to the information provided by the proposed acquirer as soon as possible and no later than 10 working days before the intended date of the acquisition.
• The competent authority must acknowledge the receipt of the notification of the proposed acquisition, within two working days of receipt. The competent authority must also inform the proposed acquirer and the ART issuer of the outcome of the assessment of the proposed acquisition, within 60 working days of the receipt of the complete notification.
• The competent authority may approve, oppose or impose conditions on the proposed acquisition, based on the criteria set out in Article 42(1) of MiCAR.
• The competent authority must also cooperate and exchange information with other competent authorities involved in the assessment process in accordance with the provisions of MiCAR and those set out in the final RTS.

A competent authority may also continue to monitor an acquirer’s influence, in particular where the acquirer itself is not a supervised entity, after a qualifying holding and/or change in control assessment, for several reasons. These include:

• Ongoing compliance with regulatory requirements: competent authorities need to ensure that the acquirer continues to comply with all relevant regulatory requirements. This includes maintaining financial soundness, adhering to governance standards and avoiding conflicts of interest. Continuous monitoring helps competent authorities detect any deviations from these standards promptly.
• Financial stability: the stability of the supervised entity is paramount. By monitoring the acquirer’s influence, competent authorities can identify any actions or decisions that might jeopardise the supervised entity’s financial health. This is particularly important if the acquirer has significant control or influence over the supervised entity’s strategic direction and operations.
• Risk management: supervised entities are exposed to various risks, including operational, market and credit risks. Competent authorities monitor the acquirer's influence to ensure that effective risk management practices are in place and that the acquirer’s actions do not introduce new risks or exacerbate existing ones.
• Corporate governance: good corporate governance is essential for the proper functioning of supervised entities. Competent authorities monitor the acquirer’s influence to ensure that governance structures remain robust and that the institution is managed in a transparent and accountable manner. This includes overseeing the appointment of key personnel and the functioning of the board of directors.
• Market integrity: competent authorities aim to maintain the integrity of the financial markets. Continuous monitoring helps ensure that the acquirer’s influence does not lead to market manipulation, insider trading or other activities that could undermine market confidence and fairness.
• Consumer protection: protecting the interests of consumers and clients is a key regulatory objective. By monitoring the acquirer’s influence, competent authorities can ensure that the supervised entity continues to operate in a manner that safeguards client assets, provides fair treatment and maintains high standards of service.
• Changes in ownership or control: the acquirer’s influence may change over time due to additional acquisitions, divestitures or changes in its own ownership structure. Continuous monitoring allows competent authorities to stay informed about these changes and assess their potential impact on the supervised entity.
• Regulatory reporting and transparency: supervised entities are required to provide regular reports to competent authorities. Monitoring the acquirer’s influence ensures that these reports are accurate and that the supervised entity remains transparent in its operations and financial disclosures.
• Enforcement of conditions: if the competent authority imposed specific conditions or requirements as part of the approval process, continuous monitoring ensures that the acquirer adheres to these conditions. This could include restrictions on certain activities, requirements for additional capital or mandates for specific governance practices.
  As with every regulatory assessment concerning qualifying holdings and/or change in control procedures, the success of obtaining regulatory approval relies much on the devil being in the detail… and in the case of dealings with ART issuers, compliance with the requirements set out in the final RTS in the CDR.It is important to note that qualifying holdings assessment as well as change in control assessments go hand in hand. That being said, a competent authority’s focus may differ slightly depending on what it is being asked to review. A change in control procedure generally applies to significant changes in ownership or control, whereas a qualifying holdings assessment is specifically triggered by acquisitions that meet certain thresholds. The change in control procedure focuses on the overall impact of the new controlling. parties on the supervised entity, while the qualifying holdings assessment focuses on the acquirer’s ability to exert significant influence and the potential risks associated with their ownership.Show Footnote

Key takeaways from the CDR and the final RTS

The provisions of the final RTS in the CDR are relevant for both (i) the proposed acquirers of qualifying holdings in ART issuers and for (ii) competent authorities under MiCAR, as the RTS specifies the information (and granularity) that is necessary and sufficient to enable the competent authorities to thoroughly assess the reputation, suitability, financial soundness, compliance and money laundering or terrorist financing risk of the proposed acquirers, as well as the impact of the proposed acquisition on the target entity (i.e., the ART issuer) and its ability to comply with the prudential requirements under MiCAR.

The final RTS accordingly serve to substantially harmonise the information to be submitted by the proposed acquirer of qualifying holdings in an ART issuer to the competent authority of the target entity, in order to enable the competent authority to perform a prudential assessment of the proposed acquisition against the five criteria set out in Article 42(1) of MiCAR. These criteria are:

1. the reputation of the proposed acquirer;
2. the suitability of the persons who will direct the business of the target entity;
3. the financial soundness of the proposed acquirer;
4. the compliance with prudential requirements of the target entity; and
5. any reasonable grounds to suspect an attempt or increase in the money laundering or terrorist financing risk by the proposed acquisition.

In terms of approach of what information is to be submitted and assessed, the final RTS focus on the following elements (i) information relating to the proposed acquirer, (ii) information relating to the financing of the acquisition and (iii) information relating to the proposed acquisition.

While these elements and concepts as set out in the final RTS are based on the existing regulatory productsIn particular: (i) CDR (EU) 2017/1946 on information for notification of acquisitions of qualifying holdings in investment firms and (ii) the Annex to the Joint European Supervisory Authorities Guidelines on the prudential assessment of the acquisition or increase of qualifying holdings.Show Footnote on the same subject matter, there are some ART-issuer specifics. Even if some of these long-established concepts may appear welcomingly familiar to seasoned market participants (and their advisors), care should nevertheless be still drawn to the crypto-asset and more importantly the ART-specific considerations that are set out in the final RTS and what that means for the resulting focus of competent authorities. For instance, the final RTS require detailed information to be submitted on:

a.    the professional experience of the proposed acquirer and the persons who will direct the business of the target entity (i.e. the ART issuer) in relation to their knowledge of crypto-assets, other digital assets, distributed ledger technology (DLT), information and communication technology (ICT), cybersecurity and digital innovation; and
 
b.    the wallet, the crypto-asset service providers (CASPs) and the address identifiers of the originator and the beneficiary on the DLT if and where the financing of the acquisition involves the use or exchange of crypto-assets.

The final RTS specifies the general information to be submitted relating to the proposed acquirer. These depend on whether the proposed acquirer is a natural person or a legal person. Further information is also required where the legal person is a trust, an alternative investment fund (AIF), an undertaking for collective investment in transferable securities (UCITS) or a sovereign wealth fund (SWF).

Natural persons must submit identification information and details on their professional background. Identification information includes personal details such as name, date and place of birth, nationality, current and past residences along with a copy of an official identity document. Details on professional background include a detailed CV outlining education, training and professional experience relevant to financial services, crypto-assets, DLT and related fields.

Legal persons must include corporate information, financial information and details on management and ownership. Corporate information includes the name, registration details, contact information and corporate documents governing the legal person as well as certificates of good standing. Financial information includes annual financial statements for the last three years or financial forecasts for newly established entities. Management and ownership details include details of all individuals directing the business, ultimate beneficial owners, AML/CTF policies and procedures and details of any regulatory status or supervisory history with competent authorities.

Further information to be supplied by trusts, AIFs, UCITS and SWFs may also arise in addition to those points already highlighted above. For trusts this includes information on trustees, settlors, beneficiaries and the trust’s investment policy. For AIFs and UCITS this includes details on investment policies, responsible individuals and the performance of previous qualifying holdings. For SWFs this includes information on the public body determining the SWF’s investment policy and the individuals making investment decisions.

Regardless of the type of proposed acquirer the final RTS requires submission of information detailing the financing of the acquisition, the new proposed group structure and its impact on supervision as well as the strategy and business plan of the proposed acquirer, depending on the size and nature of the proposed acquisition. The information relating to the proposed acquisition includes the information on the size and nature of the proposed acquisition, the information on the persons who will direct the business of the target entity, the information on the impact of the proposed acquisition on the supervision of the target entity along with certain additional information to be submitted in case of qualifying holdings of more than 20% and up to 50% or more than 50%.

Fortunately, the final RTS preserves an established principle of proportionality and reduced information requirements so as to streamline the assessment process while maintaining rigorous standards. This means that different sets of information from indirect shareholders are required depending on whether (a) the proposed acquirer intends to gain control over an existing holder of qualifying holdings in the target entity; or (b) if the existence of a qualifying holding is determined by multiplying the percentage of qualifying holdings held indirectly along the holding chain with the qualifying holding held in the target entity. Additionally, the final RTS permits reduced information requirements for proposed acquirers in specific situations, such as (1) where the proposed acquirer has been assessed by the same competent authority in the last two years; or (2) where the proposed acquirer is an authorised undertaking and subject to the supervision of the same competent authority of the target entity.

Like many components of MiCAR the RTS places significant emphasis on regulatory coordination to ensure a comprehensive and effective assessment process for proposed acquisitions of qualifying holdings in issuers of asset-referenced tokens. The RTS’ are very clear on proposed acquirers needing to provide:

• detailed information on whether they have been assessed by other competent authorities or regulatory bodies. This information includes the outcome of such assessments, which helps the competent authority of the target entity to consider previous evaluations and avoid duplicative efforts; 
• legal entity identifiers, which helps competent authorities to access relevant information in supervisory databases thus promoting efficient information sharing and cooperation; and
• detailed information in cases where proposed acquirers are established in “third countries” i.e. outside of the EU. The RTS requires that proposed acquirers submit additional information to ensure that the legal regime of the third country does not hinder the target entity’s compliance with MiCAR’s prudential requirements. This includes providing certificates of good standing and information on the third country’s regulatory regime, which aims to facilitate effective supervision and regulatory coordination with authorities in such third country.

Timing considerations

In terms of immediate next steps, the CDR enters into force of law 20 days after it being published in the OJ. All in-scope entities should however consider getting to grips with the implications of the CDR earlier rather than later. This also applies to those that may look to make use of MiCAR’s overall grandfathering period(s) – an area where national options and discretions have hardwired potential for divergence.

While MiCAR’s full operationalisation starts 30 December 2024, an 18-month transitional phase i.e., a grandfathering period applies until 1 July 2026, which may be relevant for those CAIs that also may undertake CASP activity. These transitional measures (e.g. grandfathering and simplified procedure) apply in those Member States who have opted in.ESMA has published this list here.Show Footnote Entities in participating Member States are permitted to make use of the simplified CASP authorisation procedure (in Art. 143(6) MiCAR) but must acquire an authorisation in accordance with Article 63 of MiCAR by then. This grandfathering period varies from Member State to Member State with some having lower periods than the full 18 months (either at 6 or 12 months) and others yet to announce what they will offer. Notwithstanding this grandfathering period, the CDR will apply as per the timeline above, so for in-scope entities making use of grandfathering, they will still need to assess compliance with the CDR.

Outlook

The CDR and the final RTS serve to contribute to the effective and consistent implementation of MiCAR, by (i) enhancing the transparency and harmonisation of the information to be submitted by the proposed acquirers and by (ii) facilitating the prudential assessment of the proposed acquisitions by the competent authorities.

While much in the assessment process will be familiar to seasoned financial services and digital asset native firms (as well as their advisors), the required granularity of detail and a slightly MiCAR-modified process for approving qualifying holdings and/or change in control assessments in respect of issuers of ARTs, may warrant the need for dedicated legal and multidisciplinary advisory support for the respective regulatory applications.

About us

PwC Legal is assisting a number of financial services firms and market participants in forward planning for changes stemming from relevant related developments. We have assembled a multi-disciplinary and multijurisdictional team of sector experts to support clients to navigate challenges and seize opportunities as well as to proactively engage with their market stakeholders and regulators.

In order to assist firms in staying ahead of their compliance obligations we have developed a number of RegTech and SupTech tools for supervised firms. This includes PwC Legal’s Rule Scanner tool, backed by a trusted set of managed solutions from PwC Legal Business Solutions, allowing for horizon scanning and risk mapping of all legislative and regulatory developments as well as sanctions and fines from more than 2,000+ legislative and regulatory policymakers and other industry voices in over 170 jurisdictions impacting financial services firms and their business.

Equally, in leveraging our Rule Scanner technology, we offer a further solution for clients to digitise financial services firms’ relevant internal policies and procedures, create a comprehensive documentation inventory with an established documentation hierarchy and embedded glossary that has version control over a defined backward plus forward looking timeline to be able to ensure changes in one policy are carried through over to other policy and procedure documents, critical path dependencies are mapped and legislative and regulatory developments are flagged where these may require actions to be taken in such policies and procedures.

The PwC Legal Team behind Rule Scanner are proud recipients of ALM Law.com’s coveted “2024 Disruptive Technology of the Year Award”.

If you would like to discuss any of the developments mentioned above, or how they may affect your business more generally, please contact any of our key contacts or PwC Legal’s RegCORE Team via de_regcore@pwc.com or our website.