1. Department of Finance launches Consultation Paper on MiCA Regulation
On 9 August 2023, the Minister for Finance, Michael McGrath, launched a public consultation on the exercise of national discretions contained within the Markets in Crypto Assets Regulation ("MiCA"). While EU Regulations have direct effect in Ireland, within MiCA, there are a number of provisions to which full harmonisation does not apply and Member States have discretion in how they apply these provisions. It is these provisions which are the subject of the Consultation Paper ("Paper").
The Paper seeks feedback on four discretions:
- Art 88(3): public disclosure of inside information;
- Art 111(2): Administrative penalties and other administrative measures;
- Art 143(2): MiCA transition period; and
- Art 143(6): simplified authorisation procedure.
Article 88(3) - public disclosure of inside information
Article 88 (3) states that when an issuer, offeror or someone seeking admission to trading has delayed the disclosure to the public of inside information, they are obliged to inform the National Competent Authority ("NCA") about the delay of disclosure and provide an explanation. The Regulation also contains a discretion to Article 88(3) that allows for Member States to provide that a record of such an explanation is to be provided only upon the request of the NCA. The Paper asks whether the discretion should be exercised and how it should be transposed?
Article 111(1) - Administrative penalties and other administrative measures
Article 111(1) of MiCA allows Member States to provide for NCAs to have the power to take appropriate administrative penalties and other administrative measures in relation to a number of infringements. This discretion relates to Member States not laying down the administrative penalties where the associated infringement is subject to criminal penalties in national law. Article 111(6) permits Member States to supplement the powers given in 111(2) to (5) and allow Member States to impose higher levels of penalties than those provided for in the Article.
The Paper notes however that in respect of the criminalising of certain breaches, it is important that an option exists for such matters to be pursued by the Central Bank as administrative breaches ('prescribed contraventions') and for the Central Bank to be able to bring Administrative Sanctions Procedure proceedings in respect of such breaches. The Paper asks whether the discretion should be exercised and how it should be transposed?
Article 143(2) - MiCA transition period
Article 143 provides a transition period for CASPs that are providing their services in accordance with national law prior to MiCA applicability (29 December 2024). The transition period permits these CASPs to continue to provide services for up to 18 months after the date of application of MiCA (i.e. to June 2026), or until they are granted or refused an authorisation. While the default position in MiCA is that these CASPs can avail of a transition period, the text provides discretion for Member States to either not apply this transition period or to reduce its duration in circumstances where they consider that their national regulatory framework is less strict than that set out in MiCA.
A reduction in the length of the transition period is also envisaged in Recital 114 where Member States that do not currently have strong prudential requirements for CASPs should be permitted to either not apply or reduce the 18 month transition period. The Paper asks whether the discretion should be exercised, how it should be transposed and how long should the transition period be.
Article 143(6) - simplified authorisation procedure
Article 143(6) contains a provision that Member States may apply a simplified procedure for applications submitted between the date of the application of MiCA (30th December 2024) and 18 months after the date of application of MiCA (June 2026). This provides an opportunity for NCAs that have an existing crypto-asset regulatory regime to leverage information already gathered, thus simplifying the procedure and potentially shortening the application time. Under this procedure, the NCA will still need to confirm that all relevant aspects of MiCA are being complied with. The Paper asks whether the discretion should be exercised, how should current regimes be evaluated and by whom and how should divergent opinions on the compliance of current regimes be challenged?
The Paper seeks responses on whether or not these discretions should be availed of, how they should be availed of and a clear reasoning for the positions.
The consultation period will remain open until 15 September 2023. Any comments received will be considered when deciding how MiCA should be transposed into Irish law.
For more details on MiCA please see
2. Central Bank of Ireland updates its Fitness and Probity Interview Guide
On 9 August 2023, the Central Bank of Ireland ("Central Bank") published an updated Fitness and Probity Interview Guide ("Updated Guide").
The Updated Guide is aimed at both Pre-approved Control Function ("PCF") applicants and proposing firms including those which are seeking authorisation (new addition). In particular, the Updated Guide introduces three main amendments:
- additional detail under 'Interpretation' and 'Use of Information and the importance of full disclosure';
- updated information on 'Will the interview be recorded' and 'Can I bring a legal representative with me?'; and
- removal of 'Covid-19' section.
Inclusion of an Interpretation section
This section has been introduced to define a number of terms which are used throughout the Revised Guide including firm, PCF, PCF applicant, proposing firm and the Central Bank Reform Act 2010 as amended ("2010 Act"). Of note is the definition of the term firm. A firm is defined as an entity which is subject to s.23(1) of the 2010 Act. However, it goes onto include:
- Regulated Financial Service Providers ("RFSPs");
- firms which have applied for Central Bank authorisation but are not yet authorised; and
- certain categories of holding companies.
It should be noted that "firms which have applied for Central Bank authorisation but are not yet authorised are not expressly referenced in Section 23(1).
Use of Information and the Importance of Full Disclosure
This section is also a new addition and clarifies that the Central Bank may use information gathered during the applicant's fitness and probity assessment for any of the Central Bank's functions, even functions not directly related to the fitness and probity assessment. In addition, the Central Bank may also use information gathered from other functions to assess the applicant's fitness and probity.
The amendments also specify that due diligence of the information provided to the Central Bank must be carried out in line with Section 5 of the Fitness and Probity Individual Questionnaire, Applications and PCF Roles Guidance, as well as the Dear CEO Letter on Thematic Inspections of Compliance by RFSPs with their Obligations under the Fitness and Probity Regime in 2019 and 2020.
In addition, the PCF applicant must have shared any relevant information with the proposing firm in advance of the application. In line with the Central Bank's Fitness and Probity Standards, the information given to the Central Bank by both the applicant and proposing firm must be 'candid and truthful, and full, fair and accurate in all respects and not misleading to the best of his or her knowledge'.
Finally, information that is disclosed during the interview process may be shared with both the PCF applicant and the firm.
Will the interview be recorded?
For Assessment Interviews, the Guide has been amended to confirm that while the interview will not be recorded, a minute taker will keep a note (amended from 'record') of the main points. The section has previously stated that the note of the interview would be kept for internal purposes only, however the word 'only' has now been removed.
There has been no change to Specific Interviews which will still be recorded.
Can I bring a legal representative with me?
For Specific Interviews, the Guide now specifies that only a legal representative may accompany a PCF applicant, and it removes the option for 'any other representative' to accompany them.
The Covid-19 section previously contained within Appendix 2 has now been removed.
3. European Banking Authority publishes a Report on the Functioning of AML/CFT Colleges in 2022
On 10 August 2023, the European Banking Authority ("EBA") published its third Report on the Functioning of Anti-Money Laundering and Countering the Financing of Terrorism ("AML/CFT") Colleges ("Report"). The Report found that while competent authorities had taken important steps to improve the functioning and effectiveness of the colleges, many had not reached full maturity.
Background to the AML/CFT Colleges
Directive (EU) 2018/843 ("5MLD") introduced a specific requirement for competent authorities to cooperate with each other but did not provide a framework of how this cooperation should happen in practice, this was ultimately addressed by the ESAs in their Guidelines on cooperation and information exchange between competent authorities supervising credit and financial institutions, published in December 2019 ("Guidelines"). The Guidelines provide details on how competent authorities should give effect to the cooperation requirements set out in the 5MLD, by establishing a framework for AML/CFT colleges ("Colleges"). The Colleges include supervisory authorities which are responsible for the AML/CFT supervision of cross border financial institutions which operate in at least three EU Member States. The purposes of the Colleges are to ensure information is communicated within a timely manner, there is better cooperation between the supervisory authorities which in turn results in more targeted supervisory outcomes.
In respect of the year 2022, the EBA found that the action points which had been allocated to the Colleges had not been fully addressed by the relevant competent authorities.
The key findings by the EBA were as follows:
- as of 31 December 2022, competent authorities had reported 229 fully operating Colleges to the EBA, however, 54 Colleges set up under the Guidelines were still not in operation and had not held their first meeting;
- the onboarding of third country authorities remained low, limiting supervisors knowledge on group-wide risks;
- competent authorities had limited awareness of the benefits of sharing information; and
- lead supervisors had not adjusted the frequency of meetings in accordance with the risks that the financial institute was exposed to.
As part of the EU AML/CFT legislative proposal published in July 2021, the European Commission has proposed that the Colleges be enshrined in level 1 legislative text. This, the Report explains, is a clear signal to competent authorities that the Colleges are a key cooperation tool. As a result, "lead supervisors and members should continue to focus on enhancing the functioning of existing colleges to ensure that, by the time the new legislation is implemented, these colleges are fully functional and meeting their objectives".
As many colleges did not meet the key action points, they remain the focus for 2023-2024. The EBA also recommended that competent authorities:
- should share their presentation with the relevant financial institute, in advance of a meeting to give them time to prepare questions before the meeting;
- assess whether there is a need to give directions to permanent members as to the form of information being shared at meetings to ensure adequate time for discussions;
- assess whether there is a need to give directions to permanent members about the positions of attendees at meetings to ensure that they have comprehensive knowledge of the supervisory measures involved; and
- ensure that permanent members collect and share necessary information to have an informed discussion on common approaches or coordinated measures.
4. European Commission - Call for evidence on the criminalisation of money laundering
On 27 July 2023, the European Commission ("Commission") published a call for evidence regarding the criminalisation of money laundering under Directive 2018/1673 ("6MLD"). Under Article 14(2) of the 6MLD, the Commission must submit a report to the European Parliament and to the European Council "to assess the added value of this Directive with regard to combating money laundering and as well as its impact on fundamental rights". The 6MLD aims to harmonise the criminalisation of money laundering across the EU by investigating and prosecuting money laundering more effectively. It aims to do this by harmonising definitions of money laundering and predicate offences, imposing minimum sanctions and extending criminal liability.
The Call for Evidence will assist the Commission in its evaluation of how the 6MLD helps to combat money laundering and its impact on fundamental rights. It will assess how successfully the 6MLD has been in achieving its aims of:
- harmonising money laundering offences and penalties;
- strengthening Member State's ability to investigate and prosecute money laundering offences;
- closing gaps in enforcement; and
- combatting serious and organised crime.
The Commission is seeking contributions from those inside and outside the European Union to ensure that a wide range of views are captured to ensure transparency and accountability. The call for evidence will accept submissions until 24 August 2023.
Application to Ireland
It should be noted that in accordance with Recital 23 of the 6MLD, Ireland opted out of the adopting the directive and is not bound or subject to its application, by extension the work of the Commission on this evaluation will not extend to Ireland.
5. ECB publishes interview with the Chair of ESMA, Verena Ross
On 16 August, the European Central Bank published an interview with Verena Ross, Chair of the European Securities Markets Authority ("ESMA"). The interview addresses topics such as MiCA, DORA, sustainable finance, and the risks relating to Central Counterparties ("CCPs").
EU Post-trade Transparency Regime vs US and UK
While MiFIR introduced trade transparency requirements, actual transparency for OTC derivatives is limited. Ms Ross outlines two reasons for this
- the significant delay in transactions being published; and
- ambiguity in terms of scope.
Therefore, the number of transactions subjected to the transparency requirements is very small. In contrast, the US approach covers a broad range of OTC derivatives which are published in real time.
Ms Ross states that a more ambitious transparency regime under MiFIR would strengthen the way the market functions as it would make 'markets less opaque and participants better informed'. Introducing rules on the deferring of publication of trades would also enhance protection for participants.
CCP Resilience Risks
Ms Ross notes that overall market infrastructure resilience is crucial to enhance stability in the EU capital markets. Covid-19 lockdowns and the energy crisis raised concerns that the CCP margin models acted in a procyclical manner. Ms Ross commented that introducing targeted changes to existing regulatory standards can
- mitigate the procyclical effects on clearing members and clients; and
- prevent liquidity stress spreading to other parts of the financial system.
In addition, ESMA is also focused on improving operational risk resilience and Ms Ross notes that the focus is now on the preparations for implementing DORA.
Ms Ross comments that MiCA will significantly change the regulatory framework for crypto-assets across the EU by harmonising the 'patchwork of national regimes' that exist. At present there is a significant variance across the EU as some countries have advanced standards similar to MiCA and others only address anti-money laundering.
Ms Ross highlights the significance of the governance and authorisation requirements applicable to crypto-service providers as well as crypto product disclosures, and requirements to maintain the crypto-market integrity. These measures are driven by market volatility and the risk of fraud in the market.
Ms Ross emphasises that 'MiCA does not provide the same protection as for traditional financial products', and that 'there is no such thing as a safe crypto-asset'.
In June 2023, ESMA, along with the other European Supervisory Authorities ("ESAs"), agreed a common high-level understanding of greenwashing. Ms Ross acknowledged that misleading claims can be both intentional and unintentional and occur within and outside the EU's scope. ESMA's progress report highlighted the need for a more mature regulatory framework, and Ms Ross noted that ESMA are happy to provide guidance for any unclear rules. Market participants have a duty to clearly communicate sustainable information in a manner that is not misleading and can be clearly understood.
CCP and Climate Risks
Ms Ross commented that the collaboration between ESMA and the ECB regarding the exchange of information for climate components within stress testing has been very successful. There are two ways in which climate risks are being incorporated into stress testing. CCPs are including climate risks within their existing risk categories, however, ESMA's EU wide exercise is broader and includes assessing how climate risks impact the CCP system as a whole as well as assessing how interconnected they are.
Ms Ross notes that in their 2023 stress tests, ESMA plans to collect the climate related scenarios that CCPs have already developed in order to assess how prepared they are. The ESAs are collaborating to conduct a wider scenario analysis of climate risks within the financial sector. The report will include both sectoral and cross-sectoral analysis in order to assess the extent to which climate risks can stress the whole financial system by 2030, and is due at the beginning of 2025.
Ms Ross commented that the EU is a global leader in the regulation of sustainable finance, including the requirements for comprehensive sustainability reporting by companies. Data in this area is currently limited and fragmented and these reporting requirements will help the level of available data. She commented that the Commission, legislators and regulators must work together to address inconsistencies in regulatory standards as well as reducing complexity and improving comparability and coherence for investors. She concluded by stating that investor trust is essential for the development of sustainable finance.
 The reason for this is that the 6MLD was adopted under Article 83 of Treaty on the Functioning of the EU (“TFEU”). Article 83 falls into Title V of the TFEU which deals with home and justice affairs. Under Protocol 21 of the TFEU, Ireland has opted out of all laws made under Title V and for this reason, Ireland was not obliged to transpose the 6MLD into national law.