Preamble

It is important to ensure that Union legislative acts on financial services are fit for the digital age, and contribute to a future-proof economy that works for people, including by enabling the use of innovative technologies. The Union has a policy interest in developing and promoting the uptake of transformative technologies in the financial sector, including the uptake of distributed ledger technology (DLT). It is expected that many applications of distributed ledger technology, including blockchain technology, that have not yet been fully studied will continue to result in new types of business activity and business models that, together with the crypto-asset sector itself, will lead to economic growth and new employment opportunities for Union citizens.

Crypto-assets are one of the main applications of distributed ledger technology. Crypto-assets are digital representations of value or of rights that have the potential to bring significant benefits to market participants, including retail holders of crypto-assets. Representations of value include external, non-intrinsic value attributed to a crypto-asset by the parties concerned or by market participants, meaning the value is subjective and based only on the interest of the purchaser of the crypto-asset. By streamlining capital-raising processes and enhancing competition, offers of crypto-assets could allow for an innovative and inclusive way of financing, including for small and medium-sized enterprises (SMEs). When used as a means of payment, crypto-assets can present opportunities in terms of cheaper, faster and more efficient payments, in particular on a cross-border basis, by limiting the number of intermediaries.

Some crypto-assets, in particular those that qualify as financial instruments as defined in Directive 2014/65/EU of the European Parliament and of the Council, fall within the scope of existing Union legislative acts on financial services. Therefore, a full set of Union rules already applies to issuers of such crypto-assets and to firms conducting activities related to such crypto-assets.

Other crypto-assets, however, fall outside of the scope of Union legislative acts on financial services. At present, there are no rules, other than those in respect of anti-money laundering, for the provision of services related to such unregulated crypto-assets, including for the operation of trading platforms for crypto-assets, the exchange of crypto-assets for funds or other crypto-assets, and providing custody and administration of crypto-assets on behalf of clients. The absence of such rules leaves holders of those crypto-assets exposed to risks, in particular in fields not covered by consumer protection rules. The absence of such rules can also result in substantial risks to market integrity, including in terms of market abuse as well as in terms of financial crime. To address those risks, some Member States have put in place specific rules for all, or a subset of, crypto-assets that fall outside the scope of Union legislative acts on financial services, and other Member States are considering whether to legislate in the field of crypto-assets.

The absence of an overall Union framework for markets in crypto-assets can lead to a lack of user confidence in those assets, which could significantly hinder the development of a market in those assets and lead to missed opportunities in terms of innovative digital services, alternative payment instruments or new funding sources for Union companies. In addition, companies using crypto-assets would have no legal certainty on how their crypto-assets would be treated in the various Member States, which would undermine their efforts to use crypto-assets for digital innovation. The lack of an overall Union framework for markets in crypto-assets could also lead to regulatory fragmentation, which would distort competition in the internal market, make it more difficult for crypto-asset service providers to scale up their activities on a cross-border basis and would give rise to regulatory arbitrage. Markets in crypto-assets are still modest in size and do not at present pose a threat to financial stability. It is, however, possible that types of crypto-assets that aim to stabilise their price in relation to a specific asset or a basket of assets could in the future be widely adopted by retail holders, and such a development could raise additional challenges in terms of financial stability, the smooth operation of payment systems, monetary policy transmission or monetary sovereignty.

A dedicated and harmonised framework for markets in crypto-assets is therefore necessary at Union level in order to provide specific rules for crypto-assets and related services and activities that are not yet covered by Union legislative acts on financial services. Such a framework should support innovation and fair competition, while ensuring a high level of protection of retail holders and the integrity of markets in crypto-assets. A clear framework should enable crypto-asset service providers to scale up their businesses on a cross-border basis and facilitate their access to banking services to enable them to run their activities smoothly. A Union framework for markets in crypto-assets should provide for the proportionate treatment of issuers of crypto-assets and crypto-asset service providers, thereby giving rise to equal opportunities in respect of market entry and the ongoing and future development of markets in crypto-assets. It should also promote financial stability and the smooth operation of payment systems, and address monetary policy risks that could arise from crypto-assets that aim to stabilise their price in relation to a specific asset or basket of assets. Proper regulation maintains the competitiveness of the Member States on international financial and technological markets and provides clients with significant benefits in terms of access to cheaper, faster and safer financial services and asset management. The Union framework for markets in crypto-assets should not regulate the underlying technology. Union legislative acts should avoid imposing an unnecessary and disproportionate regulatory burden on the use of technology, since the Union and the Member States seek to maintain competitiveness on a global market.

The consensus mechanisms used for the validation of transactions in crypto-assets might have principal adverse impacts on the climate and other environment-related adverse impacts. Such consensus mechanisms should therefore deploy more environmentally-friendly solutions and ensure that any principal adverse impact that they might have on the climate, and any other environment-related adverse impact, are adequately identified and disclosed by issuers of crypto-assets and crypto-asset service providers. When determining whether adverse impacts are principal, account should be taken of the principle of proportionality and the size and volume of the crypto-asset issued. The European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council, in cooperation with the European Supervisory Authority (European Banking Authority) (EBA) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council, should therefore be mandated to develop draft regulatory technical standards to further specify the content, methodologies and presentation of information in relation to sustainability indicators with regard to adverse impacts on climate and other environment‐related adverse impacts, and to outline key energy indicators. The draft regulatory technical standards should also ensure coherence of disclosures by issuers of crypto-assets and by crypto-asset service providers. When developing the draft regulatory technical standards, ESMA should take into account the various types of consensus mechanisms used for the validation of transactions in crypto-assets, their characteristics and the differences between them. ESMA should also take into account existing disclosure requirements, ensure complementarity and consistency, and avoid increasing the burden on companies.

Markets in crypto-assets are global and thus inherently cross-border. Therefore, the Union should continue to support international efforts to promote convergence in the treatment of crypto-assets and crypto-asset services through international organisations or bodies such as the Financial Stability Board, the Basel Committee on Banking Supervision and the Financial Action Task Force.

Union legislative acts on financial services should be guided by the principles of ‘same activities, same risks, same rules’ and of technology neutrality. Therefore, crypto-assets that fall under existing Union legislative acts on financial services should remain regulated under the existing regulatory framework, regardless of the technology used for their issuance or their transfer, rather than this Regulation. Accordingly, this Regulation expressly excludes from its scope crypto-assets that qualify as financial instruments as defined in Directive 2014/65/EU, those that qualify as deposits as defined in Directive 2014/49/EU of the European Parliament and of the Council (7), including structured deposits as defined in Directive 2014/65/EU, those that qualify as funds as defined in Directive (EU) 2015/2366 of the European Parliament and of the Council, except if they qualify as electronic money tokens (‘e-money tokens’), those that qualify as securitisation positions as defined in Regulation (EU) 2017/2402 of the European Parliament and of the Council, and those that qualify as non-life or life insurance contracts, pension products or schemes and social security schemes. Having regard to the fact that electronic money and funds received in exchange for electronic money should not be treated as deposits in accordance with Directive 2009/110/EC of the European Parliament and of the Council, e-money tokens cannot be treated as deposits that are excluded from the scope of this Regulation.

This Regulation should not apply to crypto-assets that are unique and not fungible with other crypto-assets, including digital art and collectibles. The value of such unique and non-fungible crypto-assets is attributable to each crypto-asset’s unique characteristics and the utility it gives to the holder of the token. Nor should this Regulation apply to crypto-assets representing services or physical assets that are unique and non-fungible, such as product guarantees or real estate. While unique and non-fungible crypto-assets might be traded on the marketplace and be accumulated speculatively, they are not readily interchangeable and the relative value of one such crypto-asset in relation to another, each being unique, cannot be ascertained by means of comparison to an existing market or equivalent asset. Such features limit the extent to which those crypto-assets can have a financial use, thus limiting risks to holders and the financial system and justifying their exclusion from the scope of this Regulation.

The fractional parts of a unique and non-fungible crypto-asset should not be considered unique and non-fungible. The issuance of crypto-assets as non-fungible tokens in a large series or collection should be considered an indicator of their fungibility. The mere attribution of a unique identifier to a crypto-asset is not, in and of itself, sufficient to classify it as unique and non-fungible. The assets or rights represented should also be unique and non-fungible in order for the crypto-asset to be considered unique and non-fungible. The exclusion of crypto-assets that are unique and non-fungible from the scope of this Regulation is without prejudice to the qualification of such crypto-assets as financial instruments. This Regulation should also apply to crypto-assets that appear to be unique and non-fungible, but whose de facto features or whose features that are linked to their de facto uses, would make them either fungible or not unique. In that regard, when assessing and classifying crypto-assets, competent authorities should adopt a substance over form approach whereby the features of the crypto-asset in question determine the classification and not its designation by the issuer.

It is appropriate to exclude certain intragroup transactions and some public entities from the scope of this Regulation as they do not pose risks to investor protection, market integrity, financial stability, the smooth operation of payment systems, monetary policy transmission or monetary sovereignty. Public international organisations that are exempt include the International Monetary Fund and the Bank for International Settlements.

Digital assets issued by central banks acting in their monetary authority capacity, including central bank money in digital form, or crypto-assets issued by other public authorities, including central, regional and local administrations, should not be subject to the Union framework for markets in crypto-assets. Nor should related services provided by such central banks when acting in their monetary authority capacity or other public authorities be subject to that Union framework.

For the purposes of ensuring a clear delineation between, on the one hand, crypto-assets covered by this Regulation and, on the other hand, financial instruments, ESMA should be mandated to issue guidelines on the criteria and conditions for the qualification of crypto-assets as financial instruments. Those guidelines should also allow for a better understanding of the cases where crypto-assets that are otherwise considered unique and not fungible with other crypto-assets might qualify as financial instruments. In order to promote a common approach towards the classification of crypto-assets, EBA, ESMA and the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (EIOPA), established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council (the ‘European Supervisory Authorities’ or ‘ESAs’) should promote discussions on such classification. Competent authorities should be able to request opinions from the ESAs on the classification of crypto-assets, including classifications proposed by offerors or persons seeking admission to trading. Offerors or persons seeking admission to trading are primarily responsible for the correct classification of crypto-assets, which might be challenged by the competent authorities, both before the date of publication of the offer and at any time thereafter. Where the classification of a crypto-asset appears to be inconsistent with this Regulation or other relevant Union legislative acts on financial services, the ESAs should make use of their powers under Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 in order to ensure a consistent and coherent approach to such classification.

Pursuant to Article 127(2), fourth indent, of the Treaty on the Functioning of the European Union (TFEU), one of the basic tasks to be carried out through the European System of Central Banks (ESCB) is to promote the smooth operation of payment systems. The European Central Bank (ECB) may, pursuant to Article 22 of Protocol No 4 on the Statute of the European System of Central Banks and of the European Central Bank attached to the Treaties, make regulations to ensure efficient and sound clearing and payment systems within the Union and with other countries. To that end, the ECB has adopted regulations concerning requirements for systemically important payment systems. This Regulation is without prejudice to the responsibilities of the ECB and the national central banks in the ESCB to ensure efficient and sound clearing and payment systems within the Union and with third countries. Consequently, and in order to prevent the possible creation of parallel sets of rules, EBA, ESMA and the ECB should cooperate closely when preparing the relevant draft technical standards under this Regulation. Furthermore, it is crucial for the ECB and the national central banks to have access to information when fulfilling their tasks relating to the oversight of payment systems, including clearing of payments. In addition, this Regulation should be without prejudice to Council Regulation (EU) No 1024/2013 and should be interpreted in such a way that it is not in conflict with that Regulation.

Any legislative act adopted in the field of crypto-assets should be specific and future-proof, be able to keep pace with innovation and technological developments and be founded on an incentive-based approach. The terms ‘crypto-assets’ and ‘distributed ledger technology’ should therefore be defined as widely as possible to capture all types of crypto-assets that currently fall outside the scope of Union legislative acts on financial services. Any legislative act adopted in the field of crypto-assets should also contribute to the objective of combating money laundering and terrorist financing. For that reason, entities offering services falling within the scope of this Regulation should also comply with applicable anti-money laundering and counter-terrorist financing rules of the Union, which integrate international standards.

Digital assets that cannot be transferred to other holders do not fall within the definition of crypto-assets. Therefore, digital assets that are accepted only by the issuer or the offeror and that are technically impossible to transfer directly to other holders should be excluded from the scope of this Regulation. An example of such digital assets includes loyalty schemes where the loyalty points can be exchanged for benefits only with the issuer or offeror of those points.

This Regulation classifies crypto-assets into three types, which should be distinguished from one another and subject to different requirements depending on the risks they entail. The classification is based on whether the crypto-assets seek to stabilise their value by reference to other assets. The first type consists of crypto-assets that aim to stabilise their value by referencing only one official currency. The function of such crypto-assets is very similar to the function of electronic money as defined in Directive 2009/110/EC. Like electronic money, such crypto-assets are electronic surrogates for coins and banknotes and are likely to be used for making payments. Those crypto-assets should be defined in this Regulation as ‘e-money tokens’. The second type of crypto-assets concerns ‘asset-referenced tokens’, which aim to stabilise their value by referencing another value or right, or combination thereof, including one or several official currencies. That second type covers all other crypto-assets, other than e-money tokens, whose value is backed by assets, so as to avoid circumvention and to make this Regulation future-proof. Finally, the third type consists of crypto-assets other than asset-referenced tokens and e-money tokens, and covers a wide variety of crypto-assets, including utility tokens.

At present, despite their similarities, electronic money and crypto-assets referencing an official currency differ in some important aspects. Holders of electronic money as defined in Directive 2009/110/EC are always provided with a claim against the electronic money issuer and have a contractual right to redeem, at any moment and at par value, the monetary value of the electronic money held. By contrast, some crypto-assets referencing an official currency do not provide their holders with such a claim against the issuers of such crypto-assets and could fall outside the scope of Directive 2009/110/EC. Other crypto-assets referencing an official currency do not provide a claim at par value with the currency they are referencing or they limit the redemption period. The fact that holders of such crypto-assets do not have a claim against the issuers of such crypto-assets, or that such claim is not at par value with the currency those crypto-assets are referencing, could undermine the confidence of holders of those crypto-assets. Accordingly, to avoid circumvention of the rules laid down in Directive 2009/110/EC, any definition of e-money tokens should be as wide as possible to capture all types of crypto-assets referencing a single official currency. In addition, strict conditions on the issuance of e-money tokens should be laid down, including an obligation for e-money tokens to be issued either by a credit institution authorised under Directive 2013/36/EU of the European Parliament and of the Council, or by an electronic money institution authorised under Directive 2009/110/EC. For the same reason, issuers of e-money tokens should ensure that holders of such tokens can exercise their right to redeem their tokens at any time and at par value against the currency referencing those tokens. Because e-money tokens are crypto-assets and can raise new challenges in terms of protection of retail holders and market integrity that are specific to crypto-assets, they should also be subject to the rules laid down in this Regulation to address those challenges.

Given the different risks and opportunities raised by crypto-assets, it is necessary to lay down rules for offerors and persons seeking admission to trading of crypto-assets other than asset-referenced tokens and e-money tokens, as well as for issuers of asset-referenced tokens and e-money tokens. Issuers of crypto-assets are entities that have control over the creation of crypto-assets.

It is necessary to lay down specific rules for entities that provide services related to crypto-assets. A first category of such services consists of ensuring the operation of a trading platform for crypto-assets, exchanging crypto-assets for funds or other crypto-assets, providing custody and administration of crypto-assets on behalf of clients, and providing transfer services for crypto-assets on behalf of clients. A second category of such services consists of the placing of crypto-assets, the reception or transmission of orders for crypto-assets on behalf of clients, the execution of orders for crypto-assets on behalf of clients, providing advice on crypto-assets and providing portfolio management of crypto-assets. Any person that provides crypto-asset services on a professional basis in accordance with this Regulation should be deemed to be a ‘crypto-asset service provider’.

This Regulation should apply to natural and legal persons and certain other undertakings and to the crypto-asset services and activities performed, provided or controlled, directly or indirectly, by them, including when part of such activities or services is performed in a decentralised manner. Where crypto-asset services are provided in a fully decentralised manner without any intermediary, they should not fall within the scope of this Regulation. This Regulation covers the rights and obligations of issuers of crypto-assets, offerors, persons seeking admission to trading of crypto-assets and crypto-asset service providers. Where crypto-assets have no identifiable issuer, they should not fall within the scope of Title II, III or IV of this Regulation. Crypto-asset service providers providing services in respect of such crypto-assets should, however, be covered by this Regulation.

To ensure that all offers to the public of crypto-assets other than asset-referenced tokens or e-money tokens, which can potentially have a financial use, or all admissions of crypto-assets to trading on a trading platform for crypto-assets (‘admission to trading’), in the Union, are properly monitored and supervised by competent authorities, all offerors or persons seeking admission to trading should be legal persons.

In order to ensure their protection, prospective retail holders of crypto-assets should be informed of the characteristics, functions and risks of the crypto-assets that they intend to purchase. When making an offer to the public of crypto-assets other than asset-referenced tokens or e-money tokens or when seeking admission to trading of such crypto-assets in the Union, offerors or persons seeking admission to trading should draw up, notify to their competent authority and publish an information document containing mandatory disclosures (‘a crypto-asset white paper’). A crypto-asset white paper should contain general information on the issuer, offeror or person seeking admission to trading, on the project to be carried out with the capital raised, on the offer to the public of crypto-assets or on their admission to trading, on the rights and obligations attached to the crypto-assets, on the underlying technology used for such crypto-assets and on the related risks. However, the crypto-asset white paper should not contain a description of risks that are unforeseeable and very unlikely to materialise. The information contained in the crypto-asset white paper as well as in the relevant marketing communications, such as advertising messages and marketing material, and including through new channels such as social media platforms, should be fair, clear and not misleading. Advertising messages and marketing material should be consistent with the information provided in the crypto-asset white paper.

Crypto-asset white papers, including their summaries, and the operating rules of trading platforms for crypto-assets should be drawn up in at least one of the official languages of the home Member State and of any host Member State or, alternatively, in a language customary in the sphere of international finance. At the time of adoption of this Regulation, the English language is the language customary in the sphere of international finance but that could evolve in the future.

In order to ensure a proportionate approach, no requirements of this Regulation should apply to offers to the public of crypto-assets other than asset-referenced tokens or e-money tokens that are offered for free or that are automatically created as a reward for the maintenance of a distributed ledger or the validation of transactions in the context of a consensus mechanism. In addition, no requirements should apply to offers of utility tokens providing access to an existing good or service, enabling the holder to collect the good or use the service, or when the holder of the crypto-assets has the right to use them only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror. Such exemptions should not include crypto-assets representing stored goods that are not intended to be collected by the purchaser following the purchase. Neither should the limited network exemption apply to crypto-assets that are typically designed for a continuously growing network of service providers. The limited network exemption should be evaluated by the competent authority each time that an offer, or the aggregate value of more than one offer, exceeds a certain threshold, meaning that a new offer should not automatically benefit from an exemption of a previous offer. Those exemptions should cease to apply when the offeror, or another person acting on the offeror’s behalf, communicates the offeror’s intention of seeking admission to trading or the exempted crypto-assets are admitted to trading.

In order to ensure a proportionate approach, the requirements of this Regulation to draw up and publish a crypto-asset white paper should not apply to offers of crypto-assets other than asset-referenced tokens or e-money tokens that are made to fewer than 150 persons per Member State, or that are addressed solely to qualified investors where the crypto-assets can only be held by such qualified investors. SMEs and start-ups should not be subject to excessive and disproportionate administrative burden. Accordingly, offers to the public of crypto-assets other than asset-referenced tokens or e-money tokens in the Union whose total consideration does not exceed EUR 1 000 000 over a period of 12 months should also be exempt from the obligation to draw up a crypto-asset white paper.

The mere admission to trading or the publication of bid and offer prices should not, in and of itself, be regarded as an offer to the public of crypto-assets. Such admission or publication should only constitute an offer to the public of crypto-assets where it includes a communication constituting an offer to the public under this Regulation.

Even though some offers of crypto-assets other than asset-referenced tokens or e-money tokens are exempt from various obligations of this Regulation, Union legislative acts that ensure consumer protection, such as Directive 2005/29/EC of the European Parliament and of the Council or Council Directive 93/13/EEC, including any information obligations contained therein, remain applicable to offers to the public of crypto-assets where they concern business-to-consumer relationships.

Where an offer to the public concerns utility tokens for goods that do not yet exist or services that are not yet in operation, the duration of the offer to the public as described in the crypto-asset white paper should not exceed 12 months. That limitation on the duration of the offer to the public is unrelated to the moment when the goods or services come into existence or become operational and can be used by the holder of a utility token after the expiry of the offer to the public.

In order to enable supervision, offerors and persons seeking admission to trading of crypto-assets other than asset-referenced tokens or e-money tokens should, before making any offer to the public of crypto-assets in the Union or before those crypto-assets are admitted to trading, notify their crypto-asset white paper and, upon request of the competent authority, their marketing communications, to the competent authority of the Member State where they have their registered office or, where they have no registered office in the Union, of the Member State where they have a branch. Offerors that are established in a third country should notify their crypto-asset white paper and, upon request of the competent authority, their marketing communications, to the competent authority of the Member State where they intend to offer the crypto-assets.

The operator of a trading platform should be responsible for complying with the requirements of Title II of this Regulation where crypto-assets are admitted to trading on its own initiative and the crypto-asset white paper has not already been published in the cases required by this Regulation. The operator of a trading platform should also be responsible for complying with those requirements where it has concluded a written agreement to that end with the person seeking admission to trading. The person seeking admission to trading should remain responsible when it provides misleading information to the operator of the trading platform. The person seeking admission to trading should also remain responsible for matters not delegated to the operator of the trading platform.

In order to avoid undue administrative burden, competent authorities should not be required to approve a crypto-asset white paper before its publication. Competent authorities should, however, have the power to request amendments to the crypto-asset white paper and to any marketing communications and, where necessary, to request the inclusion of additional information in the crypto-asset white paper.

Competent authorities should be able to suspend or prohibit an offer to the public of crypto-assets other than asset-referenced tokens or e-money tokens, or the admission of such crypto-assets to trading, where such an offer to the public or admission to trading does not comply with the applicable requirements of this Regulation, including where the crypto-asset white paper or the marketing communications are not fair, not clear or are misleading. Competent authorities should also have the power to publish a warning that the offeror or person seeking admission to trading has failed to meet those requirements, either on its website or through a press release.

Crypto-asset white papers that have been duly notified to a competent authority and marketing communications should be published. After such publication, offerors and persons seeking admission to trading of crypto-assets other than asset-referenced tokens or e-money tokens should be allowed to offer those crypto-assets throughout the Union and to seek admission to trading of such crypto-assets in the Union.

Offerors of crypto-assets other than asset-referenced tokens or e-money tokens should have effective arrangements in place to monitor and safeguard the funds or other crypto-assets raised during their offer to the public. Those arrangements should also ensure that any funds or other crypto-assets collected from holders or prospective holders are duly returned as soon as possible where an offer to the public is cancelled for any reason. The offeror should ensure that the funds or other crypto-assets collected during the offer to the public are safeguarded by a third party.

In order to further ensure protection of retail holders of crypto-assets, retail holders that acquire crypto-assets other than asset-referenced tokens or e-money tokens directly from the offeror, or from a crypto-asset service provider placing the crypto-assets on behalf of the offeror, should be provided with a right of withdrawal during a period of 14 days after their acquisition. In order to ensure the smooth completion of a time-limited offer to the public of crypto-assets, the right of withdrawal should not be exercised by retail holders after the end of the subscription period. Furthermore, the right of withdrawal should not apply where crypto-assets other than asset-referenced tokens or e-money tokens are admitted to trading prior to the purchase by the retail holder because, in such a case, the price of such crypto-assets depends on the fluctuations of the markets in crypto-assets. Where the retail holder has a right of withdrawal under this Regulation, the right of withdrawal under Directive 2002/65/EC of the European Parliament and of the Council should not apply.

Offerors and persons seeking admission to trading of crypto-assets other than asset-referenced tokens or e-money tokens should act honestly, fairly and professionally, should communicate with holders and prospective holders of crypto-assets in a manner that is fair, clear and not misleading, should identify, prevent, manage and disclose conflicts of interest, and should have effective administrative arrangements to ensure that their systems and security protocols meet Union standards. In order to assist competent authorities in their supervisory tasks, ESMA, in close cooperation with EBA, should be mandated to issue guidelines on those systems and security protocols in order to further specify those Union standards.

To further protect holders of crypto-assets, civil liability rules should apply to offerors and persons seeking admission to trading and to the members of their management body for the information provided to the public in the crypto-asset white paper.

Asset-referenced tokens could be widely adopted by holders to transfer value or as a means of exchange and thus pose increased risks in terms of protection of holders of crypto-assets, in particular retail holders, and in terms of market integrity, as compared to other crypto-assets. Issuers of asset-referenced tokens should therefore be subject to more stringent requirements than issuers of other crypto-assets.

Where a crypto-asset falls within the definition of an asset-referenced token or e-money token, Title III or IV of this Regulation should apply, irrespective of how the issuer intends to design the crypto-asset, including the mechanism for maintaining a stable value of the crypto-asset. The same applies to so-called algorithmic ‘stablecoins’ that aim to maintain a stable value in relation to an official currency, or in relation to one or several assets, via protocols, that provide for the increase or decrease in the supply of such crypto-assets in response to changes in demand. Offerors or persons seeking admission to trading of algorithmic crypto-assets that do not aim to stabilise the value of the crypto-assets by referencing one or several assets should in any event comply with Title II of this Regulation.

To ensure the proper supervision and monitoring of offers to the public of asset-referenced tokens, issuers of asset-referenced tokens should have a registered office in the Union.

Offers to the public of asset-referenced tokens in the Union or seeking admission to trading of such crypto-assets should be permitted only where the competent authority has authorised the issuer of such crypto-assets to do so and has approved the relevant crypto-asset white paper. The authorisation requirement should however not apply where the asset-referenced tokens are addressed solely to qualified investors or where the offer to the public of the asset-referenced tokens is below EUR 5 000 000. In those cases, the issuer of the asset-referenced tokens should still be required to draw up a crypto-asset white paper to inform buyers about the characteristics and risks of the asset-referenced tokens and should also be required to notify the crypto-asset white paper to the competent authority before its publication.

Credit institutions authorised under Directive 2013/36/EU should not need another authorisation under this Regulation in order to offer or seek the admission to trading of asset-referenced tokens. National procedures established under that Directive should apply but should be complemented by a requirement to notify the competent authority of the home Member State designated under this Regulation of the elements that enable that authority to verify the issuer’s ability to offer or seek the admission to trading of asset-referenced tokens. Credit institutions that offer or seek the admission to trading of asset-referenced tokens should be subject to all requirements that apply to issuers of asset-referenced tokens with the exception of authorisation requirements, own funds requirements and the approval procedure with respect to qualifying shareholders, as those matters are covered by Directive 2013/36/EU and by Regulation (EU) No 575/2013 of the European Parliament and of the Council. A crypto-asset white paper drawn up by such credit institution should be approved by the competent authority of the home Member State before publication. Credit institutions authorised under the provisions of national law transposing Directive 2013/36/EU and which offer or seek the admission to trading of asset-referenced tokens should be subject to the administrative powers set out under that Directive and also those under this Regulation, including a restriction or limitation of a credit institution’s business and a suspension or prohibition of an offer to the public of asset-referenced tokens. Where the obligations applying to such credit institutions under this Regulation overlap with those of Directive 2013/36/EU, the credit institutions should comply with the more specific or stricter requirements, thereby ensuring compliance with both sets of rules. The notification procedure for credit institutions intending to offer or seek the admission to trading of asset-referenced tokens under this Regulation should be without prejudice to the provisions of national law transposing Directive 2013/36/EU that set out procedures for the authorisation of credit institutions to provide the services listed in Annex I to that Directive.

A competent authority should refuse authorisation on objective and demonstrable grounds, including where the business model of the applicant issuer of asset-referenced tokens might pose a serious threat to market integrity, financial stability or the smooth operation of payment systems. The competent authority should consult EBA, ESMA, the ECB and, where the issuer is established in a Member State whose official currency is not the euro or where an official currency of a Member State that is not the euro is referenced by the asset-referenced token, the central bank of that Member State before granting or refusing an authorisation. Non-binding opinions of EBA and ESMA should address the classification of the crypto-asset, while the ECB and, where applicable, the central bank of the Member State concerned should provide the competent authority with an opinion on the risks to financial stability, the smooth operation of payment systems, monetary policy transmission or monetary sovereignty. The competent authorities should refuse authorisation in cases where the ECB or the central bank of a Member State gives a negative opinion on the grounds of a risk posed to the smooth operation of payment systems, monetary policy transmission, or monetary sovereignty. Where authorisation is granted to an applicant issuer of asset-referenced tokens, the crypto-asset white paper drawn up by that issuer should also be deemed approved. The authorisation by the competent authority should be valid throughout the Union and should allow the issuer of asset-referenced tokens to offer those crypto-assets on the internal market and to seek an admission to trading. In the same way, the crypto-asset white paper should also be valid for the entire Union, without any possibility for Member States to impose additional requirements.

In several cases where the ECB is consulted under this Regulation, its opinion should be binding insofar as it obliges a competent authority to refuse, withdraw or limit an authorisation of the issuer of asset-referenced tokens or to impose specific measures on the issuer of asset-referenced tokens. Article 263, first paragraph, TFEU provides that the Court of Justice of the European Union (the ‘Court of Justice’) should review the legality of acts of the ECB other than recommendations or opinions. It should be recalled, however, that it is for the Court of Justice to interpret that provision in light of the substance and effects of an opinion of the ECB.

To ensure protection of retail holders, issuers of asset-referenced tokens should always provide holders of such tokens with information that is complete, fair, clear and not misleading. Crypto-asset white papers for asset-referenced tokens should include information on the stabilisation mechanism, on the investment policy of the reserve assets, on the custody arrangements for the reserve assets and on the rights provided to holders.

In addition to the information provided in the crypto-asset white paper, issuers of asset-referenced tokens should also provide holders of such tokens with information on an ongoing basis. In particular, they should disclose on their website the amount of asset-referenced tokens in circulation and the value and composition of the reserve assets. Issuers of asset-referenced tokens should also disclose any event that has or is likely to have a significant impact on the value of the asset-referenced tokens or on the reserve assets, irrespective of whether such crypto-assets are admitted to trading.

To ensure protection of retail holders, issuers of asset-referenced tokens should always act honestly, fairly and professionally and in the best interests of the holders of asset-referenced tokens. Issuers of asset-referenced tokens should also put in place a clear procedure for handling complaints received from holders of asset-referenced tokens.

Issuers of asset-referenced tokens should put in place a policy to identify, prevent, manage and disclose conflicts of interest that can arise from their relationships with their shareholders or members, or with any shareholder or member, whether direct or indirect, that has a qualifying holding in the issuers, or with the members of their management body, their employees, holders of asset-referenced tokens or third-party service providers.

Issuers of asset-referenced tokens should have robust governance arrangements, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility and effective processes to identify, manage, monitor and report the risks to which they are or to which they might be exposed. The members of the management body of such issuers should be fit and proper and should, in particular, not have been convicted of any offence in the field of money laundering or terrorist financing or of any other offence that would affect their good repute. The shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings in such issuers, should be of sufficiently good repute and should, in particular, not have been convicted of any offence in the field of money laundering or terrorist financing or of any other offence that would affect their good repute. Issuers of asset-referenced tokens should also employ resources proportionate to the scale of their activities and should always ensure continuity and regularity in the performance of their activities. For that purpose, issuers of asset-referenced tokens should establish a business continuity policy that aims to ensure, in the case of an interruption to their systems and procedures, the performance of their core activities related to the asset-referenced tokens. Issuers of asset-referenced tokens should also have strong internal control mechanisms and effective procedures for risk management, as well as a system that guarantees the integrity and confidentiality of information received. Those obligations aim to ensure the protection of holders of asset-referenced tokens, in particular retail holders, while not creating unnecessary barriers.

Issuers of asset-referenced tokens are usually at the centre of a network of entities that ensure the issuance of such crypto-assets, their transfer and their distribution to holders. Issuers of asset-referenced tokens should therefore be required to establish and maintain appropriate contractual arrangements with third-party entities for ensuring the stabilisation mechanism and the investment of the reserve assets backing the value of the tokens, the custody of such reserve assets and, where applicable, the distribution of the asset-referenced tokens to the public.

To address the risks to the financial stability of the wider financial system, issuers of asset-referenced tokens should be subject to own funds requirements. Those requirements should be proportionate to the issuance size of the asset-referenced tokens and therefore calculated as a percentage of the reserve of assets that back the value of the asset-referenced tokens. Competent authorities should however be able to increase the amount of own funds required based on, inter alia, the evaluation of the risk-management process and internal control mechanisms of the issuer, the quality and volatility of the reserve assets backing the asset-referenced tokens, or the aggregate value and number of transactions settled in asset-referenced tokens.

In order to cover their liability against holders of asset-referenced tokens, issuers of asset-referenced tokens should constitute and maintain a reserve of assets matching the risks reflected in such liability. The reserve of assets should be used for the benefit of the holders of the asset-referenced tokens when the issuer is not able to fulfil its obligations towards the holders, such as in insolvency. The reserve of assets should be composed and managed in such a way that market and currency risks are covered. Issuers of asset-referenced tokens should ensure the prudent management of the reserve of assets and should, in particular, ensure that the value of the reserve amounts at least to the corresponding value of tokens in circulation and that changes in the reserve are adequately managed to avoid adverse impacts on the markets of the reserve assets. Issuers of asset-referenced tokens should therefore have clear and detailed policies that describe, inter alia, the composition of the reserve of assets, the allocation of assets included therein, a comprehensive assessment of the risks raised by the reserve assets, the procedure for the issuance and redemption of the asset-referenced tokens, the procedure to increase and decrease the reserve assets and, where the reserve assets are invested, the investment policy that is followed by the issuers. Issuers of asset-referenced tokens that are marketed both in the Union and in third countries should ensure that their reserve of assets is available to cover the issuers’ liability towards Union holders. The requirement to hold the reserve of assets with firms subject to Union law should therefore apply in proportion to the share of asset-referenced tokens that is expected to be marketed in the Union.

To prevent the risk of loss for asset-referenced tokens and to preserve the value of those assets, issuers of asset-referenced tokens should have an adequate custody policy for their reserve assets. That policy should ensure that the reserve assets are fully segregated from the issuer’s own assets at all times, that the reserve assets are not encumbered or pledged as collateral, and that the issuer of asset-referenced tokens has prompt access to those reserve assets. The reserve assets should, depending on their nature, be held in custody by a crypto-asset service provider, by a credit institution authorised under Directive 2013/36/EU or by an investment firm authorised under Directive 2014/65/EU. That should not exclude the possibility of delegating the holding of the physical assets to another entity. Crypto-asset service providers, credit institutions or investment firms that act as custodians of reserve assets should be responsible for the loss of such reserve assets vis-à-vis the issuer or the holders of the asset-referenced tokens, unless they prove that such loss has arisen as a result of an external event beyond their reasonable control. Concentrations of the custodians of reserve assets should be avoided. However, in certain situations, that might not be possible due to a lack of suitable alternatives. In such cases, a temporary concentration should be deemed acceptable.

To protect holders of asset-referenced tokens against a decrease in value of the assets backing the value of the tokens, issuers of asset-referenced tokens should only invest the reserve assets in secure, low-risk assets with minimal market, concentration and credit risk. As the asset-referenced tokens could be used as a means of exchange, all profits or losses resulting from the investment of the reserve assets should be borne by the issuer of the asset-referenced tokens.

Holders of asset-referenced tokens should have a permanent right of redemption so that the issuer is required to redeem the asset-referenced tokens at any time, upon request by the holders of the asset-referenced tokens. The issuer of asset-referenced tokens should redeem either by paying an amount in funds, other than electronic money, equivalent to the market value of the assets referenced by the asset-referenced tokens, or by delivering the assets referenced by the tokens. The issuer of asset-referenced tokens should always provide the holder with the option of redeeming the asset-referenced tokens in funds other than electronic money denominated in the same official currency that the issuer accepted when selling the tokens. The issuer should provide sufficiently detailed and easily understandable information on the different forms of redemption available.

To reduce the risk that asset-referenced tokens are used as a store of value, issuers of asset-referenced tokens and crypto-asset service providers, when providing crypto-asset services related to asset-referenced tokens, should not grant interest to holders of asset-referenced tokens related to the length of time during which such holders are holding those asset-referenced tokens.

Asset-referenced tokens and e-money tokens should be deemed significant when they meet, or are likely to meet, certain criteria, including a large customer base, a high market capitalisation, or a large number of transactions. As such, they could be used by a large number of holders and their use could raise specific challenges in terms of financial stability, monetary policy transmission or monetary sovereignty. Those significant asset-referenced tokens and e-money tokens should, therefore, be subject to more stringent requirements than asset-referenced tokens or e-money tokens that are not deemed significant. In particular, issuers of significant asset-referenced tokens should be subject to higher capital requirements, to interoperability requirements and they should establish a liquidity management policy. The appropriateness of the thresholds to classify an asset-referenced token or e-money token as significant should be reviewed by the Commission as part of its review of the application of this Regulation. That review should, where appropriate, be accompanied by a legislative proposal.

A comprehensive monitoring of the entire ecosystem of issuers of asset-referenced tokens is important in order to determine the true size and impact of such tokens. To capture all transactions that are conducted in relation to any given asset-referenced token, the monitoring of such tokens therefore includes the monitoring of all transactions that are settled, whether they are settled on the distributed ledger (‘on-chain’) or outside the distributed ledger (‘off-chain’), and including transactions between clients of the same crypto-asset service provider.

It is particularly important to estimate transactions settled with asset-referenced tokens associated to uses as a means of exchange within a single currency area, namely, those associated to payments of debts including in the context of transactions with merchants. Those transactions should not include transactions associated with investment functions and services, such as a means of exchange for funds or other crypto-assets, unless there is evidence that the asset-referenced token is used for settlement of transactions in other crypto-assets. A use for settlement of transactions in other crypto-assets would be present in cases where a transaction involving two legs of crypto-assets, which are different from the asset-referenced tokens, is settled in the asset-referenced tokens. Moreover, where asset-referenced tokens are used widely as a means of exchange within a single currency area, issuers should be required to reduce the level of activity. An asset-referenced token should be considered to be used widely as a means of exchange when the average number and average aggregate value of transactions per day associated to uses as a means of exchange within a single currency area is higher than 1 million transactions and EUR 200 000 000 respectively.

Where asset-referenced tokens pose a serious threat to the smooth operation of payment systems, monetary policy transmission or monetary sovereignty, central banks should be able to request the competent authority to withdraw the authorisation of the issuer of those asset-referenced tokens. Where asset-referenced tokens pose a threat to the smooth operation of payment systems, monetary policy transmission or monetary sovereignty, central banks should be able to request the competent authority to limit the amount of those asset-referenced tokens to be issued, or to impose a minimum denomination amount.

This Regulation is without prejudice to national law regulating the use of domestic and foreign currencies in operations between residents, adopted by non-euro area Member States in exercising their prerogative of monetary sovereignty.

Issuers of asset-referenced tokens should prepare a recovery plan providing for measures to be taken by the issuer to restore compliance with the requirements applicable to the reserve of assets, including in cases where the fulfilment of requests for redemption creates temporary unbalances in the reserve of assets. The competent authority should have the power to temporarily suspend the redemption of asset-referenced tokens in order to protect the interests of the holders of the asset-referenced tokens and financial stability.

Issuers of asset-referenced tokens should have a plan for the orderly redemption of the tokens to ensure that the rights of the holders of the asset-referenced tokens are protected where the issuers are not able to comply with their obligations, including in the event of discontinuation of issuing of the asset-referenced tokens. Where the issuer of asset-referenced tokens is a credit institution or an entity falling within the scope of Directive 2014/59/EU of the European Parliament and of the Council, the competent authority should consult the responsible resolution authority. That resolution authority should be permitted to examine the redemption plan with a view to identifying any elements in it that might adversely affect the resolvability of the issuer, the resolution strategy of the issuer, or any actions foreseen in the resolution plan of the issuer, and make recommendations to the competent authority with regard to those matters. In doing so, the resolution authority should also be permitted to consider whether any changes are required to the resolution plan or the resolution strategy, in accordance with the provisions of Directive 2014/59/EU and Regulation (EU) No 806/2014 of the European Parliament and of the Council, as applicable. Such examination by the resolution authority should not affect the powers of the prudential supervisory authority or of the resolution authority, as applicable, to take crisis prevention measures or crisis management measures.

Issuers of e-money tokens should be authorised either as a credit institution under Directive 2013/36/EU or as an electronic money institution under Directive 2009/110/EC. E-money tokens should be deemed to be ‘electronic money’ as that term is defined in Directive 2009/110/EC and their issuers should, unless specified otherwise in this Regulation, comply with the relevant requirements set out in Directive 2009/110/EC for the taking up, pursuit and prudential supervision of the business of electronic money institutions and the requirements on issuance and redeemability of e-money tokens. Issuers of e-money tokens should draw up a crypto-asset white paper and notify it to their competent authority. Exemptions regarding limited networks, regarding certain transactions by providers of electronic communications networks and regarding electronic money institutions issuing only a limited maximum amount of electronic money, based on the optional exemptions specified in Directive 2009/110/EC, should also apply to e-money tokens. However, issuers of e-money tokens should still be required to draw up a crypto-asset white paper in order to inform buyers about the characteristics and risks of the e-money tokens and should also be required to notify the crypto-asset white paper to the competent authority before its publication.

Holders of e-money tokens should be provided with a claim against the issuer of the e-money tokens. Holders of e-money tokens should always be granted a right of redemption at par value for funds denominated in the official currency that the e-money token is referencing. The provisions of Directive 2009/110/EC on the possibility of charging a fee in relation to redemption are not relevant in the context of e-money tokens.

To reduce the risk that e-money tokens are used as store of value, issuers of e-money tokens and crypto-asset service providers when they provide crypto-asset services related to e-money tokens, should not grant interest to holders of e-money tokens, including interest not related to the length of time that such holders hold those e-money tokens.

The crypto-asset white paper drawn up by an issuer of e-money tokens should contain all information concerning that issuer and the offer of e-money tokens or their admission to trading that is necessary to enable prospective buyers to make an informed purchase decision and understand the risks relating to the offer of e-money tokens. The crypto-asset white paper should also expressly refer to the right of holders of e-money tokens to redeem their e-money tokens for funds denominated in the official currency that the e-money tokens reference at par value and at any time.

Where an issuer of e-money tokens invests the funds received in exchange for e-money tokens, such funds should be invested in assets denominated in the same official currency as the one that the e-money token is referencing in order to avoid cross-currency risks.

Significant e-money tokens could pose greater risks to financial stability than e-money tokens that are not significant and traditional electronic money. Issuers of significant e-money tokens that are electronic money institutions should therefore be subject to additional requirements. Such issuers of significant e-money tokens should in particular be subject to higher capital requirements than issuers of other e-money tokens, be subject to interoperability requirements and establish a liquidity management policy. They should also comply with some of the same requirements that apply to issuers of asset-referenced tokens with regard to reserve of assets, such as those on custody and investment of the reserve of assets. Those requirements for issuers of significant e-money tokens should apply instead of Articles 5 and 7 of Directive 2009/110/EC. As those provisions of Directive 2009/110/EC do not apply to credit institutions when issuing e-money, neither should the additional requirements for significant e-money tokens under this Regulation.

Issuers of e-money tokens should have in place recovery and redemption plans to ensure that the rights of the holders of the e-money tokens are protected when issuers are not able to comply with their obligations.

In most Member States, the provision of crypto-asset services is not yet regulated despite the potential risks that they pose to investor protection, market integrity and financial stability. To address such risks, this Regulation provides operational, organisational and prudential requirements at Union level applicable to crypto-asset service providers.

In order to enable effective supervision and to eliminate the possibility of evading or circumventing supervision, crypto-asset services should only be provided by legal persons that have a registered office in a Member State in which they carry out substantive business activities, including the provision of crypto-asset services. Undertakings that are not legal persons, such as commercial partnerships, should under certain conditions also be permitted to provide crypto-asset services. It is essential that providers of crypto-asset services maintain effective management of their activities in the Union in order to avoid undermining effective prudential supervision and to ensure the enforcement of requirements under this Regulation intended to ensure investor protection, market integrity and financial stability. Regular close direct contact between supervisors and the responsible management of crypto-asset service providers should be an essential element of such supervision. Crypto-asset service providers should therefore have their place of effective management in the Union, and at least one of the directors should be resident in the Union. The place of effective management means the place where the key management and commercial decisions that are necessary for the conduct of the business are taken.

This Regulation should not affect the possibility for persons established in the Union to receive crypto-asset services by a third-country firm on their own initiative. Where a third-country firm provides crypto-asset services on the own initiative of a person established in the Union, the crypto-asset services should not be deemed to be provided in the Union. Where a third-country firm solicits clients or prospective clients in the Union or promotes or advertises crypto-asset services or activities in the Union, its services should not be deemed to be crypto-asset services provided on the own initiative of the client. In such a case, the third-country firm should be authorised as a crypto-asset service provider.

Given the relatively small scale to date of crypto-asset service providers, the power to authorise and supervise such service providers should be conferred upon national competent authorities. Authorisation as a crypto-asset service provider should be granted, refused or withdrawn by the competent authority of the Member State where the entity has its registered office. Where an authorisation is granted, it should indicate the crypto-asset services for which the crypto-asset service provider is authorised and should be valid for the entire Union.

In order to ensure the continued protection of the financial system of the Union against the risks of money laundering and terrorist financing, it is necessary to ensure that crypto-asset service providers carry out increased checks on financial operations involving customers and financial institutions from third countries listed as high-risk third countries because they are jurisdictions which have strategic deficiencies in their national anti-money laundering and counter-terrorist financing regimes that pose significant threats to the financial system of the Union as referred to in Directive (EU) 2015/849 of the European Parliament and of the Council.

Certain firms subject to Union legislative acts on financial services should be allowed to provide all or some crypto-asset services without being required to obtain an authorisation as a crypto-asset service provider under this Regulation if they notify their competent authorities with certain information before providing those services for the first time. In such cases, those firms should be deemed to be crypto-asset service providers and the relevant administrative powers provided in this Regulation, including the power to suspend or prohibit certain crypto-asset services, should apply with respect to them. Those firms should be subject to all requirements applicable to crypto-asset service providers under this Regulation with the exception of authorisation requirements, own funds requirements and the approval procedure regarding shareholders and members that have qualifying holdings, as those matters are covered by the respective Union legislative acts under which they were authorised. The notification procedure for credit institutions intending to provide crypto-asset services under this Regulation should be without prejudice to the provisions of national law transposing Directive 2013/36/EU that set out procedures for the authorisation of credit institutions to provide the services listed in Annex I to that Directive.

In order to ensure consumer protection, market integrity and financial stability, crypto-asset service providers should always act honestly, fairly and professionally and in the best interests of their clients. Crypto-asset services should be deemed ‘financial services’ as defined in Directive 2002/65/EC in cases where they meet the criteria of that Directive. Where marketed at distance, the contracts between crypto-asset service providers and consumers should be subject to Directive 2002/65/EC as well, unless expressly stated otherwise in this Regulation. Crypto-asset service providers should provide their clients with information that is complete, fair, clear and not misleading and warn them about the risks associated with crypto-assets. Crypto-asset service providers should make their pricing policies public, should establish complaints-handling procedures and should have a robust policy for the identification, prevention, management and disclosure of conflicts of interest.

To ensure consumer protection, crypto-asset service providers authorised under this Regulation should comply with certain prudential requirements. Those prudential requirements should be set as a fixed amount or in proportion to the fixed overheads of crypto-asset service providers of the preceding year, depending on the types of services they provide.

Crypto-asset service providers should be subject to strong organisational requirements. The members of the management body of crypto-asset service providers should be fit and proper and should, in particular, not have been convicted of any offence in the field of money laundering or terrorist financing or of any other offence that would affect their good repute. The shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings in crypto-asset service providers should be of sufficiently good repute and should, in particular, not have been convicted of any offence in the field of money laundering or terrorist financing or of any other offence that would affect their good repute. In addition, where the influence exercised by shareholders and members that have qualifying holdings in crypto-asset service providers is likely to be prejudicial to the sound and prudent management of the crypto-asset service provider taking into account, amongst others, their previous activities, the risk of them engaging in illicit activities, or the influence or control by a government of a third country, competent authorities should have the power to address those risks. Crypto-asset service providers should employ management and staff with adequate knowledge, skills and expertise and should take all reasonable steps to perform their functions, including through the preparation of a business continuity plan. They should have sound internal control and risk assessment mechanisms as well as adequate systems and procedures to ensure the integrity and confidentiality of the information received. Crypto-asset service providers should have appropriate arrangements to keep records of all transactions, orders and services related to the crypto-asset services that they provide. They should also have systems in place to detect potential market abuse committed by clients.

In order to ensure protection of their clients, crypto-asset service providers should have adequate arrangements to safeguard the clients’ ownership rights with respect to the crypto-assets they hold. Where their business model requires them to hold funds as defined in Directive (EU) 2015/2366 in the form of banknotes, coins, scriptural money or electronic money belonging to their clients, crypto-asset service providers should place such funds with a credit institution or a central bank, where an account with the central bank is available. Crypto-asset service providers should be authorised to make payment transactions in connection with the crypto-asset services they offer only where they are authorised as payment institutions in accordance with that Directive.

Depending on the services they provide and due to the specific risks raised by each type of services, crypto-asset service providers should be subject to requirements specific to those services. Crypto-asset service providers providing custody and administration of crypto-assets on behalf of clients should conclude an agreement with their clients with certain mandatory provisions and should establish and implement a custody policy, which should be made available to clients upon their request in an electronic format. Such agreement should specify, inter alia, the nature of the service provided, which could include the holding of crypto-assets belonging to clients or the means of access to such crypto-assets, in which case the client might keep control of the crypto-assets in custody. Alternatively, the crypto-assets or the means of access to them could be transferred to the full control of the crypto-asset service provider. Crypto-asset service providers that hold crypto-assets belonging to clients, or the means of access to such crypto-assets, should ensure that those crypto-assets are not used for their own account. The crypto-asset service providers should ensure that all crypto-assets held are always unencumbered. Those crypto-asset service providers should also be held liable for any losses resulting from an incident related to information and communication technology (‘ICT’), including an incident resulting from a cyber-attack, theft or any malfunctions. Hardware or software providers of non-custodial wallets should not fall within the scope of this Regulation.

To ensure the orderly functioning of markets in crypto-assets, crypto-asset service providers operating a trading platform for crypto-assets should have detailed operating rules, should ensure that their systems and procedures are sufficiently resilient, should be subject to pre-trade and post-trade transparency requirements adapted to the markets in crypto-assets, and should set transparent and non-discriminatory rules, based on objective criteria, governing access to their platforms. Crypto-asset service providers operating a trading platform for crypto-assets should also have a transparent fee structure for the services provided to avoid the placing of orders that could contribute to market abuse or disorderly trading conditions. Crypto-asset service providers operating a trading platform for crypto-assets should be able to settle transactions executed on trading platforms on-chain and off-chain, and should ensure a timely settlement. The settlement of transactions should be initiated within 24 hours of a transaction being executed on the trading platform. In the case of an off-chain settlement, the settlement should be initiated on the same business day whereas in the case of an on-chain settlement, the settlement might take longer as it is not controlled by the crypto-asset service provider operating the trading platform.

To ensure consumer protection, crypto-asset service providers that exchange crypto-assets for funds or other crypto-assets by using their own capital should draw up a non-discriminatory commercial policy. They should publish either firm quotes or the methodology they are using for determining the price of the crypto-assets they wish to exchange, and they should publish any limits they wish to establish on the amount to be exchanged. They should also be subject to post-trade transparency requirements.

Crypto-asset service providers that execute orders for crypto-assets on behalf of clients should draw up an execution policy and should always aim to obtain the best possible result for their clients, including when they act as a client’s counterparty. They should take all necessary steps to avoid the misuse by their employees of information related to client orders. Crypto-asset service providers that receive orders and transmit those orders to other crypto-asset service providers should implement procedures for the prompt and proper sending of those orders. Crypto-asset service providers should not receive any monetary or non-monetary benefits for transmitting those orders to any particular trading platform for crypto-assets or any other crypto-asset service providers. They should monitor the effectiveness of their order execution arrangements and execution policy, assessing whether the execution venues included in the order execution policy provide for the best possible result for the client or whether they need to make changes to their execution arrangements, and should notify clients with whom they have an ongoing client relationship of any material changes to their order execution arrangements or execution policy.

When a crypto-asset service provider executing orders for crypto-assets on behalf of clients is the client’s counterparty, there might be similarities with the services of exchanging crypto-assets for funds or other crypto-assets. However, in exchanging crypto-assets for funds or other crypto-assets, the price for such exchanges is freely determined by the crypto-asset service provider as a currency exchange. Yet in the execution of orders for crypto-assets on behalf of clients, the crypto-asset service provider should always ensure that it obtains the best possible result for its client, including when it acts as the client’s counterparty, in line with its best execution policy. The exchange of crypto-assets for funds or other crypto-assets when made by the issuer or offeror should not be a crypto-asset service.

Crypto-asset service providers that place crypto-assets for potential holders should, before the conclusion of a contract, communicate to those persons information on how they intend to perform their service. To ensure the protection of their clients, crypto-asset service providers that are authorised for the placing of crypto-assets should have in place specific and adequate procedures to prevent, monitor, manage and disclose any conflicts of interest arising from the placing of crypto-assets with their own clients and arising where the proposed price for the placing of crypto-assets has been overestimated or underestimated. The placing of crypto-assets on behalf of an offeror should not be deemed to be a separate offer.

To ensure consumer protection, crypto-asset service providers that provide advice on crypto-assets, either at the request of a client or on their own initiative, or that provide portfolio management of crypto-assets, should make an assessment whether those crypto-asset services or crypto-assets are suitable for the clients, having regard to their clients’ experience, knowledge, objectives and ability to bear losses. Where the clients do not provide information to the crypto-asset service providers on their experience, knowledge, objectives and ability to bear losses, or it is clear that the crypto-assets are not suitable for the clients, the crypto-asset service providers should not recommend such crypto-asset services or crypto-assets to those clients, nor begin providing portfolio management of crypto-assets. When providing advice on crypto-assets, crypto-asset service providers should provide clients with a report, which should include the suitability assessment specifying the advice given and how it meets the preferences and objectives of clients. When providing portfolio management of crypto-assets, crypto-asset service providers should provide periodic statements to their clients, which should include a review of their activities and of the performance of the portfolio as well as an updated statement on the suitability assessment.

Some crypto-asset services, in particular providing custody and administration of crypto-assets on behalf of clients, the placing of crypto-assets, and transfer services for crypto-assets on behalf of clients, might overlap with payment services as defined in Directive (EU) 2015/2366.

The tools provided by issuers of electronic money to their clients to manage an e-money token might not be distinguishable from the activity of providing custody and administration services as regulated by this Regulation. Electronic money institutions should therefore be able to provide custody services, without prior authorisation under this Regulation to provide crypto-asset services, only in relation to the e-money tokens issued by them.

The activity of traditional electronic money distributors, namely, that of distributing electronic money on behalf of issuers, would amount to the activity of placing of crypto-assets for the purposes of this Regulation. However, natural or legal persons allowed to distribute electronic money under Directive 2009/110/EC should also be able to distribute e-money tokens on behalf of issuers of e-money tokens without being required to obtain prior authorisation under this Regulation to provide crypto-asset services. Such distributors should, therefore, be exempt from the requirement to seek authorisation as a crypto-asset service provider for the activity of the placing of crypto-assets.

A provider of transfer services for crypto-assets should be an entity that provides for the transfer, on behalf of a client, of crypto-assets from one distributed ledger address or account to another. Such transfer service should not include the validators, nodes or miners that might be part of confirming a transaction and updating the state of the underlying distributed ledger. Many crypto-asset service providers also offer some kind of transfer service for crypto-assets as part of, for example, the service of providing custody and administration of crypto-assets on behalf of clients, exchange of crypto-assets for funds or other crypto-assets, or execution of orders for crypto-assets on behalf of clients. Depending on the precise features of the services associated to the transfer of e-money tokens, such services could fall under the definition of payment services in Directive (EU) 2015/2366. In such cases, those transfers should be provided by an entity authorised to provide such payment services in accordance with that Directive.

This Regulation should not address the lending and borrowing of crypto-assets, including e-money tokens, and therefore should not prejudice applicable national law. The feasibility and necessity of regulating such activities should be further assessed.

It is important to ensure confidence in markets in crypto-assets and the integrity of those markets. It is therefore necessary to lay down rules to deter market abuse for crypto-assets that are admitted to trading. However, as issuers of crypto-assets and crypto-asset service providers are very often SMEs, it would be disproportionate to apply all of the provisions of Regulation (EU) No 596/2014 of the European Parliament and of the Council to them. It is therefore necessary to lay down specific rules prohibiting certain behaviours that are likely to undermine user confidence in markets in crypto-assets and the integrity of those markets, including insider dealing, unlawful disclosure of inside information and market manipulation related to crypto-assets. Those bespoke rules on market abuse committed in relation to crypto-assets should also be applied in cases where crypto-assets are admitted to trading.

Legal certainty for participants in markets in crypto-assets should be enhanced through a characterisation of two elements essential to the specification of inside information, namely, the precise nature of that information and the significance of its potential effect on the prices of crypto-assets. Those elements should also be considered for the prevention of market abuse in the context of markets in crypto-assets and their functioning, taking into account, for instance, the use of social media, the use of smart contracts for order executions and the concentration of mining pools.

Derivatives that qualify as financial instruments as defined in Directive 2014/65/EU, and whose underlying asset is a crypto-asset, are subject to Regulation (EU) No 596/2014 when traded on a regulated market, multilateral trading facility or organised trading facility. Crypto-assets falling within the scope of this Regulation, which are underlying assets of those derivatives, should be subject to the market abuse provisions of this Regulation.

Competent authorities should be conferred with sufficient powers to supervise the issuance, offer to the public and admission to trading of crypto-assets, including asset-referenced tokens or e-money tokens, as well as to supervise crypto-asset service providers. Those powers should include the power to suspend or prohibit an offer to the public or an admission to trading of crypto-assets or the provision of a crypto-asset service, and to investigate infringements of the rules on market abuse. Issuers of crypto-assets other than asset-referenced tokens or e-money tokens should not be subject to supervision under this Regulation when the issuer is not an offeror or a person seeking admission to trading.

Competent authorities should also have the power to impose penalties on issuers, offerors or persons seeking admission to trading of crypto-assets, including asset-referenced tokens or e-money tokens, and on crypto-asset service providers. When determining the type and level of an administrative penalty or other administrative measure, competent authorities should take into account all relevant circumstances, including the gravity and the duration of the infringement and whether it was committed intentionally.

Given the cross-border nature of markets in crypto-assets, competent authorities should cooperate with each other to detect and deter any infringements of this Regulation.

To facilitate transparency regarding crypto-assets and crypto-asset service providers, ESMA should establish a register of crypto-asset white papers, issuers of asset-referenced tokens, issuers of e-money tokens and crypto-asset service providers.

Significant asset-referenced tokens can be used as a means of exchange and to make large volumes of payment transactions. Since such large volumes can pose specific risks to monetary transmission channels and monetary sovereignty, it is appropriate to assign to EBA the task of supervising the issuers of asset-referenced tokens, once such tokens have been classified as significant. Such assignment should address the very specific nature of the risks posed by asset-referenced tokens, and should not set a precedent for any other Union legislative acts on financial services.

Competent authorities in charge of supervision under Directive 2009/110/EC should supervise issuers of e-money tokens. However, given the potential widespread use of significant e-money tokens as a means of payment and the risks they can pose to financial stability, a dual supervision both by competent authorities and by EBA of issuers of significant e-money tokens is necessary. EBA should supervise the compliance by issuers of significant e-money tokens with the specific additional requirements set out in this Regulation for such tokens. Since the specific additional requirements should apply only to electronic money institutions issuing significant e-money tokens, credit institutions issuing significant e-money tokens, to which such requirements do not apply, should remain supervised by their respective competent authorities. The dual supervision should address the very specific nature of the risks posed by e-money tokens, and should not set a precedent for any other Union legislative acts on financial services.

Significant e-money tokens denominated in an official currency of a Member State other than the euro which are used as a means of exchange and in order to settle large volumes of payment transactions can, although unlikely to occur, pose specific risks to the monetary sovereignty of the Member State in whose official currency they are denominated. Where at least 80 % of the number of holders and of the volume of transactions of those significant e-money tokens are concentrated in the home Member State, the supervisory responsibilities should not be transferred to EBA.

EBA should establish a college of supervisors for each issuer of significant asset-referenced tokens and of significant e-money tokens. Since issuers of significant asset-referenced tokens and of significant e-money tokens are usually at the centre of a network of entities that ensure the issuance, transfer and distribution of such crypto-assets, the members of the college of supervisors for each issuer should therefore include, amongst others, the competent authorities of the most relevant trading platforms for crypto-assets, in cases where the significant asset-referenced tokens or the significant e-money tokens are admitted to trading, and the competent authorities of the most relevant entities and crypto-asset service providers ensuring the custody and administration of the significant asset-referenced tokens and of significant e-money tokens on behalf of holders. The college of supervisors for issuers of significant asset-referenced tokens and of significant e-money tokens should facilitate the cooperation and exchange of information among its members and should issue non-binding opinions on, amongst others, changes to the authorisation of, or supervisory measures concerning, such issuers.

To supervise issuers of significant asset-referenced tokens and of significant e-money tokens, EBA should have the powers, amongst others, to carry out on-site inspections, take supervisory measures and impose fines.

EBA should charge fees to issuers of significant asset-referenced tokens and of significant e-money tokens to cover its costs, including for overheads. For issuers of significant asset-referenced tokens, the fee should be proportionate to the size of their reserve of assets. For issuers of significant e-money tokens, the fee should be proportionate to the amount of funds received in exchange for the significant e-money tokens.

In order to ensure the effectiveness of this Regulation, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of further specifying technical elements of the definitions set out in this Regulation in order to adjust them to market and technological developments, further specifying certain criteria to determine whether an asset-referenced token or an e-money token should be classified as significant, determining when there is a significant investor protection concern or a threat to the proper functioning and integrity of markets in crypto-assets or to the stability of the whole or part of the financial system of the Union, further specifying the procedural rules for the exercise of the power of EBA to impose fines or periodic penalty payments, including provisions on the rights of the defence, temporal provisions, and the collection of fines or periodic penalty payments, and the limitation periods for the imposition and enforcement of fines and periodic penalty payments, and further specifying the type and amount of supervisory fees that EBA can charge to the issuers of significant asset-referenced tokens or significant e-money tokens. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

In order to promote the consistent application of this Regulation across the Union, including the adequate protection of holders of crypto-assets and clients of crypto-asset service providers, in particular when they are consumers, technical standards should be developed. It is efficient and appropriate to entrust EBA and ESMA, as bodies with highly specialised expertise, with the development of draft regulatory technical standards, which do not involve policy choices, for submission to the Commission.

The Commission should be empowered to adopt regulatory technical standards developed by EBA and ESMA with regard to: the content, methodologies and presentation of information in a crypto-asset white paper on principal adverse impacts on the climate and other environment‐related adverse impacts of the consensus mechanism used to issue the crypto-asset; the procedure for approval of crypto-asset white papers submitted by credit institutions when issuing asset-referenced tokens; the information that an application for authorisation as an issuer of asset-referenced tokens should contain; the methodology to estimate the quarterly average number and average aggregate value of transactions per day associated to uses of asset-referenced tokens and e-money tokens denominated in a currency which is not an official currency of a Member State as a means of exchange in each single currency area; the requirements, templates and procedures for handling complaints of holders of asset-referenced tokens and of clients of crypto-asset service providers; the requirements for the policies and procedures to identify, prevent, manage and disclose conflicts of interest of issuers of asset-referenced tokens and the details and methodology for the content of that disclosure; the procedure and timeframe for an issuer of asset-referenced tokens and significant e-money tokens to adjust to higher own funds requirements, the criteria for requiring higher own funds, the minimum requirements for the design of stress testing programmes; the liquidity requirements for the reserve of assets; the financial instruments into which the reserve of assets can be invested; detailed content of information necessary to carry out the assessment of the proposed acquisition of the qualifying holding in an issuer of asset-referenced tokens; requirements for additional obligations for issuers of significant asset-referenced tokens; the information that credit institutions, central securities depositories, investment firms, market operators, electronic money institutions, UCITS management companies and alternative investment fund managers who intend to provide crypto-asset services notify to competent authorities; the information that an application for the authorisation of crypto-asset service provider contains; the content, methodologies and presentation of information that the crypto-assets service provider makes publicly available and that is related to principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue each crypto-asset in relation to which they provide services; measures ensuring continuity and regularity in the performance of the crypto-asset services and the records to be kept of all crypto-asset services, orders and transactions that they undertake; the requirements for the policies to identify, prevent, manage and disclose conflicts of interest of crypto-asset service providers and the details and methodology for the content of that disclosure; the manner in which transparency data of the operator of a trading platform is to be offered and the content and format of order book records regarding the trading platform; the detailed content of the information necessary to carry out the assessment of the proposed acquisition of the qualifying holding in a crypto-asset service provider; the appropriate arrangements, systems and procedures for monitoring and detecting market abuse; the notification template for reporting suspicions of market abuse and coordination procedures between the relevant competent authorities for the detection of market abuse; the information to be exchanged between the competent authorities; a template document for cooperation arrangements between the competent authorities of Member States and supervisory authorities of third countries; the data necessary for the classification of crypto-asset white papers in ESMA’s register and the practical arrangements to ensure that such data is machine-readable; the conditions under which certain members of college of supervisors for issuers of significant asset-referenced tokens and issuers of significant e-money tokens are to be considered most relevant in their category; and the conditions under which it is considered that asset-referenced tokens or e-money tokens are used at a large scale for the purposes of qualifying certain members of that college and details of the practical arrangements for the functioning of that college. The Commission should adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulations (EU) No 1093/2010 and of (EU) No 1095/2010, respectively.

The Commission should be empowered to adopt implementing technical standards developed by EBA and ESMA, with regard to: establishing standard forms, formats and templates for crypto-asset white papers; establishing standard forms, templates and procedures to transmit information for the purposes of the application for authorisation as an issuer of asset-referenced tokens; establishing standard forms, formats and templates for the purposes of reporting on asset-referenced tokens and e-money tokens denominated in a currency which is not an official currency of a Member State that are issued with a value higher than EUR 100 000 000; establishing standard forms, templates and procedures for the notification of information to competent authorities by credit institutions, central securities depositories, investment firms, market operators, electronic money institutions, UCITS management companies and alternative investment fund managers who intend to provide crypto-asset services; establishing standard forms, templates and procedures for the application for authorisation as crypto-asset service providers; determining the technical means for public disclosure of inside information and for delaying the public disclosure of inside information; and establishing standard forms, templates and procedures for the cooperation and exchange of information between competent authorities and between competent authorities, EBA and ESMA. The Commission should adopt those implementing technical standards by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1093/2010 and Article 15 of Regulation (EU) No 1095/2010.

Since the objectives of this Regulation, namely addressing the fragmentation of the legal framework applicable to offerors or persons seeking the admission to trading of crypto-assets other than asset-referenced tokens and e-money tokens, to issuers of asset-referenced tokens and e-money tokens and to crypto-asset service providers, and ensuring the proper functioning of markets in crypto-assets while ensuring the protection of holders of crypto-assets and clients of crypto-asset service providers, in particular retail holders, as well as the protection of market integrity and financial stability, cannot be sufficiently achieved by the Member States but can rather, by creating a framework on which a larger cross-border market in crypto-assets and crypto-asset service providers could develop, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

In order to avoid disrupting market participants that provide services and activities in relation to crypto-assets other than asset-referenced tokens and e-money tokens that have been issued before the date of application of this Regulation, issuers of such crypto-assets should be exempt from the obligation to publish a crypto-asset white paper and certain other requirements of this Regulation. However, certain obligations should apply when such crypto-assets were admitted to trading before the date of application of this Regulation. In order to avoid disruption to existing market participants, transitional provisions are necessary for issuers of asset-referenced tokens that were in operation at the time of entry into application of this Regulation.

Since the national regulatory frameworks applicable to crypto-asset service providers before the entry into application of this Regulation differ among Member States, it is essential that those Member States that do not, at present, have in place strong prudential requirements for crypto-asset service providers currently operating under their regulatory frameworks have the possibility of requiring such crypto-asset service providers to be subject to stricter requirements than those under the national regulatory frameworks. In such cases, Member States should be permitted to not apply, or to reduce, the 18-month transitional period that would otherwise allow crypto-asset service providers to provide services based on their existing national regulatory framework. Such an option for Member States should not set a precedent for any other Union legislative acts on financial services.

Whistleblowers should be able to bring new information to the attention of competent authorities that helps them in detecting infringements of this Regulation and imposing penalties. This Regulation should therefore ensure that adequate arrangements are in place to enable whistleblowers to alert competent authorities to actual or potential infringements of this Regulation and to protect them from retaliation. That should be done by amending Directive (EU) 2019/1937 of the European Parliament and of the Council in order to make it applicable to infringements of this Regulation.

Given that EBA should be mandated with the direct supervision of issuers of significant asset-referenced tokens and of significant e-money tokens, and ESMA should be mandated to make use of its powers in relation to significant crypto-asset service providers, it is necessary to ensure that EBA and ESMA are able to exercise all of their powers and tasks in order to fulfil their objectives of protecting the public interest by contributing to the short-, medium- and long-term stability and effectiveness of the financial system for the Union economy, its citizens and businesses and to ensure that issuers of crypto-assets and crypto-asset service providers are covered by Regulations (EU) No 1093/2010 and (EU) No 1095/2010. Those Regulations should therefore be amended accordingly.

The issuance, offer or seeking of admission to trading of crypto-assets and the provision of crypto-asset services could involve the processing of personal data. Any processing of personal data under this Regulation should be carried out in accordance with applicable Union law on the protection of personal data. This Regulation is without prejudice to the rights and obligations under Regulation (EU) 2016/679 of the European Parliament and of the Council and Regulation (EU) 2018/1725 of the European Parliament and of the Council.

The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725 and delivered an opinion on 24 June 2021.

The date of application of this Regulation should be deferred in order to allow for the adoption of regulatory technical standards, implementing technical standards and delegated acts that are necessary to further specify certain elements of this Regulation,