Response to consultation on Regulatory Technical Standards on the use of ARTs and EMTs denominated in a non-EU currency as a means of exchange (MiCAR)
Question 1: Do you agree with the EBA’s proposals on how issuers should estimate the number and value of transactions associated to uses of an ART or of an EMT denominated in a non-EU currency “as a means of exchange”, as reflected in Article 3 of the draft RTS? If not, please provide your reasoning and the underlying evidence, and suggest an alternative approach for estimating the number and value of these transactions.
Relying on "best efforts" for reporting could result in uneven data quality between firms and potentially undermine data comparability and the regulatory value of the information. We suggest an alternative approach such as the introduction of a simplified and standardized reporting template or checklist. This could support more consistent and reliable reporting across the industry without imposing undue complexity or resource demands.
We suggest a clearer definition of “as a means of exchange” to assist issuers with the transaction cap monitoring and estimate.
Question 2: Please describe any observed or foreseen use cases where transactions involving two legs of crypto-assets, that are different from an ART, are settled in the ART, as referred to in recital 61 of MiCAR.
A use case that seems to fit the description provided in recital 61 of MiCAR would be a cross-border trade settlement where the parties want to trade or exchange two distinct crypto-assets, such as Bitcoin and Ethereum and agree to use a currency backed stablecoin (ART) as the settlement layer to mitigate the volatility risks between the two crypto assets and simplify the transaction.
Question 3: Do you agree with the EBA’s proposals regarding the geographical scope of the transactions covered by Article 22(1), point (d) of MiCAR, as reflected in Article 3(5) of the draft RTS? If not, please provide your reasoning and the underlying evidence.
We support limiting reporting obligations under Article 22(1), point (d) of MiCAR to transactions where the payer and payee are both located within the Eurozone, which would streamline and support effective regulatory compliance. Extraterritorial application complicates compliance and would likely impose undue burdens without substantially contributing to the regulation's objectives. We also believe that focusing on intra-Eurozone transactions, as opposed to a broader list including non-Member Euro States, would align more closely with the aim of safeguarding monetary policy transmission and monetary sovereignty within the EU.
Question 4: Do you agree with the EBA’s proposals on how issuers should assign the transactions in scope of Article 22(1)(d) of MiCAR to a single currency area, as reflected in Article 4 of the draft RTS? If not, please provide your reasoning and the underlying evidence.
We do not agree; our reading differs from the EBA’s. It is our view that the plain language and intention of the reporting obligation in Article 22(1)(d) is to capture transactions “within” a single currency area. A transaction where one of the parties is outside of the single currency area does not meet the standards that are defined by and limited to the plain language of “within.”
Question 6: In your view, does the transactional data to be reported by CASPs to the issuer, as described in paragraph 43 above, cover the data needed to allow the issuer to reconcile the information received from the CASP of the payer and the CASP of the payee before reporting the information in Article 22(1), point (d) to the competent authority? If not, please provide your reasoning with details and examples of which data should be added or removed.
Given the complexities and practical challenges associated with reporting transactions involving non-custodial wallets, we argue against the EBA's requirement for such detailed reporting. The proposed obligation for CASPs to report public distributed ledger addresses used for client transfers does not effectively enable issuers to distinguish whether a transaction involves a non-custodial wallet given the global and decentralized nature of blockchain technology.
The proposed requirement could introduce significant compliance challenges without meaningfully enhancing the oversight or security of crypto-asset transactions. We suggest, instead, that focusing on transactions where the CASP has clear visibility and control will streamline reporting processes, reduce the burden on issuers and CASPs, and maintain the integrity of data reported to competent authorities.
Question 7: Do you agree that, based on the transactional data to be reported by CASPs to the issuer as described in paragraph 43 above, issuers will be able to reconcile the data received from the CASP of the payer and the CASP of the payee on a transactional basis and in automated manner? If not, what obstacles do you see and how could these be overcome?
We support the initiative for CASPs to report unique, pseudonymous identifiers for transaction reconciliation and believe such an approach will enhance accuracy while avoiding duplication. We would suggest that the EBA focus on pseudonymity which will guard against unnecessary exposure of personal data and mitigate risks associated with data breaches. However, requiring disclosure of personal details like addresses or identification numbers offers no meaningful benefits relative to pseudonymous identifiers and it creates unnecessary risks by creating a target for malicious activities. Prioritizing data security and efficiency, reporting should focus on non-identifiable data to ensure robust and privacy-conscious transaction tracking.
Question 8: In your view, how can an issuer estimate, in the case of transactions between noncustodial wallets, or between other type of distributed ledger addresses where there is no CASP involved: (i) whether the transfer is made between addresses of different persons, or between addresses of the same person, and (ii) the location of the payer and of the payee? Please describe the analytics tools and methodology that could be used for determining such aspects, and indicate what would be, in your view, the costs associated to using such tools and the degree of accuracy of the estimates referred to above?
Although Issuers may use blockchain analysis software to approximate transactions between non-custodial wallets or similar addresses without CASP involvement, the effectiveness and precision of such analytics vary and may carry potential privacy implications and significant costs, and would not be able to offer an accurate estimate of such transactions within the EU.
Question 9: Do you consider the EBA’s proposals set out in recital 3 of the draft RTS and further explained in paragraphs 48-55 above as regards the reporting of transactions between noncustodial wallets and between other type of distributed ledger addresses where there is no CASP involved to be achieving an appropriate balance between the competing demands of ensuring a high degree of data quality and imposing a proportionate reporting burden? If not, please provide your reasoning and the underlying evidence.
While we support the EBA's exemption for reporting transactions without CASP involvement, we are concerned that extending obligations to detail transactions between non-custodial wallets goes beyond necessary oversight and adds unnecessary complexity, burdens and intrusion.
It is currently not technically feasible to identify the residency of the holder of an ART or EMT to report such self-hosted wallet transactions as happening within the EU.
These wallets provide users with autonomy, allowing them to hold their keys in what is essentially a personal safe and without the wallet or its software acting on the user's behalf. Imposing detailed reporting overlooks the practicality and undermines blockchain's core values and benefits to users, issuers and regulators. We would suggest, as the EBA has recognized elsewhere, that a proportionate approach should guide any future reporting requirements, prioritizing minimal impact on blockchain technology's utility while ensuring manageable compliance for issuers, particularly smaller entities.