Electronic money and payment tokens between MICAR and PSD 3 proposal

by Vincenzo Troiano *

ABSTRACT: Starting from an analysis of the evolution of the European e-money discipline, the essay examines the taxonomies introduced by the MICAR, comparing e-money and tokens that can be used with a payment function, and then considers the possible disciplinary developments in this field that can be related to the recent adoption of a proposed revision of PSD 2.

SUMMARY: 1. Preface. – 2. Evolution of the definition of e-money in European regulation. – 3. MICAR: objectives, exclusions and scope – 4. ART, EMT and e-money. – 5. The Regulatory Framework: Sub-Threshold Tokens and Significant Tokens. – 6. (cont’d): and restrictions on the development of ART used for payment purposes. – 7. Evolutionary profiles of the regulation in the proposal of PSD 3.

1. With the adoption of Regulation (EU) 2023/1114 of 31 May 2023 on markets in crypto-assets (“MICAR”)[1] the European legal system has been provided with a further implementation piece of the Digital Finance Package adopted by the Commission in 2020[2]. As is well known, this also includes the Regulation on a regime for market infrastructures based on distributed ledger technology (“Pilot Regulation”)[3] and the Regulation on digital operational resilience (“DORA”), which were adopted in 2022[4] .

The overall design at European level aims to achieve a disciplinary evolution that favours the digital transition in the EU and is capable of seizing the opportunities offered by the digital revolution, within a regulatory framework based on European values and sound risk discipline[5].

More specifically, the MICAR stems from the consideration of the Union’s interest in promoting and disseminating transformative technologies in the financial sector, such as distributed ledger technology (DLT), and, in this context, the crypto-asset sector, which is one of its main applications[6].

Crypto-assets, understood as digital representations of value or rights, are believed to bring significant benefits to market participants, including retail holders of crypto-assets[7] .

Such 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” (recital 2).

However, not all crypto-assets are covered by European sectoral rules, such as those on financial services. The absence of a homogeneous regulatory framework may expose holders of such crypto-assets to risks, in particular in sectors not covered by consumer protection rules; it may create significant risks to market integrity; and more generally, it may lead users to distrust such activities[8] .

Hence the desirability of defining a specific, harmonised framework, capable of fostering innovation and fair competition, while ensuring a high level of protection for retail holders and the integrity of markets in crypto-assets, and capable of enabling crypto-assets service providers to expand their business on a cross-border basis (recital 6).

The gestation period of the MICAR has been quite long. Many contributions, including those in the literature, have illustrated its overall structure, as it has evolved over time[9]; in addition, there has been a wide-ranging elaboration, also in jurisprudence, aimed at framing the phenomenon of crypto-assets within the already known and regulated categories, both at European level and in the individual jurisdictions[10].

In this context, we will examine a specific profile of the new rules, relating to the interaction between the notion and function of certain types of crypto-assets (in particular certain asset-referenced tokens and e-money tokens), as now regulated by the MICAR, and the more traditional e-money instruments, known and regulated at European level in the directives that have succeeded one another over time on the subject.

Accordingly, we will first briefly consider the evolution of the disciplinary framework in the field of electronic money, and then turn to the taxonomies introduced by the MICAR, grasping the conceptual and disciplinary contiguities and distinctions between electronic money and tokens with a payment function. And this also by pointing out the points of deviation from the initial proposal for a regulation[11] and the draft resolution that was adopted by the European Parliament in March 2022[12]. This will be done not for the sake of a detailed analysis but to show how the regulatory path in this area has not only been bumpy, but has also evolved as awareness of the issues has grown. Finally, some considerations will be devoted to the profiles of the recent adoption of a proposal to revise the PSD 2[13] which are relevant to the aspects under consideration here.

2. The European regulation of electronic money marks an evolutionary path linked to the expansion of electronic commerce in the European area, accompanying at an institutional and regulatory level the instances of technological progress that were appearing at a commercial level.

The first regulation of the phenomenon, contained in Directive 2000/46/EC, already had the characteristics of the figure, that was then conceived as underlying the activity reserved to intermediaries – electronic money institutions (“EMIs”), in addition to credit institutions – subject to a new regulation, calibrated on that of credit institutions.

E-money is considered to be an electronic surrogate for coins and banknotes, stored on an electronic device, such as a chip card or a computer memory, and generally intended for the purpose of effecting electronic payments of limited amounts (recital 3).

In the broader context of electronic commerce, as it was then understood and described as rapidly evolving, the desirability of providing a legal framework that would encourage the development of electronic money and not hinder technological innovation was emphasised.

In particular, the 2000 Directive aims to establish a technology-neutral legal framework which harmonises the prudential supervision of EMI to the extent necessary to ensure its sound and prudent operation and, in particular, its financial integrity (recital 5).

This results in certain qualifying and unchanged features of the instrument under observation and certain programmatic elements of the regulation governing it. These are, on the one hand, the predominant use in the field of payments, then for limited amounts, and the configuration as a substitute for coins and banknotes, and, on the other hand, the identification of a regulation that supports technological development and has ambition of being a technology-neutral discipline.

The disciplinary evolution, now achieved with the adoption of the MICAR, marks a clear retreat from the latter ambition.

The notion of electronic money laid down in the 2000 directive outlines the characteristics of the instrument: it is in fact conceived as a monetary value, indefectibly representing a claim on the issuer which: (i) is stored on an electronic device; (ii) is issued against receipt of funds whose value is not less than the monetary value issued; (iii) is accepted as a means of payment by undertakings other than the issuer[14].

Almost ten years after the first regulatory intervention, a new regulation on the subject was adopted by Directive 2009/110/EC (“EMD 2”).

It reiterates the need for a clear and above all technically neutral definition of e-money. This is with the stated aim that the definition can cover all situations where the payment service provider issues a prepaid stored value in exchange for funds, which can be used as a payment instrument as it is accepted as payment by third parties (recital 7).

Further underlying the profile of technological neutrality, the recitals to EMD 2 emphasise that the definition covers electronic money, whether it is stored on a payment device in the holder’s possession or remotely on a server and managed by the holder through a specific e-money account. The general nature of the definition should achieve the objective of not hampering technological innovation and coveringnot only all e-money products available on the market today, but also products that may be developed in the future (recital 8).

The updating of the notion of e-money contained in EMD 2 is limited to the inclusion of the magnetic storage of monetary value in the definition and to the linking of the concept of payment transactions to which the issuance of money is functionally linked to definition of these provided in the meantime in the PSD[15].

The PSD 3 Proposal leaves the notion unchanged[16] .

3. Based on the principle of “same activity, same risk, same regulation”and following a technology-neutral approach, the MICAR establishes uniform and calibrated rules according to different protection needs recognised as relevant, defining an articulated and comprehensive regulatory framework for the area subject to regulation.

On the one hand, it regulates transparency and disclosure requirements for the issuance, offer and admission to trading of crypto-assets on a crypto-asset trading platform, as well as specific provisions in relation to these areas to protect crypto-asset holders and to safeguard the integrity of the markets.

On the other hand, it sets out authorisation requirements, supervision and internal organisational and governance rules for crypto-asset service providers (CASPs) and issuers and providers of certain types of crypto-assets (i.e. asset-referenced tokens and e-money tokens), again with specific provisions to protect CASPs’ customers[17].  

The MICAR adopts a broad definition of crypto-assets, aiming to bring within the scope of such a definition all types of the species that have or could have a financial use, can be transferred between holders and do not fall within the scope of other disciplines (i.e. a catch-all definition)[18] .

In this perspective, a crypto-asset is identified as a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger or similar technology [19].  

It is worth noting that it is expressly provided the possibility that the digital representation may also be a right, which seems to considerably broaden the situations that can actually be brought within the proposed definition. However, despite the explicit reference to DLT-like technologies in order to make the concept ‘future proof‘[20], the latter does not aim to illustrate a complete taxonomy and/or an exhaustive list of crypto-assets asthey may be identified in a pre-legal perspective[21], as may also be also deduced from the exclusions from the application of the Regulation.

With reference to exclusions, the Regulation refers, inter alia, to financial instruments, deposits, positions inherent to securitisations, and, subject to what will be said below in relation to the discipline of e-money tokens, funds.

In all these cases, these exclusions give rise the need to identify the distinctive features of the figures that fall under the MICAR discipline with respect to phenomena that, on the contrary, are attracted by other regulations. Undoubtedly the most relevant case, also in terms of the evolution of the issue over time, concerns the distinction between crypto-assets and financial instruments, in relation to which, in a compromising manner, MICAR confers to ESMA the power to draw up, by the end of 2024, guidelines on the conditions and criteria for qualifying crypto-assets as financial instruments. It goes without saying that the exercise of ESMA’s power of guidance will be the real key to verifying the existence of a useful space for the permanence of a category such as that of crypto-assets, distinct from financial instruments and therefore from the disciplinary area of the MIFID world.

Another particularly sensitive issue concerns the exclusion of crypto-assets that are unique and not fungible with other crypto-assets[22]. As stated in the recitals of the Regulation, these include digital art and collectibles, the value of which is attributable to the unique characteristics of each crypto-asset and the utility it provides to the token holder. The rationale for the exclusion is that, although they are exchangeable on the market, “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 with an existing market or equivalent asset“[23] . Hence, the limited financial use of such crypto-assets and, consequently, the reduced risks for holders and the financial system[24].

Compared to the Proposal[25], the MICAR removes the exclusion of electronic money from its scope. Also relevant here is the provision in recital 9 which states that since e-money and funds received in exchange for e-money should not be treated as deposits under EMD 2, e-money tokens[26] cannot be treated as deposits, which are excluded from the scope of this Regulation. The reasoning seems somewhat circular, as it attributes the subjection of e-money tokens to the Regulation to the fact that the exclusion provided for deposits could not apply in this case.

Having said this in relation to the relevant profiles of the exclusion provisions, it should be noted that the Regulation contains specific definitions of three crypto-activities. 

In particular: (i) asset-reference token is “a type of crypto-asset that is not an e-money token and that purports to maintain a stable value by referencing to another value or right or a combination thereof, including one or more official currencies ” (ART) (ii) e-money token is “a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency” (EMT)[27] and (iii) utility token is “a type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer“[28].

The functions and modes of operation of the tokes under consideration are different; hence, also from the perspective of the Regulation, the identification of regimes distinct, albeit contiguous in several areas, such as with regard to ARTs and EMTs, to which, given the chosen angle of analysis, we will focus our attention.  

4. As pointed put in the EBC Opinion, “[u]nder the proposed regulation the two sub-categories of asset-referenced tokens and e-money tokens, have a clear monetary substitution dimension, having regard to the three functions of money as a medium of exchange, store of value and unit of account. The definition of ‘asset-referenced token’ refers to the store of value function (‘…purports to maintain a stable value…’), while the definition of ‘e-money token’ refers to both the medium of exchange and store of value functions (‘…the main purpose of which is to be used as a means of exchange and that purports to maintain a stable value…’) The proposed regulation emphasises the medium of exchange function of e-money tokens, noting that these are ‘intended primarily as a means of payment aim[ed] at stabilising their value by referencing only one fiat currency’, and that ‘like electronic money, such crypto-assets are electronic surrogates for coins and banknotes and are used for making payments‘”[29] .

Even for ART, however, the stabilisation of values – even if referring to any value or right and thus only possibly to one or more currencies – is often aimed at having their holders use them as a means of payment to purchase goods and services. Their use to transfer value or as a means of payment poses greater consumer protection and market integrity risks than other crypto assets, justifying stricter requirements for issuers than for issuers of other crypto assets[30].

As the usability of the crypto-assets in question as a means of payment is therefore common, the basic distinction relates to the eventual or programmatic and structural nature of such use.    

Hence the obvious greater proximity of EMT to electronic money, already in the design and then in the regulation proposed by the Regulation.

The conceptual link between EMT and e-money is highlighted in the recitals of the MICAR. At the outset, it should be recalled that, as mentioned above, a qualifying element of electronic money is the creditor’s claim on the issuer of electronic money. The difference between e-money tokens found in market practice and e-money was precisely that they did not always have this characteristic.

This point is reiterated in the recitals explaining the rationale behind the regulatory solution adopted.

With regard to the market and regulatory situation at the time of the adoption of the MICAR, it is indeed recalled that the function of e-money tokens is very similar to that of electronic money, since such crypto-assets, like e-money, are electronic surrogates for coins and banknotes and are used to make payments.  

However, despite their similarities, e-money and crypto-assets with an official currency as reference currency differ in some important aspects, the most important being that e-money holders always have a claim on the issuer of e-money and have the contractual right at any time to demand redemption of their e-money in a fiat currency, at the nominal value of that currency.

Conversely, holders of crypto-assets whose reference currency is an official currency do not always have such a claim against the issuers of such assets. This could weaken the confidence of users of such crypto-assets[31]. Therefore, also in order to avoid circumvention of the rules set out in EMD 2, it is considered appropriate that any definition of EMTs should be as broad as possible to include all types of crypto-assets with a single official currency as reference currency (recital 19).

Moreover, as EMTs are also crypto-assets and may require additional safeguards specific to crypto-assets in terms of retail holder protection and market integrity, they should also be subject to the MICAR[32].

This has resulted in rules that: (i) emphasise the primary purpose as a means of payment in the definition of EMT; (ii) establish a legal equivalence between EMT and electronic money; and (iii) indicate that if the official currency to which the token is pegged is a Union official currency the EMT is deemed to be offered to the public in the Union (see Article 48(2), MICAR).

The alignment with electronic money is completed by the requirement that electronic money issued against the receipt of funds[33] must be redeemable at any time and at par value[34].This profile identifies also the one of the most important difference with respect to ARTs, for which redemption at market value of the assets referenced by the ARTis foreseen and clearly establishes the functional distinction between the more generic financial destination of the latter and ETMs, which are properly assimilated to payment instruments (cf. Article 39 MICAR).

5. Turning briefly to the regulatory profiles of the instruments under review, it should first be noted that public offer and admission to trading are subject to a reservation regime.

In particular, as far as ARTs are concerned, they are permitted to issuers that are legal persons or undertakings established in the Union[35] and authorised by the competent authority of their home Member State (NCA)[36], or to credit institutions that meet the requirements (which consist in the drafting and approval of the White Paper relating to the issue and the obligation to notify the competent NCA in advance of the intention to commence such operations)[37].

In both cases, the applicants will have to provide, among other things, a legal opinion that the token does not fall outside the scope of the Regulation and is not an EMT. This aspect is obviously linked to the still initial overall framing of the various cases that operational practice may lead to identify and define and, in this respect, is also relevant the possibility, expressly provided for the Regulation for the NCAs to ask EBA and ESMA for a non-binding opinion on the merits of the proposed qualification of the token[38] .

Another element worth reporting in relation to the authoritative intervention at the time of access to the supply of ARTs concerns the provision on the basis of which the NCA denies, depending on the case, the possibility for the credit institution or authorisation to issue ARTs if the EBC (or, if the conditions are met, another central bank) issues a negative opinion for reasons related to the proper functioning of payment systems, the transmission of monetary policy or monetary sovereignty[39]. The emergence of an inhibitory prerogative on the part of monetary authorities with regard to the market access of instruments that may have an impact on profiles linked, inter alia, to the functioning of the payment system is of absolute importance from a systemic point of view. The fact that even ARTs, although not designed per se to operate in the payments area, in practice have a direct impact in this operational[40] is thus clearly evident.

On the other hand, with regard to EMTs, the reservation on public offer and admission to trading is in favour of credit institutions and EMIs (thus in concrete adopting the same subjective framework for the offer of electronic money as provided for in the sectoral directives)[41], which have notified and published a White Paper on crypto-assets. However, the exemptions relating to the application of the optional exemption regime under Article 9 of the EMD 2 are not affected and, in any case, other persons may, with the consent of the issuer, offer to the public or apply for admission to trading of the EMT[42]. 

The MICAR rules provide for a more restrictive regime than the ordinary rules for ARTs[43] and EMTs[44], in the case of tokens classified as significant.

The classification of ARTs and EMTs as significant is based on a decision of the EBA, after consultation of the ECB and the relevant central banks of the Member States where the currency is not the euro, subject to the use of criteria related to the size of the clients, the value of the tokens and the market capitalisation, as well as the number of transactions and the size of the issuer’s asset pool, based on size thresholds to be further defined by the Commission.

In this case, EBA will be entrusted with oversight and supervisory tasks with respect to issuers in relation to the issuance and offer of ARTs and EMTs. This set-up, which has been achieved at in the final version of the MICAR, overcomes the more articulated approach adopted in the Draft Resolution, which in case of ART assigned specific competences on ESMA[45]. The final text clearly indicates the relevance of the significance of use to payment system issues rather than to user protection profiles.

Issuers of significant EMTs that are EMIs will be subject to a more restrictive regime than that set out in EMD 2, similar to that applicable to issuers of significant ARTs, in particular with regard to asset reserves[46].

In the case of issuers of significant EMTs that are credit institutions, there may be a not so clear distinction between the tasks of the EBA for the prudential supervisory profiles related to the issuance and offering of EMTs and those of the competent authority for the prudential supervision of the overall operations of the credit institution[47].

6. As already mentioned, from the point of view of usability in the field of payments, the main difference between ARTs and EMTs consists in the fact that the latter are by design intended to be used in this mode, whereas the former can be, and often are, but ideally are constructed from the perspective of instruments with a more generic financial (and investment) function.

However, there is undoubtedly the question of the potential permeability between the world of instruments with a financial function (ART) and the world of payment instruments (EMT), which calls into question the relationship between the crypto-asset’s initial destination and its actual operation and use in the market.

On this particular ridge, there is a marked change of approach in the transition from the Draft Resolution to the MICAR.

And, indeed, the Draft Resolution had introduced the quasi e-money token. This was considered a significant ART widely used for payments in the Union. It was envisaged that ESMA could request an opinion from EBA on whether the token had indeed become widely used as a means of exchange. In the event of a positive assessment by the EBA, the token would have been reclassified as a quasi-e-money token and the EBA have taken over its oversight and could have required the issuer to comply with the same issuance and redeemability requirements as for issuers of e-money tokens[48].

An approach such as the one just described, which recognises that developments in the actual use of the instrument may change the applicable regime and leaves it to the sectoral authorities to assess in practice whether and when such a different regime should apply.  

The Regulation does not adopt the proposed system, maintaining and even reinforcing the conceptual and functional distinction between ART and EMT.

In this respect, the provision of Article 23 of the MICAR is relevant, which provides for a special regime of restrictions on the issuance of ARTs which are widely used as a means of exchange. Specifically, it is provided that if the estimated quarterly average of the number and value of daily transactions associated with the use as a means of exchange exceeds, respectively, 1 million transactions and 200 million euros within a single currency area, the issuer of the ART is obliged to suspendthe issuance of the token and to prepare a plan, to be submitted to the competent authority, to ensure the reduction of the activity below the relevant threshold[49]. It should be noted that the regulations under consideration, in view of their purpose, take into account the token rather than the issuer: consequently, in the event that several issuers use the same token, the aggregate values are aggregated for the purpose of verifying the attainment of the thresholds.

The policy choice is therefore to limit the expansion of the use of ART for payment purposes within predetermined quantitative limits, thus confirming the limitation (to which the subjective reservation also accedes) to the issuance of crypto assets intended by design to be used as a means of payment to EMT[50].

7. The fact that the MICAR is intended to regulate gap in relation to broader and more contiguous areas already regulated at European level, both in the area of payments (in relation to PSD 2 and EMD 2) and in the area of financial instruments (in relation to MiFID) and related services, made it clear, even before the Regulation was adopted, that a more complete arrangement and harmonisation of an area occupied by disciplines that are increasingly difficult to coordinate would be desiderable[51].

The Regulation itself identifies areas of overlap and potential integration in particular with regard to PSD 2[52].

Within this overall framework, on 28 June the European Commission presented the Financial Data Access and Payments Package, which contains measures to modernise the regulation of payment services[53], through the PSD 3 Proposal and the PSR, and to provide a framework for access to financial data[54] .

In particular, the PSD 3 Proposal mergers the PSD2 and EMD 2 regimes, thus simplifying the previous fragmentation of a discipline that had led to practical difficulties for supervisors in distinguishing between the two regimes and between electronic money products and services and payment services offered by licensed intermediaries[55]. It updates and clarifies the provisions relating to payment institutions (“PIs”) and integrates the former EMIs as a sub-category of PIs (thus repealing the EMD 2). The PSD 3 Proposal provides for a single authorisation regime for PIs, which will then be able to provide payment or e-money services.

For the aspects that are most relevant here, the PSD 3 Proposal proposes some clarifications on the definitions contained in the PSD 2, such as the definition of payment account, funds and payment instrument, in order to take into account the rapid evolution of the market and to ensure that Union legislation remains fit for purpose and technologically neutral (recital 8). In particular, the definition of funds[56] should cover all forms of central bank money issued for retail use, including banknotes and coins, as well as any possible future central bank digital currency, electronic money and commercial bank money (recital 15).

In this context, and taking into account that the MICAR provides that EMTs should be considered as electronic money follows that: (i) EMTs should be included as electronic money in the definition of funds (recital 16); and (ii) the licensing regime for PIs, as they will replace EMIs, should also apply to issuers of EMTs (recital 6). Moreover, to ensure the stability and integrity of financial and payment systems and to safeguard consumers, the PSD 3 Proposal provide for such enterprises being established within a Member State, and this also considering that PIs that issue electronic money introduce notable prudential risks, considering their capability to also issue EMTs, a form of crypto-asset “that can scale up significantly in size and pose risks to financial stability, monetary sovereignty and monetary policy” (recital 37) [57].

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[1] See Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets  in crypto-assets markets and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2020 and Directives 2013/36/EU and (EU) 2019/1937 (also “Regulation”). 

[2] See, European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, on a Digital Finance Strategy for the EU, Brussels, 24.9.2020, COM(2020) 591 final. See also Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on a Retail Payments Strategy for the EU, Brussels, 24.9.2020 COM(2020) 592 final.

[3] See Regulation (EU) 2022/858 of the European Parliament and of the Council of 30 May 2022 on a pilot scheme for market infrastructures based on distributed ledger technology and amending Regulations (EU) No 600/2014 and (EU) No 909/2014 and Directive 2014/65/EU.

[4] See Regulation (EU) 2022/2554 of the European Parliament and of the Council on digital operational resilience for the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 600/2014 (EU) No 909/2014 and (EU) 2016/1011.

[5] See European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, on a Digital Finance Strategy for the EU, cit. p. 3.

[6] See Capriglione, Technological innovation and digital euro. The dilemma of applicable regulation, in Law and Economics Yearly Review, 2022, 156 ff., Capriglione, Lemma, The Adoption of Digital Euro: Problems and Perspectives, in Monetary Policy Normalization. One Hundred Years After Keynes’ Tract on Monetary Reform, edited by Savona and Masera, 2023, p. 123 ff.

[7] In particular, according to recital 2, “[b]y 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”.

[8] In addition, it is represented as “[t]he 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” (recital 5).   

[9] Zetzsche, Annunziata, Arner, Buchley, The Markets in Crypto-Assets regulation (MiCA) and the EU digital finance strategy, in European Banking Institute Working Paper Series, No. 2020/77; Lemma, The public intervention on cryptocurrencies between innovation and regulation, in Open Review of Management, Banking and Finance, 2022. Ferreira, Sandner and Dünser, Cryptocurrencies, DLT and Crypto Assets – the Road to Regulatory Recognition in Europe, 2021, available at SSRN: https://ssrn.com/abstract=3891401.

[10] See Capriglione, Le cripto attività tra innovazione tecnologica ed esigenze regolamentari, in Rivista trimestrale di diritto dell’economia, no. 3/2022, p. 225 ff.; Esposito, József, Cryptocurrencies, between money, currency, means of payment and financial product. An alternative financial tool? in Open Review of Management, Banking and Finance, 2022; Carrière, Le “criptovalute” sotto la luce delle nostrane categorie giuridiche di “strumenti finanziari”, “valori mobiliari” e “prodotti finanziari”; tra tradizione e innovazione, in Rivista di Diritto Bancario, no. 2, 2019, p. 117 ff.; Pellegrini, Transparency and Circulation of Cryptocurrencies, in Open review of management, banking and finance, 2021.

[11] European Commission, Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending Directive (EU) 2019/1937, Brussels, 24.9.2020 COM(2020) 593 final (the ‘Proposal’). Gortsos, The Commission’s 2020 Proposal for a Markets in Crypto-Assets Regulation (‘MiCAR’): A Brief Introductory Overview, 2021, available at SSRN: https://ssrn.com/abstract=3842824

[12] European Parliament, Report on the proposal for a regulation of the European Parliament and of the Council on markets in crypto-assets and amending Directive (EU) 2019/1937, 17.3.2022, A9-0052/2022 (the “Draft Resolution”).

[13] See Directive (EU) 2015/2366 of the European Parliament and of the Council of  25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (“PSD 2”) and European Commission, Proposal for a Directive of the Parliament and of the Council on payment services and electronic money services in the Internal Market amending Directive 98/26/EC and repealing Directives 2015/2366/EU and 2009/110/EC, Brussels, 28.6.2023, COM(2023) 366 final (“PSD 3 Proposal”).

[14] See Troiano, Gli istituti di moneta elettronica, in Quaderni di ricerca giuridica della Banca d’Italia, No 53, Rome, 2001.

[15] The reference is to payment transactions, as defined at the time in Article 4(5) of Directive 2007/64/EC. See in general terms, Pacileo, La moneta elettronica, le criptovalute ed i payments by phone, in Manuale di diritto dell’informazione e della comunicazione, Bologna, 2019, p. 451 ff; Guerrieri, La moneta elettronica: profili giuridici dei nuovi strumenti di pagamento, Bologna, 2015.

[16] See PSD 3 Proposal, Article 2(34): “electronic money’ means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions and which is accepted by other natural or legal persons than the issuer”.

[17] See Paracampo, I prestatori di servizi per le cripto-attività. Tra mifidizzazione della MICA e tokenizzazione della Mifid, Turin, 2023.

[18] ECB, Opinion of 19 February 2021 on a proposal for a regulation on Markets in Crypto-assets, and amending Directive (EU) 2019/1937 (CON/2021/4), point 1.4 (“ECB Opinion”).

[19] See Article 3(1)(5) MICAR.

[20] See, however, ECB Opinion, footnote 13, where it is underlined that the definition proposed in both technology-specific and broad.

[21] Recital 22 states that “[w]here crypto-asset services are provided in a fully decentralised manner without any intermediary, they should not fall within the scope of this Regulation”. On the decentralized autonomous organizations,  see Borgogno, Making decentralized autonomous organisations (DAOs) fit for legal life: mind the gap, in Quaderni di Economia e Finanza (Occasional Papers) of Banca d’Italia, Rome, 2022, n. 718. Article 140 MICAR provides for the Commission to present by 30 June 2027 a report to the Parliament and the Council on the application of the Regulation, including an assessment of the development of decentralised finance in markets in crypto-assets and of the appropriate regulatory treatment of decentralised crypto-asset systems.

[22] Ante, The non-fungible token (NFT) market and its relationship with Bitcoin and Ethereum, in Blockchain Research Lab Working Paper Series, No. 20, 2021.

[23] On the relationship between NFT and digital art in general, see Annunziata, Conso, NFT, L’arte e il suo doppio. Non fungible token: l’importanza delle regole, oltre i confini dell’arte, Milan, 2021.

[24] The difficulty in identifying a clear line of demarcation of the phenomena to be excluded from the application of the Regulation is reflected in the recitals which state that the Regulation should apply to crypto-assets which appear to be unique and non-fungible, but whose de facto or usage-related characteristics would make them fungible or non-single, and for this purpose the competent authorities should adopt an approach based on substance over form. Similar concerns underlie the indication that fractional parts of a unique and non-fungible crypto-asset should not be considered unique and non-fungible (recital 11).

Finding logic in these considerations are the provisions of the Regulation that entrust ESMA with the power to adopt guidelines to assess when crypto-assets can be considered unique and non-fungible, as well as those that provide for the possibility of competent authorities to request opinions from the ESAs on the classification of crypto-assets.

[25] See Proposal, Article 2(2): “[h]owever, this Regulation does not apply to crypto-assets that qualify as: … (b) electronic money as defined in Article 2, point (2), of Directive 2009/110/EC, except where they qualify as electronic money tokens under this Regulation”.

[26] Also having in mind that e-money tokens should be deemed to be electronic money: see recital 66 and further on in the  text.

[27] “Official currency” is defined as the official currency of a country issued by a central bank or other monetary authority: see Article 3(1)(8) MICAR.

[28] See, Article 3(1)(6), 3(1)(7) and 3(1)(9) MICAR.

[29] ECB, Opinion of 19 February 2021 on a proposal for a regulation on Markets in Crypto-assets, and amending Directive (EU) 2019/1937 (CON/2021/4), point 1.2.

[30] See recital 40, MICAR; see also Motroni, I pagamenti non monetari nella finanza digitale europea. La prospettiva italiana, Bari, 2023, p. 118 ff.

[31] See, e.g., ECB, Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures, Occasional Paper Series, May 2019, no. 223, p. 8 according to which: “crypto-assets […] would not qualify as electronic money (e-money) for the Second Electronic Money Directive (EMD2), to the extent that they are not and do not represent a claim on the issuer“.

[32] In fact, the White Paper on the protection of retail holders and the rules for the prevention of market abuse – Art. 86 ff. – for market integrity.

[33] In particular, Article 49(4) MICAR provides that, also by way of derogation from Article 11 EMD 2, upon the request of a holder of an EMT, the issuer of such an EMT token shall redeem it, at any time and at par value, by paying in funds other than electronic money the monetary value of the EMT held to the holder of the EMT.

[34]  By paying in funds, other than electronic money, the monetary value of the EMT held to the holder of the EMT: Article 49 MICAR.

[35] Pursuant to Article 16(1) MICAR, other undertakings may only issue ARTs if their legal form ensures an equivalent level of protection of third party interests as that offered by legal persons and if they are subject to equivalent prudential supervision appropriate to their legal form.

[36] There is, however, an exemption for the case where, over a 12-month period, the average value of the ART issued by an issuer does not exceed EUR 5 million (and the issuer is not connected to a network of other exempt issuers); or the public offering of the ART is addressed exclusively to qualified investors and the token may only be held by such persons.

However, with the written consent of the issuer, other persons may offer an ATR to the public or request its admission to trading (cf. Article 16(1) MICAR).

[37] See, in particular, the provisions contained in Article 17 MICAR.

[38] See Article 20(5), MICAR.

[39] See, respectively, Article 17(5) and Article 21(4) MICAR; Article 21(2) then identifies further cases in which the NCA may deny authorisation to the applicant broadcaster.

Pursuant to Article 24 MICAR, which governs in general terms the power to revoke the authorisation of an ART issuer, the NCA shall revoke the authorisation if the ECB or, where relevant, another central bank, issues an opinion that the ART poses a serious threat to the smooth operation of payment systems, the transmission of monetary policy or monetary sovereignty.

[40] In this respect, the provisions of recital 46 of the MICAR are relevant, according to which “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” thereby clearly alluding to the fact that, to the extent that the EBC opinion is binding in nature and therefore the NCA is obliged to adopt a measure in accordance with the opinion, that opinion takes on the force of a measure with all that follows in terms of appealability.

^[41] The optional exemption is linked to cases where the average amount of EMT outstanding does not exceed EUR 5 million, subject to lower limits set by the Member States, and where there are good repute requirements in the case of those running the business.

In addition, Article 48(5) MICAR removes the regime introduced by the Regulation from EMTs exempted under Article 1(4) and 1(5) EMD 2.

[42] See Article 48(1) MICAR. The obligation to prepare and notify the white paper under Art. 51 MICAR also remains in these cases.

[43] See Title III, Chapters 1 – 3 and 5 MICAR.

[44] See Title IV Chapter 1, MICAR.

[45] See Draft Resolution, Article 39.

[46] See Article 58 MICAR and recital 71; see also Mattassoglio, Moneta e tecnologia. Come intelligenza artificiale e DLT stanno trasformando lo strumento monetario, Turin, 2023.

[47] See Article 117 ff MICAR.

[48] See, Draft Resolution, Article 40a.

[49] Also relevant in this perspective are the provisions of Article 22 MICAR on the monitoring of ARTs with an issue value in excess of 100 million, pursuant to which the issuer must, inter alia, transmit to the competent authority on a quarterly basis, an estimate of the average number and average aggregate value of transactions per day during the relevant quarter that are associated with its uses as a means of exchange within a single currency area.

[50] See also EBA, Opinion of the European Banking Authority on its technical advice on the review of Directive (EU) 2015/2366 on payment services in the internal market (PSD2), June 2022, point 473, where it is indicated that “special regard should be had to those ARTs that are identified as being used widely as a means of exchange, including on whether the tokens should fall under the scope of the definition of ‘funds’ under Article 4(25) of PSD2“.

[51] See, by way of example, EBA, Opinion of the European Banking Authority on its technical advice on the review of Directive (EU) 2015/2366 on payment services in the internal market (PSD2), cit., point 472, where it is stated that “[t]he EBA is of the view that a potential future revision of PSD2 should carefully take into account the interaction with MiCA, in particular for ensuring alignment and consistent application of the requirements. The EBA stresses the need for the potential future revised PSD2 to pay close attention on the treatment of e-money tokens (EMTs), the issuers of which are proposed to be required to conform to requirements under the EMD2, and which are proposed to fall in scope of the definition of ‘funds’ for the purposes of PSD2“.  See also European Commission, A study on the application and impact of Directive (EU) 2015/2366 on Payment Services (PSD2), FISMA/2021/OP/0002, 2023, p. 17 and p. 168, where it is stated that “[c]oncerning the interplay between MiCA and PSD2, the pieces of legislation complement each other in marginal situations, namely when the crypto asset service provider provides, inter alia, payment services. Further clarification on the consumer protection and safeguarding stemming from the complementarity is considered as beneficial for improving the legal certainty and setting a level playing field. From a broader perspective, the issue of the possibility of merging PSD2, EMD2 and MiCA may also be considered”.

[52] See, e.g., recital 90 where it is indicated that “[s]ome 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” and recital 93 which specifies that “[d]epending on the precise features of the services associated with 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”.

[53] Relevant here are the already mentioned PSD 3 Proposal and the Proposal for a Regulation of the European Parliament and of the Council on payment services in the internal market and amending Regulation (EU) No 1093/2010, COM(2023) 367 final (“PSR”).

[54] See in this regard the Proposal for a Regulation of the European Parliament and of the Council on a framework for Financial Data Access and amending Regulations (EU) No 1093/2010, (EU) No 1094/2010, (EU) No 1095/2010 and (EU) 2022/2554, COM(2023) 360 final.

[55] See on this point European Commission, Report from the Commission to the European Parliament, the Council, the European central Bank and the European Economic and Social Committee on the review of Directive 2015/2366/EU of the European Parliament and of the Council on payment services in the internal market, Brussels, 28.6.2023 COM(2023) 365 final, p. 12.

[56] See Motroni, op. cit., p. 80 ff.

[57] On the other hand, recital 37 states that requiring electronic money issuers to establish a legal entity within the EU is relevant also in order to align with MICAR.

Author

* Full professor of Financial Markets and Intermediaries Regulation in the Department of Economics of the University of Perugia.