Regulation of the concept of reverse solicitation
The aim is to create fair competition in the crypto-asset market, strengthen the associated consumer protection and ensure market integrity. To this end, the regulatory framework is intended to make it possible to trace transfers of digital assets in the future, making money laundering and terrorist financing more difficult. With the regulation, the EU is creating a uniform legal framework for crypto assets in Europe and is thus also considered a pioneer for regulation in other countries.
The regulation makes trading in crypto assets subject to authorization throughout the EU. Although such a permit requirement already existed in Germany, it was not yet in place in many other EU countries. In the future, service providers will have to fulfill many organizational and operational requirements in order to obtain and permanently retain a permit for the provision of crypto services. The ongoing financial supervisory authority will monitor compliance with these requirements.
In order to be allowed to provide crypto value services in the future, providers must apply for authorization according to Article 63 of MiCAR. This is required by Article 59 (1) of MiCAR, according to which no person may offer crypto value services in the EU who does not constitute a legal person or other entity that has been authorized as a crypto service provider under Article 63 of MiCAR or is a credit institution, central administrator, investment firm, market participant, electronic money institution, UCITS management company, or alternative investment fund manager that is permitted to provide crypto value services under Article 60 of MiCAR.
Article 61 of MiCAR provides an exception to the licensing requirement for crypto value service providers by means of the concept of reverse solicitation, which can be used to waive the licensing requirement in relevant cases.
The Concept of reverse solicitation
The concept involves the right of residents and companies of a member state to use the services of a foreign provider on their own initiative and, consequently, to waive the obligation for the latter to obtain a license or authorization.
The concept allows providers to provide cross-border services in a given member state where that company has not actively marketed and customers contact the provider. This principle has also been confirmed by the European Court of Justice (e.g., the judgment of March 15, 1994, Case C 45/93) and is already found in a similar provision of Article 42 of MiFID II (The Markets in Financial Instruments Directive II). This norm allows companies of a third country to provide investment services and activities for a client on the client's exclusive initiative, without requiring authorization or registration in the EU.
Reverse solicitation within MiCAR
Like the demonstrated regulation within MiFID, Article 61 of MiCAR will provide for the provision of services related to crypto assets by third-country nationals on the basis of reverse solicitation.
Accordingly, if it is the case that services or activities related to crypto assets are provided on a client's own initiative, the provision of the requested services to that client is not subject to authorization. The same applies with respect to services for relationships directly related to the provision of the crypto service or the performance of the activity.
Under Article 61(1)(2) of MiCAR, a service shall not be deemed to be provided at the exclusive initiative of the client if a third-country entity, including through an entity acting on its behalf or having close relations with that third-country entity or another person acting on behalf of that entity, acquires clients or potential clients in the EU. This applies regardless of the means of communication used for acquisition, promotion, or advertising in the EU.
This circumstance cannot be countered by means of any contractual or exclusion clauses according to which the provision of services by a company from a third country is deemed to be services provided exclusively at the client's own instigation.
Under Article 61 of MiCAR, a client's own operation also does not entitle the respective service provider to market new types of cryptocurrencies or cryptocurrency services to the client.
In order to supervise the reverse solicitation rules consistently, the European Securities and Markets Authority will issue guidelines under Article 16 of Regulation (EU) No. 1095/2010 for supervisory practice within 18 months of the date the regulation enters into force, with the help of which circumventions of the regulation are to be detected and prevented.
Whether a reverse solicitation actually exists will therefore have to be examined on a case-by-case basis so that an adequate review can be carried out and, consequently, crypto-asset services provided without authorization can be counteracted.
Client Alert 2023-117