Ireland: Payments, E-Money And Crypto-Assets Quarterly Legal And Regulatory Update: 1 October 2023 - 31 December 2023

1. PAYMENTS

1.1 EBA updates to the Single Rulebook Q&A on PSD2

On 29 September 2023, the European Banking Authority (EBA) updated its Single Rulebook Questions and Answers (Q&A) publication on Directive 2015/2366/EU (the Revised Payment Services Directive or PSD2) (the Single Rulebook Q&A).

The Q&As in respect of the following articles have been updated:

• Article 4 – Definitions;
• Article 72 – Evidence on authentication and execution of payment transactions;
• Article 72 – Evidence on authentication and execution of payment transactions;
• Article 98 - Regulatory technical standards on authentication and communication.

The updated Single Rulebook Q&A document can be accessed here.

1.2 ECON adopts position on PSD3 and PSR

On 13 November 2023, the European Parliament's Economic and Monetary Affairs Committee (ECON) published its draft reports (Draft Reports) adopting its positions at first reading on the Commission's proposals for a Regulation on payment services in the internal market (PSR) and for a Directive on payment services and electronic money services in the internal market (PSD3).

PSR and PSD3 proposals were issued by the European Commission on 28 June 2023 to bring payments and the wider financial sector into the digital age.

The next stage of the ordinary legislative procedure in respect of the PSR and PSD3 is for the Council of the European Union to either accept or amend ECON's position.

A copy of ECON's draft report on PSD3 can be accessed here.

A copy of ECON's draft report on PSR can be accessed here.

For more information on the PSR and PSD3 proposals more generally, please refer to our Q2 QLU which can be accessed here.

2. DIGITAL FINANCE & CRYPTO-ASSETS

2.1 ESMA publishes second consultation package on technical standards specifying certain requirements of MiCA

On 5 October 2023, the European Securities and Markets Authority (ESMA) launched its second public consultation (ESMA Second Consultation Package) on technical standards specifying certain requirements under Regulation (EU) 2023/1114 (the Markets in Crypto Assets Regulation or MiCA).

The ESMA Second Consultation Package is the second of three consultation packages that ESMA is launching as part of the MiCA consultation process, with ESMA's first consultation package published in July 2023, and the third and final consultation package expected to be published in Q1 2024.

Under MiCA, ESMA is mandated to develop a number of technical standards and guidelines specifying certain provisions. The ESMA Second Consultation Package contains six draft Regulatory Technical Standards (RTS) and two draft Implementing Technical Standards (ITS) and covers the following:

• RTS on content, methodologies and presentation of sustainability indicators on adverse impacts on the climate and the environment;
• RTS on measures that crypto-asset service providers (CASPs) must take to ensure continuity and regularity in the performance of services;
• RTS on trade transparency;
• RTS on content and format of order book records;
• RTS on the data necessary for the classification of white papers;
• ITS on standard forms and templates for the crypto-asset white papers; and
• ITS on technical means for appropriate public disclosure of inside information.

The deadline for comments on the ESMA Second Consultation Package closed on 14 December 2023. ESMA will publish a report on the feedback received from all three consultation packages and will submit draft technical standards to the European Commission for adoption by 30 June 2024 at the latest.

A copy of the ESMA Second Consultation Package can be accessed here.

More information on ESMA's MiCA consultation process is available here.

2.2 ESMA publishes Report on the DLT Pilot Regime

On 5 October 2023, ESMA published a Report on the Distributed Ledger Technologies (DLT) Pilot Regime involving a study (Study) on how financial instrument transactions are registered in various DLTs (Report). The DLT Pilot Regime (DLTR) has applied since 23 March 2023 and allows eligible firms to operate DLT market infrastructures to be used for trading and settlement purposes.

ESMA identified three main DLTs (Corda, Ethereum, and Hyperledger Fabric) that might be used by DLT market infrastructures which are analysed in the Report. The objective of the Study was to understand the implications of the use of DLT/blockchain in the context of transactions in financial instruments when an exemption to Article 26 of Regulation 600/2014 (MiFIR) is granted to a DLT market infrastructure.

The Report concludes that there is a very limited number of transaction fields natively defined by the DLTs which leads to significant gaps between the DLTs' transaction fields and the fields currently to be reported under Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing MiFIR (RTS 22).

As a result of the findings of the Study, ESMA recommends extending the current RTS 22 transaction reporting schema by some of the DLT transaction fields deemed relevant. ESMA further outlines that proper guideline need to be established to harmonise and standardise transaction reporting for the purpose of the DLTR and to ensure market integrity and stability.

copy of the Report can be accessed here.

2.3 ESMA encourages preparations for a smooth transition to MICA

On 17 October 2023, ESMA published a letter (Letter) and statement (Statement) to encourage market participants, Member States and National Competent Authorities (NCAs) to prepare for the MiCA's application.

In the Letter, ESMA is seeking regulatory convergence, coordinated action and encourages Member States to focus on the following in the implementation of MiCA:

• ESMA asks that NCAs focus their attention in establishing as early as possible their supervisory procedures related to authorisation regimes, including simplified authorisation procedures for entities already authorised to provide crypto-asset services under national law (if applicable). As discussed at 2.9 below, Ireland has chosen not to exercise its discretion for a simplified authorisation process. ESMA calls upon Member States to designate the NCAs responsible for carrying out the functions and duties as required by MiCA and to ensure such NCAs have adequate powers and resources to exercise their supervisory, investigative and enforcement responsibilities. Ireland has designated the Central Bank of Ireland (Central Bank) as the NCA in Ireland in respect of MiCA;
• ESMA asks Member States to consider limiting the optional grandfathering clause for existing CASPs. Under Article 143(2) of MiCA, Member States may apply an optional transitional period permitting entities already providing crypto-asset services in their jurisdiction to continue providing those services from 30 December 2024 until as late as 1 July 2026 i.e., for a maximum of 18 months. ESMA is calling for Member States to limit the transitional period to 12 months if Member States choose to exercise this grandfathering period in their jurisdictions. As discussed at 2.9 below, Ireland recently announced that it has elected to reduce the transitional period for existing CASPs to 12 months in line with ESMA's Letter.

The Statement is addressed to entities providing crypto-asset services (market participants) and to the NCAs that will be responsible for their supervision (such as the Central Bank), and outlines ESMA's expectations in respect of each from now until the end of the MiCA transitional period (July 2026). Of particular note, ESMA expects market participants to have regard to the following:

• Full MiCA rights and protections will not apply in the implementation phase of MiCA. ESMA notes that it is important for crypto investors or potential clients of CASPs in the EU to be aware of the risks inherent in crypto-assets as the MiCA rules will not apply until December 2024. In addition, the grandfathering clause will allow certain CASPs already providing services to provide such services without approval under MiCA for up to 18 months. This means that holders of crypto-assets and clients of crypto-asset service providers may not benefit from full rights and protections afforded to them under MiCA until as late as 1 July 2026.
• Promoting supervisory convergence. ESMA is aware that many CASPs including complex global crypto firms will have until the end of the transitional period to fully comply with the MiCA rules and is working to promote supervisory convergence across the EU with coordinated actions from NCAs.
• Market participants can already start contributing to the effective implementation of MiCA. ESMA expects market participants to adequately prepare for the implementation of MiCA and to take actions to ensure a smooth transition and implementation of MiCA by:
  • informing NCAs and clients of their transition plans as early as possible;
  • nforming clients about the regulatory status of the crypto-assets and/or services they are offering;
  • clarifying the regulatory status of the products and/or services they are offering to avoid confusion with respect to their regulated offerings if market participants are authorised under other sectoral regulations;
  • anticipating MiCA's entry into application by aligning their practices to comply with incoming requirements under MiCA;
  • applying for a MiCA authorisation as soon as possible, noting that without a MiCA authorisation, market participants cannot avail of passporting rights within the EU during the transitional period; and
  • applying for a MiCA authorisation as soon as possible, noting that without a MiCA authorisation, market participants cannot avail of passporting rights within the EU during the transitional period; and

A copy of the Letter can be accessed here.

A copy of the Statement can be accessed here.

A copy of ESMA's related press release can be accessed here.

To view the full article, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.