Enhanced Governance Requirements for Crypto-Asset Service Providers

The Joint Guidelines published by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA have introduced a new level of regulatory scrutiny for crypto-asset service providers (CASPs) and issuers of asset-referenced tokens (ARTs). These guidelines elevate personal and collective competence, impeccable reputation, and demonstrable time-commitment from "nice-to-have governance attributes" to fully fledged authorisation thresholds.

Under the new regime, every board member must be of sufficiently good repute, possess individually and collectively appropriate knowledge, skills, and experience, and be capable of committing sufficient time to their duties. Failure to meet these bars constitutes an automatic ground for refusal or withdrawal of authorisation under MiCA Articles 21(2)(b) and 63(10)(b). Additionally, shareholders and other persons with direct or indirect qualifying holdings (≥10% of capital or voting rights) must maintain sufficiently good repute on a continuous basis and pass a five-pillar test covering reputation, financial soundness, managerial suitability, prudential continuity, and AML risk neutrality.

The proportionality principle is recognized as a fundamental aspect of governance frameworks, with competent authorities using a non-exhaustive list of factors such as token volume, reserve-asset portfolios, and crypto-asset services rendered to judge whether a given board composition is proportional. This means that even micro-start-ups must evidence a methodical skills-matrix and diversity policy to demonstrate that they are not under-governed.

The Guidelines also embed a hard-law expectation that firms establish an internal procedure to monitor criminal records, sanctions lists, and civil penalties for each director on an ongoing basis. Should a board member appear on an EU or UN sanctions list, removal becomes mandatory. Personal conduct is now a licensable asset, and reputation is measurable and revocable.

Key Takeaways:

• Board members are required to be of sufficiently good repute, possess individually and collectively appropriate knowledge, skills, and experience, and be capable of committing sufficient time to their duties.
• Failure to meet these bars constitutes an automatic ground for refusal or withdrawal of authorisation under MiCA Articles 21(2)(b) and 63(10)(b).
• Shareholders and other persons with direct or indirect qualifying holdings (≥10% of capital or voting rights) must maintain sufficiently good repute on a continuous basis and pass a five-pillar test.
• The proportionality principle is recognized as a fundamental aspect of governance frameworks, with competent authorities using a non-exhaustive list of factors to judge whether a given board composition is proportional.
• Micro-start-ups must evidence a methodical skills-matrix and diversity policy to demonstrate that they are not under-governed.
• Firms must establish an internal procedure to monitor criminal records, sanctions lists, and civil penalties for each director on an ongoing basis.
• Personal conduct is now a licensable asset, and reputation is measurable and revocable.
• Directors must evidence calculable availability matching business complexity, and firms must document these calculations ex ante and revisit them whenever circumstances evolve.

Statistics:

• 10% of capital or voting rights is the threshold for qualifying holdings.
• 5 pillars test for shareholder suitability includes reputation, managerial influence, financial soundness, prudential continuity, and AML neutrality.
• 4-month supervisory review period announced by the Guidelines.
• 1-year surveillance period for criminal records, sanctions lists, and civil penalties.
• 25% of external directorships considered high-risk.

Sources:

• Final report On joint EBA and ESMA Guidelines on the suitability assessment of members of management body of issuers of asset-referenced tokens and of crypto-asset service providers, and on Joint EBA and ESMA Guidelines on the suitability assessment of shareholders and members, whether direct or indirect, with qualifying holdings in issuers of asset-referenced tokens and in crypto-asset service providers, EBA/GL/2024/09, ESMA75-453128700-10, 27/06/2024.