AUSTRIA Trends and Developments Contributed by: Oliver Völkel, Jara Erhard and Bryan Hollmann, CERHA HEMPEL
How Protocols Adapt to MiCA in Austria: A Push Towards Decentralisation DeFi not covered by MiCA Protocol developers typically do not wish to become regulated under MiCA. Fortunately for them, there is still a way out. Decentralised protocols, such as the entire area of decentralised finance (DeFi), do not fall within the scope of MiCA. Recital 22 of MiCA states that where crypto-asset services are provided in a fully decentralised manner without any intermediary, they should not fall within the scope of the regulation. While recitals are not a bind- ing part of MiCA, they do bear weight. It is basically a recognition by the EU legislator that smart contracts can be published in an immutable manner, in such a way that an unlimited audience can access them, and that these smart contracts can provide functionality without the involvement of any third party. When is DeFi truly DeFi? Of course, immediately the question arises as to what exactly is meant by “without an intermediary” and “in a fully decentralised manner”. The fact that smart contracts are used in the provision of a crypto-asset service (or a financial service, for that matter) is in itself not even suitable to create the appearance of full decentralisation. Companies can use smart contracts to provide crypto-asset services or financial services in their own name. In such cases, the smart contract is merely a tool used by a company. At the end of the day – or at the end of the legal analy- sis – sufficient decentralisation can more or less be equated to lack of trust. If nobody needs to trust that other parties adhere to promises, and if the protocol continues functioning even if its developers disappear, the protocol is usually sufficiently decentralised so as to not fall within MiCA. The details are, obviously, more complex. The concept of decentralisation is well understood in Austria, and also by the Austrian FMA, which has dealt with fully decentralised systems in the context of financial services in the past and has concluded that they do not fall within financial market regulation and developers are not subject to the FMA’s supervision.
Developers should review whether their protocols are sufficiently decentralised to not fall within MiCA. How TradFi Prepares for Crypto Business Under MiCA: The Equivalence Regime As indicated in the introduction, MiCA was not writ- ten for the crypto industry but rather as a way for established financial market participants to engage in crypto-asset business. This can best be observed in Article 60 of MiCA, which establishes an equiva- lence regime between financial market services and crypto-asset services (but not the other way round). Traditional financial service providers are allowed to engage in certain crypto-asset services – in particular, the following. • Credit institutions may provide all MiCA crypto- asset services. • Central securities depositories (CSDs) can provide custody and administration of crypto-assets on behalf of clients. Custody and administration of crypto-assets are equated to managing securities accounts. • Investment firms may offer crypto-asset services equivalent to the investment services for which they are authorised under MiFID II. Specific servic- es are equated to corresponding financial services under MiFID II, such as custody, trading, exchange and advice. • Electronic money institutions (EMIs) can provide custody, administration and transfer services for crypto-assets related to e-money tokens they issue. • UCITS management companies and alterna- tive investment fund managers (AIFMs) can offer crypto-asset services equivalent to portfolio man- agement and non-core services for which they are authorised. • Market operators can operate a trading platform for crypto-assets. This only requires a notification to their competent regulator, which must include a programme of opera- tions detailing the types of crypto-asset services and marketing plans, descriptions of internal control mechanisms, risk assessment frameworks, business continuity plans, ICT systems, security arrangements, procedures for segregating client assets, custody
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