Response to consultation on draft Guidelines on internal governance arrangements for issuers of ARTs under MiCAR
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INATBA members would recommend, however, that this context be only considered as a context and not as an invitation for NCAs, other local authorities, firm’s auditors or any other controlling body to impose stricter rules than what is described and required by the regulation.
INATBA members also notice the need for documentation for various elements. Even if the documentation is required, it must be stressed that a level of proportionality must also be applied here. Indeed, a program that starts cannot be expected to spend the same amount of resources on documentation as a company that has recurring profits, significant volumes and an established market position.
INATBA members also welcome the possibility to outsource the control functions. This allows companies to have faster access to quality resources and improve their control levels while maintaining the costs. INATBA members believe that all regulations should ensure that little to no restriction should be placed on outsourcing of specialized functions provided the responsibility and the control of such functions should be evidenced by the management body.
Finally, INATBA members seek additional clarity on the potential consequences for local NCAs and authorities if they voice non-compliance to the above proposed framework. Please provide additional clarity.
requirements that would prevent the emergence of programs outside of the already well established financial industry.
Similarly, the elements to consider when establishing the level of proportionality must be taken into consideration to avoid discrepancies between the various regulators. INATBA members believe that presenting a list of options leads to regulatory arbitrage; which goes against the interest of the European Union and the mission of MiCA.
Finally, INATBA members believe that point 15.1 (the volume of reserve assets) should be expanded to include the quality of said assets and the review of their custody practices. Recent financial history indicates that both elements can be important.
INATBA members believe that Article 38 should be more prescriptive about the complexity of the organization and should prohibit overcomplexity in view of the contextual elements of the ARTs’ issuers. SImilarly, INATBA members believe that the documentation of decision making, mentioned in article 40, must be an obligation and not an option. Finally, INATBA members believe that Article 41 should set a minimum frequency, no more than once a year, for the review of the organization.
INATBA members believe that the development of a risk culture is a prerequisite to any activity in the crypto-assets ecosystem, and that this culture must encompass considerations for all stakeholders. Along this line of thought, INATBA members recommend making Article 46 more directive than in the proposed RTS. The same line of thought should be applied to Article 47.
INATBA members believe that the high ethical and professional standards are mandatory for all companies active in the European crypto-assets industry. As a consequence, INATBA members suggest making Article 49 compulsory for all companies active in the industry. The consequence of this adjustment on Article 53 should impose the existence of clear and adequate policies.
INATBA members believe that both the compliance and the risk management functions are a must-have, but INATBA members also consider that the outsourcing of said functions could be beneficial, especially when considering ART frameworks in early developmental stages. Outsourcing can also facilitate the independence of control functions as the outsourcer can be severed from operations and have the adequate level of seniority to escalate issues; INATBA members agree that, if not outsourced, these functions should be managed by the management body of the issuer of ARTs.
INATBA members believe that Article 58 should be more prescriptive. The design of the internal control framework must seek to guarantee that all elements quoted in Article 58 are present.
Similarly, INATBA members believe that Article 59 should be rephrased to avoid any doubt about the obligation for management to apply all the elements of the article. The proportionality argument could only apply to the extent of the complexity of the task, but not to the existence of the task itself.
When discussing risk, INATBA members are strong believers that risk management should be clearly limited to identified risks in the market. Going beyond this diverts resources into speculation and potentially reduces the focus on existing risks. Article 65 should be clear about this, especially as the RTS may be read by individuals who are less knowledgeable of risk management techniques as compared to already compliant industries, for example traditional European finance. Along the same line of thought, INATBA members believe that Article 67 and 68 should be prescriptive when they refer to escalation processes.
INATBA members notice that Article 77 could lead to imposing an internal or external auditor to all issuers of ARTs. It wonders whether this is in line with the proportionality principle of the RTS, especially for starting ART programs.
INATBA members would recommend that article 79 be rephrased to better describe the population that is required to understand the risks involved. As such, the article could lead to extreme situations where all the staff must understand all the operational risks involved. This situation does not exist in traditional finance. Traditional finance should be at a level playing field with crypto-assets activities.
INATBA members would recommend that Article 82 be more prescriptive and be adapted to refer to the proportionality principle of the RTS. Having a product approval that embeds risk analysis within the element of governance encourages sounder decision making, and ultimately favors the development of the whole European crypto-asset industry.
Lastly, INATBA members would recommend that Section 10.4 be reviewed to include the outsourcing of control functions. INATBA members believe that said outsourcing would be beneficial to an emerging industry. INATBA members also believe that the principle of outsourcing found in traditional finance would benefit the European crypto-asset industry as a whole.
Question 1: Is the background section providing the needed context with regard to the mandate to issue GL on internal Governance under MiCAR?
INATBA members believe that the context provided is sufficient.INATBA members would recommend, however, that this context be only considered as a context and not as an invitation for NCAs, other local authorities, firm’s auditors or any other controlling body to impose stricter rules than what is described and required by the regulation.
INATBA members also notice the need for documentation for various elements. Even if the documentation is required, it must be stressed that a level of proportionality must also be applied here. Indeed, a program that starts cannot be expected to spend the same amount of resources on documentation as a company that has recurring profits, significant volumes and an established market position.
INATBA members also welcome the possibility to outsource the control functions. This allows companies to have faster access to quality resources and improve their control levels while maintaining the costs. INATBA members believe that all regulations should ensure that little to no restriction should be placed on outsourcing of specialized functions provided the responsibility and the control of such functions should be evidenced by the management body.
Finally, INATBA members seek additional clarity on the potential consequences for local NCAs and authorities if they voice non-compliance to the above proposed framework. Please provide additional clarity.
Question 2: Is the subject matter, scope, and definitions section appropriate and sufficiently clear?
INATBA members believe that the definition of commonly understood concepts of the financial industry (compliance, risk management, etc.) might be either redefined in this document or point to already existing references. This would help startups with less knowledge of the financial industry navigate faster in this regulatory framework.Question 3: Is the Title on proportionality appropriate and sufficiently clear?
INATBA members believe that the proportionality principle must be considered. Turning the proportionality into an obligation becomes a necessity to avoid over-regulation and overly strictrequirements that would prevent the emergence of programs outside of the already well established financial industry.
Similarly, the elements to consider when establishing the level of proportionality must be taken into consideration to avoid discrepancies between the various regulators. INATBA members believe that presenting a list of options leads to regulatory arbitrage; which goes against the interest of the European Union and the mission of MiCA.
Finally, INATBA members believe that point 15.1 (the volume of reserve assets) should be expanded to include the quality of said assets and the review of their custody practices. Recent financial history indicates that both elements can be important.
Question 4: Are the provisions in Title II regarding the management body appropriate and sufficiently clear?
INATBA members believe that the provisions are mostly appropriate and clear. INATBA members insist on the fact that proportionality has to be considered when designing the management body of an ART issuer. Reinforcing the proportionality principle will circumvent the possible interpretation of clauses (e.g. art 24) as mandatory elements while they are, by design, not mandatory and need to be considered in the context of the issuer.Question 5: Are the provisions in Title III regarding the governance framework appropriate and sufficiently clear?
INATBA members believe that the provisions are generally appropriate and sufficient.INATBA members believe that Article 38 should be more prescriptive about the complexity of the organization and should prohibit overcomplexity in view of the contextual elements of the ARTs’ issuers. SImilarly, INATBA members believe that the documentation of decision making, mentioned in article 40, must be an obligation and not an option. Finally, INATBA members believe that Article 41 should set a minimum frequency, no more than once a year, for the review of the organization.
Question 6: Are the provisions in Title IV – Risk culture and business conduct appropriate and sufficiently clear?
INATBA members believe the provisions are mostly clear and appropriate.INATBA members believe that the development of a risk culture is a prerequisite to any activity in the crypto-assets ecosystem, and that this culture must encompass considerations for all stakeholders. Along this line of thought, INATBA members recommend making Article 46 more directive than in the proposed RTS. The same line of thought should be applied to Article 47.
INATBA members believe that the high ethical and professional standards are mandatory for all companies active in the European crypto-assets industry. As a consequence, INATBA members suggest making Article 49 compulsory for all companies active in the industry. The consequence of this adjustment on Article 53 should impose the existence of clear and adequate policies.
Question 7 Are the provisions in Title V – Internal control framework and mechanisms appropriate and sufficiently clear?
INATBA members believe that issuers of ARTs must develop and maintain a culture that encourages a positive attitude towards risk control and compliance within the issuer, and a robust and comprehensive internal control framework. Failure to do so is detrimental to the whole industry.INATBA members believe that both the compliance and the risk management functions are a must-have, but INATBA members also consider that the outsourcing of said functions could be beneficial, especially when considering ART frameworks in early developmental stages. Outsourcing can also facilitate the independence of control functions as the outsourcer can be severed from operations and have the adequate level of seniority to escalate issues; INATBA members agree that, if not outsourced, these functions should be managed by the management body of the issuer of ARTs.
INATBA members believe that Article 58 should be more prescriptive. The design of the internal control framework must seek to guarantee that all elements quoted in Article 58 are present.
Similarly, INATBA members believe that Article 59 should be rephrased to avoid any doubt about the obligation for management to apply all the elements of the article. The proportionality argument could only apply to the extent of the complexity of the task, but not to the existence of the task itself.
When discussing risk, INATBA members are strong believers that risk management should be clearly limited to identified risks in the market. Going beyond this diverts resources into speculation and potentially reduces the focus on existing risks. Article 65 should be clear about this, especially as the RTS may be read by individuals who are less knowledgeable of risk management techniques as compared to already compliant industries, for example traditional European finance. Along the same line of thought, INATBA members believe that Article 67 and 68 should be prescriptive when they refer to escalation processes.
INATBA members notice that Article 77 could lead to imposing an internal or external auditor to all issuers of ARTs. It wonders whether this is in line with the proportionality principle of the RTS, especially for starting ART programs.
INATBA members would recommend that article 79 be rephrased to better describe the population that is required to understand the risks involved. As such, the article could lead to extreme situations where all the staff must understand all the operational risks involved. This situation does not exist in traditional finance. Traditional finance should be at a level playing field with crypto-assets activities.
INATBA members would recommend that Article 82 be more prescriptive and be adapted to refer to the proportionality principle of the RTS. Having a product approval that embeds risk analysis within the element of governance encourages sounder decision making, and ultimately favors the development of the whole European crypto-asset industry.
Lastly, INATBA members would recommend that Section 10.4 be reviewed to include the outsourcing of control functions. INATBA members believe that said outsourcing would be beneficial to an emerging industry. INATBA members also believe that the principle of outsourcing found in traditional finance would benefit the European crypto-asset industry as a whole.