Response to consultation on Guidelines on redemption plans under MiCAR
Q1. Do you consider that the scope of the GL on redemption plans is sufficiently clear and takes into account the differences regarding the obligation to hold a reserve of assets set out in Regulation (EU) 2023/1114 applicable to the different types of ART or EMT issuers?
NA
Q2. Do you consider that the GL on redemption plans are sufficiently clear and comprehensive and that they cover all aspects of the mandate?
NA
Q3. Do you consider that the redemption process as described herein provides adequate operational guidance to token holders about the actions and steps relating to the redemption claim?
The World Gold Council welcomes the draft Guidelines that the EBA has produced on redemption plans, however, we have some concerns regarding how the guidelines address the costs related to the redemption plan.
Paragraph 23 states that “the issuer should make sure in the redemption plan that the costs for the liquidation of the reserve of assets or otherwise linked to the implementation of the redemption plan may only be allocated to the proceeds of the liquidation of the reserve of assets after the amount for meeting the relevant token holders’ redemption claims is set aside.”
The accompanying cost-benefit analysis elaborates further on this point indicating that this is the preferred approach as it ensures that token holders’ claims are covered while also incentivising the issuer to limit redemption costs.
We believe the guidelines do not sufficiently account for the specific factors around the cost of implementing the redemption plan relating to different types of asset referenced tokens, and specifically tokens 1:1 backed by physical gold.
As per Article 39 of the MiCA regulation, the issuers of asset referenced tokens are not allowed to charge a redemption fee.
For physically backed tokens, redemption involves arranging for physical delivery. The standard practice is to charge the gold purchaser a delivery fee to cover the logistics company’s costs, which we would like to stress is not a redemption fee.
Furthermore, insolvency does not require liquidation of the gold since it can be delivered to the token holder to meet their claims. Thus, the language around the “… costs for liquidation of the reserve of assets (…) may only be allocated to the proceeds of liquidation of the reserve of assets…” in paragraph 23, should be further clarified to apply to cases when the underlying asset is delivered rather than liquidated upon insolvency.
The redemption plan should reflect the specific conditions under insolvency for issuers of gold backed tokens whereby an issuer offering physical gold to the token holder upon redemption should be able to, in the case of insolvency, offer redemption in cash as an alternative. This is particularly relevant in the case of fractional ownership when melting and recasting would be associated with unbearably high costs. For instance, a token might represent a portion, such as 1 gram, of a larger gold piece, like a 12.4 kg London Good Delivery bar (400 troy ounces). Without the option for cash redemption, the 12.4 kg bar would need to be sent to a refinery, melted and recast into 1 gram bars before the 1 gram of gold could be redeemed. The cost of this process would likely exceed the value of the gold backing the token.
Therefore, we would like to stress that it is important that these Guidelines allow for flexibility by the issuers to set redemption conditions (which would be in line with Article 39(2a) of the level 1 text of MiCA) when designing the redemption plans.
Q.4 Do you consider that the information to be contained in the draft public notice is adequate and covers the necessary information to be conveyed to the token holders and for a sound redemption process?
NA
Q5.1 Do you consider that the aspects to be assessed by the competent authority for purposes of assessing whether the issuer is unable or likely to be unable to fulfil its obligations under Regulation (EU) 2023/1114 envisaged in the Guidelines appropriately complement those set out in Article 47(1) of Regulation (EU) 2023/1114?
NA
Q5.2 Do you agree that in case of credit institutions and the other entities subject to Directive 2014/59/EU or of central counterparties subject to Regulation (EU) 2021/23, the competent authority should not trigger the redemption plan without prior consultation and coordination with the relevant prudential or resolution competent authorities under that Directive or Regulation, in case of commencement of crisis prevention measures or crisis management measures under such sectoral acts?
NA