Question 1 

An entity wishes to issue a global stablecoin (EMT) based on a non-EU currency. In order to preserve existing infrastructure where current issuance is made through a company based in a non-EU jurisdiction, a “one leg out multi EMT issuance” model would be set up, where a MICA compliant EU based company authorized as per MICAR would be set up in parallel of the company based in a non-EU jurisdiction. In this set up both companies would issue identical and fully fungible tokens that would give holders the same redemption rights, irrespective of the issuing entity.

Insofar, MICA does not seem to explicitly foresee such a situation. Only relatable provisions that can be found in the text are the following: 

• An EMT can only be issued and also be offered to the public or sought for admission to trading by an authorized EMI or CI pursuant to MiCAR Article 48: 

• An EMT can be offered to public or sought for admission to trading by “other persons” given that a written consent has seen made by a MiCAR-authorized issuer (Article 48.1, second paragraph);

• An EMT can be issued by several MiCAR-authorized issuers (Article 56.2);

Only a specific passage in MICA seems to refer to the possibility of the issuance of a token both in the Union and in a non EU jurisdiction, i.e. recital 54 which makes reference to “[…] asset-referenced tokens that are marketed both in the Union and in third countries […]”, which specifically deals with issuance of ART covered by a reserve of assets requirement.

Article 56(2) MiCAR states that “where several issuers issue the same e-money token, the fulfilment of the criteria set out in Article 43(1) shall be assessed after aggregating the data from those issuers”, which indicates that the EMT should be technically attributable to one particular issuer (while the EMTs issued by several issuers might share the same rights attached), which would not be the case for the issuance of fully fungible EMT.

However, this recital, as well the other aforementioned excerpts, do not seem to tackle the possibility of a “one leg out multi issuance” where there are 2 or more issuers, one (or several) of which are based and regulated in the EU, the other(s) being located in non EU jurisdiction.

Therefore, can we infer from these references that a “one leg out multi issuance” model along the lines described above would be possible for EMTs ?

Question 2 

Article 48(1) MiCAR specifies that an offer to the public or seeking the admission to trading of an EMT is only possible if the issuer is an electronic money institution or credit institution and has notified/published a crypto-asset white paper. Some tokens would be issued by a non EU jurisdiction based and non regulated under EU law entity and such tokens would technically be able to circulate freely and enter EU markets. Such tokens could be initially acquired by a person outside the EU (e.g. by a market maker, authorised participant or non EU crypto-asset exchange) and subsequently transferred to EU holders or EU-CASPs. In such a situation it would be advantageous for the issuer to exclusively sell to non-EU persons initially, to avoid being subject to prudential requirements under MiCAR, and then organize the transfer of tokens towards EU holders or EU CASPs. As such, the model presented could raise major regulatory arbitrage issues that could weaken the objective of MICA.

Question 3

In case such an arrangement to issue EMTs was to be compliant with MICAR, then it would raise specific challenges, specifically regarding he legal grounds for safeguarding. As the token issued by the different entities would actually be technically identical and would be marketed both in the EU and in third countries’ jurisdictions, then it could be considered that this arrangement would fall into the case described in recital 54 (see QA XXX on the scope of this article), even though this recital does not seem explicitly foresee ”one leg out EMT  multi issuance” arrangement.

Question 4 

In case recital 54 could be applied to a ”one leg out EMT multi issuance” arrangement, then in such a case, question 3 asked in the QA XXX on scope of application of recital 54 would apply. In case of issuance of an EMT,   Article 54 of MICA foresees that EMT issuers should safeguard funds received by issuers of e-money tokens in exchange for e-money tokens in accordance with Article 7(1) of Directive 2009/110/EC, meaning that said funds should be safeguarded using the instruments described in points (a) and (b) of article 54 by no later than five business days (as per article 7(1) of Directive 2009/110/EC). However, if ever recital 54 was to be interpreted as allowing for cases where one or multiple issuers can issue and market one technically identical token both in the Union and in third countries, then it might prove very difficult –if not technically unfeasible- for issuers to have a comprehensive view of the overall amount of tokens that are in each jurisdiction in real time (and therefore to have an exact assessment of issuers’ liability towards Union holders at all time), as tokens would continually circulate between the different jurisdictions on the secondary market, whether through exchanges, hosted wallets or unhosted wallets. The only way for issuers to assess these volumes would be through estimates and reportings from EU exchanges, which would in any case not cover all potential transactions occurring through unhosted wallets. In such a situation, imbalances could be created between the level of funds safeguarded according to recital 54 and the level of funds to be protected as the requirements set per recital 54 (for example, underfunding cases if ever large amount of tokens initially marketed toward third countries would ultimately be held and redeemed by EU holders, said amount exceeding the funds safeguarded pursuant to article 54). 

What is specific here is that imbalances would occur between two different entities located in two different jurisdictions, with two different legal frameworks, which could give way to regulatory arbitrage. Say for  example that at par value redemption rights are provided fort the EU based entity pursuant to MICAR article 49 but not in the other jurisdiction, then there could be a major risk of capital flight from the entity based in the other jurisdiction towards the entity based in the EU jurisdiction, which could put the EU based entity under stress in case of “redemption run”.

Question 5

In this overall context, as a means to limit capital flight or regulatory arbitrage risks (i.e. to limit redemption requests from holders of tokens issued by the entity based in the non-EU jurisdiction and resident of a non EU jurisdictions), would it be compliant for the EU based entity to limit redemption requests to sole holders of tokens who are EU- residents? 

While this would limit the risks identified above, this could also incidentally lead to prevent redemption requests for non EU-based holders of tokens that have been issued by the EU entity, which could be contradictory with MICA article 49 and could also be seen as a discrimination against non-EU customers.