The European Securities and Markets Authority (“ESMA”) has cleared the air about distinguishing between different execution services provided by Crypto-Asset Service Providers (“CASPs”) through answering a submission from November 2024.
In essence, the question referred to the distinguishing of three MiCA Crypto-asset services provided by CASPs being:
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Execution Orders
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Reception and Transmission of Orders (RTOs)
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Exchange Services
ESMA’s response clarifies that National Competent Authorities (NCAs) are to monitor CASPs and the services they provide to ensure that the description CASPs present of their services are true in practice. Hence, NCAs are encouraged to closely look at the way CASPs handle customer orders assessing whether the CASP:
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Trades directly with the customer as a counterparty,
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Acts as an agent making deals for the customer, or
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Sends the customer’s order to another company that makes the deal
Distinguishing the Three Services
Through acting as an agent, the execution of orders for crypto assets on behalf of clients applies to CASPs under two scenarios:
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Whenever the CASP directly contracts with the third party without any intermediary, or
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When the CASP carries out the client’s order through a crypto trading platform.
In the case where the CASP does not execute the order itself, and introduces an intermediary, such provider executes a Reception and Transmission of Order (RTO).
CASPs that carry out exchange services act as a counter party directly trading with the client using its own funds, being the proprietary capital. These trades require:
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a clear and fair policy on which clients the CASPs trades with and the transaction’s terms,
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clear pricing methods, and
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the execution of order at the displayed prices on the finalization of such
Additionally, when providing exchange services the CASP must complete the trade where the client satisfies the published conditions and has no discretion to refuse.
Cases of Uncertainty
There may be cases where the services the CASP is offering to the client are unclear. This is because a CASP may be a client’s counterparty and still provide execution services.
In such cases, Recital 87 of MiCA provides that when a CASP trades as a counterparty, it still has to adhere to the best execution rules when it is effectively acting in the client’s interest. The notion raised is which service is the CASP providing, an execution order or an exchange service?
The details of the circumstances must then be looked into. Where the CASP acts on behalf of the client like an agent, then such service is an execution order. However, where the CASP provides an offer at a fixed price allowing the client freedom to continue browsing other offers, then an exchange service is provided.
If there is doubt about the type of service provided, ESMA suggests that a conservative approach should be taken and hence presume that the CASP is offering an execution order by acting on behalf of the client as an agent, meaning that the best execution requirements apply.
Here at BDO Malta, our Legal Team can assist CASPs in determining the correct classification of their services under MiCA, ensuring full regulatory compliance. We provide tailored guidance on authorisation requirements, service structuring and ongoing obligations to meet ESMA expectations.
Legal Intern, Martina Galea, Senior Lawyer, Dr. Jianni Grima