MiCAR: first experiences with AFM licence application process
Published on 25th Jul 2024
On 22 April 2024, the AFM opened its licence application desk for crypto-asset service providers (CASPs) under the EU Markets in Crypto-Assets Regulation (MiCAR). Several applicants have successfully completed the initial phase. In this insight, we share five key takeaways from the process so far.
The AFM's new approach
The Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) has established a dedicated crypto team and is embracing a new approach that focuses on increased industry interaction. One key initiative is the optional pre-scan, which is a preliminary, informal procedure designed to help build knowledge on critical topics and offer applicants valuable initial feedback. This, in turn, enhances the quality of the formal licence applications.
This is a strategy that some foreign regulators also apply and is, for example, similarly used by the Dutch Central Bank (De Nederlandsche Bank, DNB) in the context of banking licence applications. Additionally, the AFM offers regular updates through Q&As on its website, newsletters, and (online) seminars, which is a practice of the AFM that we have seen more often in the past.
It is also noteworthy that the AFM seems to focus on the timely processing of licence applications. Not only was the AFM one of the first regulators to open its licence application desk, but also is our experience so far is that the AFM takes statutory timelines seriously, and often even provides feedback well within these timelines. This approach played a role in the recent development of some licence applicants successfully completing the first phase, where the AFM checks the completeness of their applications. The first applicants are now in the second phase in which the AFM reviews the content of the documents provided.
Sufficient detail, even though the legislation is still being developed
The AFM expects the policy and procedural documentation to be sufficiently detailed. The documentation should not only take into account the rules following from MiCAR itself, but also the European authorities' delegated acts and guidelines that are still under development.
It is important to monitor what is already available as well as the status of relevant delegated acts, guidelines and Q&As. This allows applicants to immediately align the licence documentation accordingly, which prevents unnecessary delays and also speeds up the process at the AFM. To date, the European authorities have not published a status overview of delegated acts, guidelines and Q&As. Our public tracker may be used for that purpose.
Business plan with flowcharts
It is advisable to begin preparing for a license application with a detailed business plan. The description of activities in the business plan is best illustrated with flowcharts of, for example, the applicant's fiat, token, and order flows. From our experience, the AFM requires a thorough understanding of these flows. We have found that not all applicants can answer related questions equally well. It is therefore important to prioritise this when preparing the application.
AFM also assesses other legislations, such as DORA
As part of the licence application, the AFM not only assesses compliance with MiCAR but also with legislation to which MiCAR refers. A key regulation in this regard is the EU Digital Operational Resilience Act (DORA). Although DORA applies from 17 January 2025, the AFM already assesses compliance during the licence application. The AFM expects applicants to provide the most important policy documentation and procedures, including a roadmap for meeting DORA requirements by that date.
In addition, the AFM assesses compliance with Dutch anti-money laundering and sanctions regulations, the EU Transfer of Funds Regulation, and the whistleblower protection legislation. For these laws, the AFM expects fully compliant policy documentation and procedures to be submitted with the initial application.
DNO application desk open since 1 July
DNB will become the competent authority for applications for declarations of no objection (DNOs). These declarations apply to so called qualifying holders, which are natural persons and legal entities that have 10% or more direct or indirect capital or voting rights in the licence applicant, or have a similar control.
DNO applications must be submitted separately to DNB, which is possible since 1 July 2024. The DNO forms are similar to those for other financial institutions, although there are some differences in detail.
Concluding remarks
In the Netherlands, the first steps in preparing for the new CASP regime under MiCAR have been taken. Both the market and the AFM are working hard towards the application of these rules on 30 December 2024. If this momentum is maintained, we expect the first licences to be issued on that date, marking a significant milestone for the industry.
Disclaimer: this article has been published on Banken.nl on July 22, 2024, and is translated to post on this site.
