The crypto-asset white paper according to MiCAR for non-asset-referenced tokens – securities prospectus ‘light’?

With the Regulation of the European Parliament and of the Council on Markets in Crypto-Assets, and amending Directive (EU) 2019/1937 (MiCAR), the EU is planning a legal framework for the issuance of so-called asset-referenced and non-asset-referenced tokens for the first time (we previously reported on this here). On 14 March 2022, the Committee on Monetary and Economic Affairs of the EU Parliament voted on current amendment proposals on a possible Bitcoin ban and the proof-of-work consensus mechanism (see our article on the Bitcoin ban, and the joint statement with the European Blockchain Association). The Bitcoin ban has not come (for the time being); however, some changes and additions were made to the white paper.
For both asset-referenced and non-asset-referenced tokens, MiCAR imposes a white paper obligation for the issuer. The regulatory system of MiCAR is chosen in such a way that the issuance of corresponding tokens is generally prohibited unless – among other requirements – a white paper is prepared in relation to the issuance. For non-asset-referenced tokens, the white paper is to be “notified” by the competent authority after it has been prepared and then published.

I. Duty to prepare a white paper under MiCAR

Non-asset-referenced tokens are those for which no fixed underlying value (for example, a nominal currency) is used as a reference basis in order to achieve a certain stability of value (also called “stable coins”). Non-asset-referenced tokens will often be found in the economic cycle as payment tokens (also called “virtual currency”, “payment tokens” or “bare-bone tokens”). These are similar to Bitcoin, and the provider usually intends to use the tokens as an alternative means of payment.

No previous regulation of white papers
In the past, white papers were also regularly published for initial coin offerings (ICOs), containing information on the planned business purpose, the people involved and the technical design of the tokens. It is not uncommon to find risk information in the white paper. However, to date, white papers have not been regulated; they are produced on a voluntary basis.
In the past, BaFin (the Federal Financial Supervisory Authority) has complained that information in such a white paper is often not sufficiently comprehensive and precise and that the contents of the white papers were also changed during the term of the ICO (BaFin, Zweites Hinweisschreiben zu Prospekt- und Erlaubnispflichten im Zusammenhang mit der Ausgabe sogenannter Krypto-Token, status 16 August 2019, point I). White papers often failed to provide comprehensive information to investors/buyers of tokens. So far, white papers are not information and liability documents comparable to securities and investment prospectuses.

White papers as securities prospectuses ‘light’?
The draft MiCAR sets out far-reaching and detailed requirements for a crypto white paper. There are some parallels to the requirements for securities prospectuses.
Thus, as with a securities prospectus, the white paper must be preceded by a summary which provides, in concise and non-technical language, material information about the public offering of the tokens and, in particular, identifies the material elements of the tokens concerned.
The format and content of the prefatory summary shall, in conjunction with the white paper, provide appropriate information about material elements of the relevant tokens to enable potential purchasers of the tokens to make an informed decision. The references required in the summary (summary is to be understood as an introduction and purchasers should make purchase decisions based on the entire white paper) are aligned with the EU Prospectus Regulation.
The distinction in the main part of the white paper between “information on the issuer” (including any conflicts of interest and information on the financial development of the issuer in the last three years), the other “information on the project” and the “information on the public offer” also follows a familiar system.
Finally, the presentation focuses on the “information on technologies used”, a category that does not exist in securities prospectuses. The presentation of risks, which differentiates between risks related to issuers and risks related to crypto assets, again corresponds to the presentation in securities prospectuses (differentiation between issuer-related and securities-related risks). For the white paper, these risk categories are supplemented by further categories.
The European legislator has based the requirements of the white paper on those of securities prospectuses and supplemented/adapted them where this appeared necessary in relation to crypto securities (for example, the technical design).

II. Notification and publication of the white paper

No mandatory approval of the white paper by the supervisory authority
For non-asset-referenced tokens, MiCAR provides that competent authorities do not require prior approval of the white paper before publication. Unlike securities prospectuses, prior approval or permission of the white paper is not required before publication and time-consuming approval procedures with the competent authorities for a white paper do not exist.
For issuers of non-asset-referenced tokens, however, it should be possible on a voluntary basis to request the competent authorities to approve the white paper in advance. This pre-approval of the white paper should be valid throughout the EU. From the issuer’s point of view, this means increased legal certainty, even if it involves a high investment of time.

Notification procedure for white papers as an innovation
Issuers of non-asset-referenced tokens, however, “notify” the competent authority of their home Member State of the white paper they have prepared at least 20 working days before its publication.
In this context, the term notification is not related to the well-known EU passporting procedure, as is the case, for example, with authorisation procedures or securities prospectuses. It is the mere notification and submission of the white paper without obtaining a decision from the supervisory authority. The supervisory authority can nevertheless intervene in the event of regulatory breaches, which is why there may be some examination procedures at this stage.
The notification must also explain why the token described in the white paper is not to be considered as e-money under the Second E-Money Directive, not as a deposit or a structured deposit or a financial instrument under MiFID II.
Following the notification, the competent authorities will transmit the respective white paper to the European Securities and Markets Authority (ESMA), which shall make it available in a directory of all crypto service providers established by ESMA.
In addition, the issuer itself must publish the white paper on its publicly accessible website no later than the start date of the public offering of the tokens. The white paper must remain available on the issuer’s website for as long as the tokens are held by the public.
If an issuer also plans to issue in other additional countries of the EEA, issuers must send to the competent authority of their home Member State, together with the notification, a list of host Member States where they intend to offer their tokens to the public and the start date of the planned public offer. The competent authority of the home Member State shall then notify the competent authority of the host Member State of the intended public offer within two working days of receiving the list. This then effectively corresponds to the EU passporting procedure of securities prospectuses for Union-wide validity of approved prospectuses or notified white papers.

III. Conclusion

The MiCAR contains detailed requirements for white papers for non-asset-referenced tokens. For acquirers, this means a higher level of protection because they are comprehensively informed about the token projects and the issuer, as well as possible risks.
That white papers do not require prior approval or authorisation is to be welcomed from the issuer’s point of view in terms of time and cost savings. However, especially at the beginning of the regulatory regime, it may make sense for issuers to have the white paper voluntarily reviewed by the supervisory authority in order to reduce risks due to possible uncertainties in the implementation of the regulation.