28 November 2024
The Markets in Crypto-Assets Regulation (Regulation (EU) 2023/1114) (MiCAR) includes a variety of penalties for breaches of its various provisions. These were recently incorporated into Irish law by the European Union (Markets in Crypto-Assets) Regulations 2024 (MiCA Regulations). Regulated entities that breach MiCAR will be subject to the Central Bank’s existing administrative sanctions procedure (ASP) under Part IIIC of the Central Bank Act 1942 (CBA 1942). However, MiCAR also includes special administrative penalties and procedures for unregulated entities (i.e. entities which do not constituted regulated financial service providers under the CBA 1942).
As for other regulated entities, firms and persons concerned in their management found to have committed prescribed contraventions (i.e. breaches of financial services legislation) can be subject to the Central Bank’s ASP. The MiCA Regulations set out a number of specific penalties in connection with specific breaches of MiCAR. These are in addition to (and not in substitution of) the sanctions specified in section 33AQ of the CBA 1942 (generally available during the ASP).
Breaches of the MiCAR provisions set out in the table below will be subject to a number of potential sanctions including public statements, orders requiring the person to cease an infringement, and monetary penalties of up to €1 million for natural persons.
In addition, persons subject to the ASP may also be subject to administrative fines of up to twice the amount of the profits gained or losses avoided because of the infringement (notwithstanding any other limits on the maximum monetary penalty). For breaches of the requirements in relation to market abuse, this can be up to 3 times the amount of the profits gained or losses avoided.
The maximum monetary penalties for legal persons are otherwise prescribed under the MiCA Regulations according to the relevant breach of MiCAR, as set out in the table below. Annual turnover will be based on the last available financial statements approved by the management body, or may be calculated based on consolidated accounts approved by the management body of the ultimate parent undertaking, where the firm is a parent or subsidiary subject to consolidation under the Accounting Directive (Directive 2013/34/EU).
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Requirements relating to: |
Articles of MiCAR |
Maximum monetary penalty |
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(a) |
Crypto-assets other than asset-referenced tokens (ARTs) or e-money tokens (EMTs) |
Articles 4 to 14 |
€5,000,000 or 3% of annual turnover |
|
(b) |
ARTs |
Articles 16, 17, 19, 22, 23, 25, Articles 27 to 41, Articles 46 and 47 |
€5,000,000 or 12.5% of annual turnover |
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(c) |
EMTs |
Articles 48 to 51, Articles 53, 54 and 55 |
€5,000,000 or 12.5% of annual turnover |
|
(d) |
Crypto-Asset Service Providers (CASPs) |
Articles 59, 60, 64 and Articles 65 to 83 |
€5,000,000 or 5% of annual turnover |
|
(e) |
Prevention and prohibition of market abuse involving crypto-assets |
Article 88 |
€2,500,000 or 2% of annual turnover |
|
Article 89 to 92 |
€15,000,000 or 15% of annual turnover |
Breaches of the requirements in relation to CASPs, the Central Bank may also impose a temporary ban preventing any member of the management body of the CASP, or any other natural person who is held responsible for the infringement, from exercising management functions in a CASP.
For breaches of the requirements relating to market abuse, the Central Bank also has the power to seek:
The sanctions available to the Central Bank under the ASP for breach of MiCAR are therefore significant. The ability to impose monetary sanctions as a multiple of the profits gained or losses avoided has the potential for very large fines, as does the potential for fines up to 12.5% or 15% of annual turnover (potentially global turnover).
The above sanctions under the ASP would also be separate to any action taken under the Central Bank’s fitness and probity regime under Part 3 of the Central Bank Reform Act 2010. Care will therefore need to be taken to have regard to individual obligations under the Central Bank’s Individual Accountability Framework (IAF) and, where applicable, the Senior Executive Accountability Regime (SEAR).
Separate to its enforcement powers for regulated entities (set out above), the Central Bank has also been provided with specific powers in respect of non-regulated entities (i.e. entities that do not require authorisation or registration / are not a “regulated financial service provider” under the CBA 1942, but who are subject to requirements imposed by MiCAR). This could include issuers of crypto-assets other than ARTs or EMTs, as well as persons involved in market abuse.
The main method of enforcement against non-regulated entities for breaches of MiCAR will be through the appointment of an assessor. This is similar to the existing Central Bank assessor process under securities markets legislation (which can similarly impose sanctions on non-regulated entities, e.g. for market abuse, breaches of prospectus and transparency requirements, and in relation to derivatives under the European Market Infrastructure Regulation (Regulation 648/2012)).
Under the procedure, the Central Bank can appoint an assessor for the purpose of determining if the relevant non-regulated entity / assessee has committed or is committing a breach of MiCAR. Where the assessor finds this to be the case, sanctions the same as those available under the ASP for regulated entities (as set out above), may be imposed. These may be agreed between the entity under an agreement (enforceable by a court of competent jurisdiction, although not subject to a court application as for the ASP under section 33AWA of the 1942 Act). Otherwise, an assessee has a right to appeal an adverse assessment and associated sanctions to the Irish Financial Services Appeals Tribunal (IFSAT) and ultimately to the High Court.
The sanctions available to the Central Bank for breaches of MiCAR are potentially significant and can be sought against both regulated entities, such as credit institutions, e-money institutions, authorised issuers, and CASPs, as well as non-regulated entities. Anyone with a potential exposure to obligations under MiCAR should therefore take care in meeting their obligations to avoid Central Bank enforcement action.
Our financial services team has extensive experience in both advising on financial regulation and assisting with regulatory enforcement investigations. We work closely with clients and deal with the Central Bank at all stages of the enforcement process. We are therefore well-placed to provide guidance and assist with all matters concerning enforcement procedures and possible sanctions concerning the newly introduced MiCAR regulations.
If you have any queries related to the any aspects of MiCAR or other regulatory requirements or expectations, please do not hesitate to contact our team below. We would be delighted to hear from you.
