ESMA clarifies the scope of Article 78(5) MiCA for trading platforms

ESMA has published a new MiCA Q&A on the scope of the term “trading platform for crypto-assets” in Article 78(5) MiCA. The question specifically concerns the execution of client orders outside a trading platform.

This clarification is relevant to crypto-asset service providers (CASPs) that execute orders for crypto-assets on behalf of clients through, for example, OTC venues, third-country trading platforms or decentralised exchanges.

What has ESMA clarified?

In this Q&A, ESMA provides further guidance on how Article 78(5) MiCA must be interpreted where client orders are executed outside a trading platform.

Article 78(5) MiCA requires a CASP to inform its clients of the possibility that their orders may be executed outside a trading platform. Before executing an order outside a trading platform, the CASP must also obtain the client’s prior express consent. This consent may be given in the form of a general agreement or in respect of individual transactions.

ESMA clarifies that, for the purposes of this provision, the term “trading platform” refers exclusively to a CASP authorised under Article 59 MiCA to provide the service of operating a trading platform for crypto-assets.

An order is therefore executed outside a trading platform for the purposes of Article 78(5) MiCA if it is not executed on a trading platform authorised as such under MiCA. This also applies where execution takes place through a system that is technically or commercially described as a trading platform. ESMA provides the following examples:

• OTC venues;
• third-country trading platforms; and
• decentralised exchanges.

The requirement is intended to protect clients where their orders are executed through orders arrangements that may be subject to less regulatory scrutiny or provide a lower level of protection than a trading platform authorised under MiCA.

What does this mean in practice?

The Q&A is specifically relevant to CASPs authorised to execute orders for crypto-assets on behalf of clients. These CASPs must first identify the platforms and other venues through which they may execute client orders.

If their order execution policy allows orders to be executed through an OTC venue, a third-country trading platform, a decentralised exchange or any other entity that is not authorised under MiCA to operate a trading platform, they must:

• clearly state in their order execution policy and client disclosures that orders may be executed outside a trading platform authorised under MiCA;
• obtain the client’s prior express consent before executing such an order;
• record that consent and be able to demonstrate that it was obtained; and
• arrange their order execution processes so that an order cannot be executed outside a MiCA-authorised trading platform unless the required consent has been obtained.

A general statement in the terms and conditions that the CASP may use different execution channels is insufficient if it does not clearly disclose that orders may be executed outside a trading platform authorised under MiCA and the client has not expressly consented to this.

CASPs must also verify whether the required consent has been obtained from existing clients. If no valid express consent has yet been recorded for an existing client, that consent must be obtained before the client’s next order is executed outside a MiCA-authorised trading platform.

What changes may be required?

CASPs that use these execution channels should specifically verify whether:

• all potential execution venues have been correctly classified;
• their order execution policy expressly describes the possibility of execution outside a MiCA-authorised trading platform;
• their client terms or onboarding process provide for the client’s express consent;
• the timing and substance of that consent are recorded; and
• their systems prevent orders from being routed to such execution venues unless the required consent has been obtained.

CASPs that execute client orders exclusively on trading platforms authorised under MiCA to provide that service are not required under Article 78(5) MiCA to obtain consent for execution outside a trading platform. However, as soon as their order execution policy allows for that possibility, the disclosure and consent requirements apply before such execution may take place.

Why does this require attention now?

New ESMA Q&As are not merely theoretical explanations. In practice, they provide an important indication of how supervisory authorities will interpret MiCA provisions. This makes timely analysis essential, particularly for firms that are still designing their services or further developing their MiCA compliance programmes.

Crypto firms should therefore use this opportunity to assess whether their existing procedures, classifications and internal controls remain appropriate. Where orders are executed outside a trading platform, firms must be clear about the legal basis for doing so and the MiCA requirements that apply.