Source: OJ L, 2024/1507, 30.5.2024

Current language: EN

Article 2 Criteria and factors for the purposes of the EBA temporary intervention powers

Summary What does Article 2 of the Intervention powers of authorities say?

Article 2 is the EBA-specific counterpart to Article 1, which covers ESMA's equivalent framework for other crypto-assets.

Where Article 1 focuses on crypto-assets other than asset-referenced tokens and e-money tokens, this article directs the EBA to apply a comprehensive set of factors and criteria specifically when assessing whether asset-referenced tokens or e-money tokens pose a significant investor protection concern, or a threat to market integrity or financial system stability across the Union.

The criteria span a wide range of considerations, from product complexity, client type, and transparency, through to financial crime susceptibility, systemic risk to payment infrastructure, and the potential to undermine investor confidence.

A notable distinction from Article 1 is the explicit inclusion of the size and composition of the reserve of assets as a complexity factor, which reflects the stabilisation mechanism unique to asset-referenced tokens and e-money tokens and the specific prudential concerns they raise.

Important points:

  • The EBA is required to apply this specific set of factors and criteria when determining whether asset-referenced tokens or e-money tokens present risks to investor protection, market integrity, or Union financial stability.
  • The assessment framework covers both product-level characteristics and broader systemic considerations, including risks to payment systems infrastructure and the vulnerability of the Union economy.
  • The composition and size of the reserve of assets is explicitly listed as a factor, making it a distinct element of the EBA's analysis compared to the ESMA framework in Article 1.

Springlex's summary of the article, a reading aid, not a substitute for the legal text.

The EBA shall take into account the following factors and criteria to determine whether there is a significant investor protection concern or a threat to the orderly functioning and integrity of markets in crypto-assets or to the stability of the whole or part of the financial system in the Union:

  1. the degree of complexity of the asset-referenced token or e-money token or the type of activity or practice related to asset-referenced tokens or e-money tokens in relation to the type of clients, as assessed in accordance with point (c), involved in the activity, or practice, taking into account, in particular, the following:

    1. the degree of transparency of costs and charges associated with the asset-referenced token or e-money token, the activity or practice related to asset-referenced tokens or e-money tokens and, in particular, the lack of transparency resulting from multiple layers of costs and charges;

    2. the nature and scale of any risks;

    3. the size and the composition of the reserve of assets referred to in Article 36 of Regulation (EU) 2023/1114;

    4. whether the asset-referenced token or e-money token or service is bundled with other products or linked to different services;

    5. the complexity of any terms and conditions;

  2. the size of potential detrimental effects, considering, in particular, the following:

    1. the reference value of the asset-referenced token or e-money token;

    2. the number of clients, token holders or market participants involved;

    3. the relative share of the asset-referenced token or e-money token in investors’ portfolios;

    4. the probability, scale and nature of any detriment, including the amount of loss potentially suffered;

    5. the anticipated duration of the detrimental consequences;

    6. the volume of the issuance;

    7. the number of intermediaries involved;

    8. the growth of the market or sales;

    9. the average amount invested by each client in the asset-referenced token or e-money token;

  3. the type of clients involved in an activity or practice related to asset-referenced tokens or e-money tokens or to whom an asset-referenced token or e-money token is marketed or sold, taking into account, in particular, the following:

    1. whether the client is a retail holder or a qualified investor;

    2. clients’ skills and abilities, including the level of education, experience with similar products or selling practices;

    3. clients’ economic situation, including their income and wealth;

    4. clients’ core financial objectives, including pension saving and home ownership financing;

  4. the degree of transparency of the asset-referenced token or e-money token or the type of activity or practice related to asset-referenced tokens or e-money tokens, taking into account, in particular, the following:

    1. any hidden costs and charges;

    2. the use of techniques drawing clients’ attention but not necessarily reflecting the suitability or overall quality of the product or service;

    3. the nature of risks and transparency of risks;

    4. the use of product names or terminology or other information that is misleading by implying a greater level of security or return than those which are actually possible or likely, or which imply product features that do not exist;

    5. the use of unfair, unclear or misleading information in communications;

  5. the particular features or components of the asset-referenced token or e-money token or the activity or practice related to asset-referenced tokens or e-money tokens;

  6. the existence and degree of disparity between the expected return or profit for investors and the risk of loss in relation to the asset-referenced token or e-money token or the activity or practice related to asset-referenced tokens or e-money tokens, taking into account, in particular, the following:

    1. the structuring costs of such asset-referenced tokens, e-money tokens, activity or practice and other costs;

    2. the disparity in relation to the issuer’s risk retained by the issuer;

    3. the risk/return profile or risk/benefit profile;

  7. the costs and ease with which investors are able to sell the relevant asset-referenced token or e-money token or switch to another asset-referenced token or e-money token, taking into account, in particular, the following:

    1. the degree of liquidity in the market for the asset-referenced token or e-money token;

    2. the frequency of trading availability;

    3. the issuance size and size of the secondary market;

    4. the presence or absence of liquidity providers or secondary market makers;

    5. the features of the trading system;

    6. any other barriers to exit;

  8. the pricing and associated costs of the asset-referenced token or e-money token or the activity or practice related to asset-referenced tokens or e-money tokens, taking into account, in particular, either of the following:

    1. the use of hidden or secondary charges;

    2. charges that do not reflect the level of service provided;

  9. the selling practices associated with the asset-referenced token or e-money token, taking into account, in particular, the following:

    1. the communication and distribution channels used;

    2. the information, marketing or other promotional material associated with the investment;

    3. the assumed investment purposes;

    4. whether the decision to buy is a secondary or tertiary following an earlier purchase;

  10. the financial and business situation of the issuer or of the provider of services of an asset-referenced token or e-money token, taking into account, in particular, either of the following:

    1. the financial situation of the issuer or of the provider of services related to the asset-referenced token or e-money token;

    2. the transparency of the business situation of the issuer or of the provider of services related to the asset-referenced token or e-money token;

  11. whether there is insufficient or unreliable information about an asset-referenced token or e-money token, provided either by the issuer or the offeror or service provider, to enable market participants at whom it is targeted to make an informed decision, taking into account the nature and type of the asset-referenced token or e-money token;

  12. whether the asset-referenced token or e-money token or the activity or practice related to asset-referenced tokens or e-money tokens poses a high risk to the performance of transactions entered into by participants or investors in the relevant market;

  13. whether the asset-referenced token or e-money token or the activity or practice related to asset-referenced tokens or e-money tokens would leave the Union economy vulnerable to risks;

  14. whether the characteristics of an asset-referenced token or e-money token make it particularly susceptible to being used for the purposes of financial crime and, in particular whether those characteristics could potentially encourage the use of asset-referenced tokens or e-money tokens for the following:

    1. any fraud or dishonesty;

    2. misconduct in, or misuse of information, in relation to a financial market;

    3. handling the proceeds of crime;

    4. the financing of terrorism;

    5. facilitating money laundering;

  15. whether the activity or practice related to asset-referenced tokens or e-money tokens poses a particularly high risk to the resilience or smooth operation of markets, the payment system and their infrastructures;

  16. whether the asset-referenced token or e-money token or the activity or practice related to asset-referenced tokens or e-money tokens poses a high risk of disruption to financial institutions deemed to be important to the financial system of the Union;

  17. the relevance of the distribution of the asset-referenced token or e-money token as a funding source for the issuer;

  18. whether an asset-referenced token or e-money token or an activity or practice related to asset-referenced tokens or e-money tokens poses risks to the market or payment systems infrastructure;

  19. whether an asset-referenced token or an activity or practice related to asset-referenced tokens or e-money tokens could threaten investors’ confidence in the financial system.

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