MiCA Under the Microscope: Execution Times, Transaction Rejections, and Liability Regime in Crypto-Asset Transfers

Introduction

The adoption of the Markets in Crypto-Assets Regulation (MiCA) has established an unprecedented regulatory framework for the European crypto ecosystem. Beyond the informational obligations previously analyzed, MiCA also regulates crucial operational aspects through Guidelines 3, 4, and 5, which respectively address execution times, the rejection or suspension of transfers, and the liability regime for crypto-asset service providers.

These seemingly technical aspects have profound practical implications for investors and platforms. This article will delve into the details of these guidelines, which determine how and when transfers are executed, under what circumstances they can be rejected, and who bears the responsibility when things go wrong.

Guideline 3: Execution Times and Cut-Off Hours – Certainty in a 24/7 Market

In an environment where blockchain networks operate continuously, MiCA’s Guideline 3 mandates that crypto-asset service providers implement policies and procedures that precisely define three critical temporal aspects:

1. Cut-Off Hours for Receipt of Instructions Providers must clearly establish and communicate the cut-off hours after which a transfer instruction will be considered received on the next business day, rather than the current day. This requirement, though seemingly simple, poses a significant challenge for a sector operating 24/7, compelling platforms to precisely delineate the end of their “operational day.”
2. Maximum Execution Times per Crypto-Asset The guideline requires the establishment of specific maximum execution times for each crypto-asset. This recognizes the technical heterogeneity of the crypto ecosystem, where different blockchains have varying block times and levels of congestion. Thus, while a transfer on Solana might complete in seconds, a transfer on Bitcoin could take minutes or hours, depending on the fees paid and the network’s state.
3. Estimation of Irreversibility by Blockchain Network Perhaps the most technical yet crucial aspect: providers must offer a reasonable estimate of the time or number of confirmations required for a transfer to be considered:
   • Irreversible on the Distributed Ledger Technology (DLT) network
   • “Sufficiently irreversible” in the case of networks with probabilistic settlement This element is fundamental for managing user expectations regarding when a transaction can be considered final, especially relevant in commercial or high-volume operations.

Guideline 4: Rejection or Suspension of Transfers – Risk-Based Decisions

The operational freedom in the crypto ecosystem is not absolute. Guideline 4 stipulates that providers must implement risk-based policies and procedures to determine:

• Whether to execute a transfer
• Whether to reject it
• Whether to return it
• Whether to suspend it temporarily

These procedures must particularly consider the provisions of the Regulation on the transfer of funds, aligning with the European Banking Authority’s guidelines that prevent the misuse of transfers for money laundering and terrorism financing.

This guideline strikes a delicate balance between the operational agility characteristic of the crypto sector and the need for control to prevent illicit activities. Platforms must implement risk assessment systems that are:

• Robust enough to detect potentially suspicious operations
• Agile enough not to unduly hinder legitimate operations
• Transparent to users regarding the criteria applied

Si te ha interesado este artículo no dudes en leer:

MiCA in detail: Pre- and post-execution transparency obligations in cryptoasset transfers that every investor should be aware of

Transparency in cryptoasset transactions is one of the fundamental pillars of the Cryptoasset Markets Regulation (MiCA).

Guideline 5: Provider Liability – The User Protection Framework

What happens when a transfer is not executed correctly or is made without the holder’s authorization? Guideline 5 addresses this crucial aspect, mandating that crypto-asset service providers clearly define the conditions of their liability to clients in three scenarios:

1. Unauthorized transfers
2. Incorrectly initiated transfers
3. Incorrectly executed transfers

This guideline, though concise in its wording, has profound practical and legal implications. It obliges platforms to:

• Precisely delimit their scope of responsibility
• Establish robust verification procedures
• Implement compensation mechanisms in case of error or fraud
• Define the terms and conditions for user claims

Practical Implications: A New Operational Paradigm

The implementation of these three guidelines represents a paradigm shift in the operations of crypto-asset platforms but also offers significant guarantees for users.

For Platforms

Crypto-asset platforms must adapt their systems and processes to:

1. Temporal Management: Implement precise temporal recording systems that delineate operational days and monitor confirmation times across different networks
2. Risk Assessment: Develop algorithms and procedures to identify potentially suspicious operations
3. Liability Delimitation: Clearly define the scope of their responsibility and compensation mechanisms in their terms and conditions
4. Effective Communication: Ensure all this information is conveyed clearly and comprehensibly to users

For Investors

Investors and users of crypto-asset services gain significant assurances:

1. Temporal Predictability: Precise knowledge of when their operations will be processed and finalized
2. Transparency in Rejections: Clear information on the reasons for any rejection or suspension
3. Liability Framework: Clarity on who bears the responsibility in case of error or fraud
4. Basis for Claims: A clear regulatory framework supporting potential claims

Implementation Challenges

The practical application of these guidelines presents significant technical and operational challenges:

1. Technological Heterogeneity: The varying technical characteristics of each blockchain require policies tailored to each crypto-asset
2. Balance Between Security and Agility: Risk assessment systems must be robust without unduly hindering operations
3. Harmonization with AML/CFT Norms: Integration with anti-money laundering and counter-terrorism financing requirements poses a significant compliance challenge
4. Fair Delimitation of Responsibility: Establishing a liability framework that adequately protects users without imposing disproportionate burdens on providers

Conclusion: Operational Maturity of the Crypto Ecosystem

Guidelines 3, 4, and 5 of MiCA, pertaining to execution times, transaction rejections, and the liability regime, constitute fundamental pillars for the professionalization and operational maturity of the European crypto ecosystem. Far from being mere regulatory technicalities, these guidelines establish an operational framework that:

• Provides certainty to users
• Defines clear responsibilities for platforms
• Establishes protection mechanisms against errors and fraud
• Balances the sector’s characteristic agility with control and security needs

For platforms, compliance with these guidelines presents an operational and technological challenge but also an opportunity to differentiate themselves through excellence in transparency and user protection. For investors, it represents a framework of guarantees that significantly enhances the legal security of their crypto-asset operations.

MiCA, through these specific guidelines, takes a decisive step towards a more mature, transparent, and secure crypto ecosystem, aligned with the consumer protection standards of the European financial market while preserving the sector’s innovation and agility.

If you liked this article, you may also find it interesting to read the following one:

MiCA: A comprehensive regulatory framework for the cryptocurrency ecosystem