Is a crypto exchange under MiCA always responsible for the token-related whitepaper?


Jonathan Galea

A pressing and common question that is often asked relates to the perceived responsibility of a CASP operating a trading platform over the crypto-assets it lists for trading, including an obligation to ensure that the relevant whitepaper is published in accordance with the requirements set out under the MiCA Regulation. In this article, we’ll be exploring the nuances of the article setting out this obligation, its effects, and also its limitations.

Article 68 of MiCA covers specific obligations pertaining to CASPs operating a trading platform for crypto-assets, which for the sake of brevity I shall be referring to as crypto exchanges. Right off the bat, the first required operating rule under Article 68(1(a)) covers the approval process prior to admitting crypto-assets to trading, and states that crypto exchanges shall:

set the approval processes, including customer due diligence requirements commensurate to the ML/TF risk presented by the applicant in accordance with Directive (EU) 2015/849 [EU AML Directive], that are applied before admitting crypto-assets to the trading platform;

It is clear, therefore, that apart from ensuring that the crypto-assets being listed do not constitute assets that fall outside of scope of MiCA (as would be the case if such crypto-assets are classified as financial instruments), crypto exchanges are also required to conduct further checks using the risk-based approach, ensuring, amongst other things, that the issuer of such crypto-assets is reputable, and that the technical solutions used are reliable. Article 68(1) covers some of the checks required by way of a suitability check as follows:

Before admitting a crypto-asset to trading, crypto-asset service providers that are authorised for the operation of a trading platform for crypto-assets shall ensure that the crypto-asset complies with the operating rules of the trading platform and assess the suitability of the crypto-asset concerned. When assessing the suitability of a crypto-asset, the trading platform shall evaluate in particular the reliability of the solutions used and the potential association to illicit or fraudulent activities, taking into account the experience, track record and reputation of the issuer and its development team. The trading platform shall also assess the suitability of the crypto-assets benefiting from the exemption set out in Articles 4(2).

The last part highlighted in bold leads me nicely to the next part of the thesis being laid out here, as it states that the suitability check must be carried out even in the case of those crypto-assets whose whitepaper need not be published under MiCA, namely those instances under Article 4(2) where:

(a) the crypto-assets are offered for free;
(b) the crypto-assets are automatically created as a reward for the maintenance of the DLT or the validation of transactions;
(c) [deleted]
(ca) the offer concerns a utility token of a good or service which exist or is in operation;
(cb) the holder of the crypto-assets has only the right to use them in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror.

Subsequent sub-articles highlight other exemptions worth noting, but for the sake of brevity, the reader is free to read the relevant text to be informed of such other exemptions relating to the publication of a whitepaper.

It is important to note that a suitability check does not equate to a responsibility over a whitepaper or lack thereof. In other words, and by way of an example, a crypto exchange is not required to take responsibility over Satoshi’s Bitcoin whitepaper. It is, however, required to undertake an assessment on whether Bitcoin is suitable as a crypto-asset to be offered on its trading platform.

There is a prohibition imposed on crypto exchanges on the listing of crypto-assets that do not have a whitepaper that has been published as required under MiCA, with the word of the text in question stipulating the following under Article 68(1):

For the purposes of point (a) [Article 68(1)], the operating rules shall clearly state that a crypto-asset shall not be admitted to trading on the trading platform, where a crypto-asset white paper has not been published in the cases required by this Regulation.

Again, I am highlighting the part of the text which interests me the most, as it leads to the next part, namely – which are those cases that require a publication of the whitepaper under MiCA? To answer this question, reference is made to two articles, namely Article 4(1) and Article 4a, with the former requiring a whitepaper to be published if a person is making an offer to the public as defined under Article 3(1), and Article 4a requiring such a publication when a person asks for admission to trading of a crypto-asset. It is worth noting that both articles do not cover asset-referenced tokens or e-money tokens (ergo ‘stablecoins’), as separate rules apply to them both.

Aside from the exemptions that are found under Article 4(2) et seq., and at the risk of stating the obvious, the obligation to publish a whitepaper only subsists if an offer to the public is being made. This is defined as “a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the crypto-assets to be offered, so as to enable potential holders to decide whether to purchase those crypto-assets”. Two clear points that can be extracted from this definition is that there must be ‘sufficient information’ to the point that potential holders can decide whether to purchase those crypto-assets or not, and that there must be terms of an ‘offer’, meaning that there should be an active attempt by the issuer to sell the crypto-assets. Therefore, if no offer to the public is being made, then there is no obligation to publish the whitepaper – meaning that a crypto exchange listing such crypto-assets is both free to list them, and furthermore, is not required to ensure that the relevant whitepaper is published.

The legislator further clarifies under Recital 15a that “the mere admission of crypto-assets to trading on a trading platform or the publication of bid and offer prices is not to be regarded in itself as an offer of crypto-assets to the public. Such publication only constitutes an offer of crypto-assets to the public where it includes a communication constituting the offer to the public under this Regulation”. Therefore, an initiative taken by the crypto exchange itself to list crypto-assets would not amount to an offer to the public either, further reinforcing the thesis laid out above.

While on the subject of listing, let us now cover the legal effects where a person asks for admission to trading of a crypto-asset, or to be more specific, when no such request is being made. Article 4a(1a) states that:

The operator of the trading platform for crypto-assets shall comply with paragraph 1, when the crypto-assets are admitted to trading on its platform for crypto-assets on the operator’s own initiative and the white paper has not been published in accordance with Article 8 in the cases required by this Regulation.

This is the infamous article which is causing crypto exchanges a lot of worry, as it implies that crypto exchanges must publish the whitepaper and undertake other obligations listed under Article 4a(1) in absence of the required documentation being so published. However, emphasis is being made once again on the last part of the article in question highlighted in bold, ergo that this obligation subsists only in the cases required by MiCA. Article 8 indeed only makes reference to offerors or persons seeking admission to trading of crypto-assets, with no reference being made to crypto exchanges listing crypto-assets out of their own initiative i.e. no person is seeking admission to trading. Therefore, if for instance, and by way of a non-exhaustive list:

  1. No offer to the public has been made;
  2. An offer to a strictly non-EU public has been made, ergo no persons in the EU were targeted;
  3. The issuer cannot be identified; or
  4. The crypto-assets have been offered for free

Then it can well be argued that these are cases in which no obligation to publish a whitepaper subsists, and therefore, no obligation rests on the crypto exchange to publish the whitepaper in its turn. However, as explained further above, a suitability check must always be carried out by the crypto exchange, whether it is listing crypto-assets on its own initiative, or being approached by persons seeking to list a crypto-asset.

This article has been written on the basis of the latest MiCA draft published on the 5th of October 2022, and may be subject to further changes until its official publication in the European Union’s Official Journal.


Cryptocurrency Regulation