E-Money Tokens: The Difference Between MiCAR Payments & PSD2 Payments

I have a number of posts in the works on the UK's belated plans for cryptoasset regulation, but this one deals with the European Banking Authority's use of its 'no action' powers to minimise the overlap between the EU's second Payment Services Directive (PSD2) and the Markets in CryptoAssets Regulation (MiCAR), to minimise the burden of dual authorisation for firms. The distinctions summarised below should be applied in the exercise of national EEA payment authorities' supervision and enforcement policies until 2 March 2026, and selective supervision of certain aspects thereafter, while waiting for legislative clarity when PSD2 is replaced in 2-3 years' time. This post summarises the relevant distinctions for information purposes. If you need legal advice, please contact me via Crowley Millar.

EMT-based PSD2 Payments

Specifically, the European Banking Authority (EBA) has opined that the following activities involving e-money tokens (EMTs) should be regarded as 'payment services' under PSD2: 

• the transfer of crypto assets as a payment service, where they entail EMTs and are carried out by the entities on behalf of their clients; 
• the custody and administration of EMTs. 

In addition, a custodial wallet should be regarded as a payment account under the PSD2 where the wallet is held in the name of one or more clients and allows the client(s) to send and receive EMTs to and from third parties.;

This is because Article 48(2) of MiCAR deems EMTs to be electronic money, so they come within the definition of ‘funds’ by virtue of Article 4(25) of PSD2. Article 70(4) of MiCAR then provides that CASPs who provide PSD2 payment services related to their crypto-asset services, may either do it themselves or partner with a PSD2 firm, provided that either is authorised to provide the respective payment services. But exactly which of the 8 payment PSD2 services applies is not quite clear.

Any firm undertaking these activities will need local authorisation under PSD2 from 1 March 2026, but even after that date, local regulators should not prioritise the supervision and enforcement of PSD2 provisions on safeguarding, disclosure of information on charges to consumers, the maximum execution time of payment transactions, unique identifiers (e.g. IBAN), or open banking (account information services and payment initiation services). Only the rules on strong customer authentication (two factor authentication) should apply (to custodial wallets and the initiation of EMT transfers), along with rules on fraud reporting and the cumulative calculation of 'own funds' (working capital) requirements.

EMT-based MiCAR Payments

Meanwhile, the EBA says that ‘exchange of crypto-assets for funds’ and ‘exchange of crypto-assets for other crypto-assets’ as defined in MiCAR should not be deemed PSD2 'payment services' by local authorities, nor where crypto-asset service providers (CASPs) intermediate the purchase of any crypto-assets with EMTs.

The EBA acknowledges that this advice "will result in a large number of EMT transactions not to be subject to the requirements of PSD2", but the aim is to minimise the burden of dual authorisation for CASPs.

This post summarises the relevant distinctions for information purposes. If you need legal advice, please contact me via Crowley Millar.