The concept of ‘reverse solicitation’ marks the outer limit of the circumstances under which non-EU market participants can operate cross-border into the EU without requiring a licence. As the provision of regulated services without such a licence is regularly subject to severe sanctions, it is crucial not to exceed these limits. At the same time, law and supervisory practice draw this line very much on a case-by-case basis, which makes it difficult to make generalised statements.
In essence, the concept of ‘reverse solicitation’ means that a non-EU firm does not require a license if an EU client initiates at its own exclusive initiative the provision of a regulated service from such non-EU firm. In this form, ‘reverse solicitation’ is laid down in, for instance, Article 61 MiCAR and Article 42 MIFID II.
Given its fact-dependency and importance, each publication by regulatory authorities on ‘reverse solicitation’ is highly scrutinised by market participants in search for additional guidance. This was demonstrated by the publication of a consultation document on ‘reverse solicitation’ under the Markets in Crypto-Assets Regulation (MiCAR) by ESMA in January 2024 (see also our blogpost), which sparked debates and raised questions in the crypto industry, but also in the traditional financial sector. On 17 December 2024, ESMA published its final report on the guidelines on reverse solicitation under MICAR (the RS Guidelines).
This blogpost provides an overview on the key changes and clarifications provided by ESMA in the RS Guidelines:
Means of and examples for solicitation
ESMA re-emphasises that the concept of solicitation should be technology-neutral (despite the fact that most solicitation will, in fact, take place online) and lists various means of solicitation (face-to-face meetings, emails, social media platforms, sponsorship deals, etc.). For the first time, ESMA also lists illustrative examples of circumstances that are likely be regarded as soliciting clients.
These examples include using:
- regional or country-specific search engine optimization (SEO- strategies);
- geo-targeting strategies for running digital ads;
- websites with EU domains or in official EU languages (other than English); or
- push notifications in apps that encourage users to purchase crypto-assets (even if of the same type as previously requested crypto-assets).
According to ESMA, marketing and offers of a general nature (such as brand advertisements with a broad and large public reach) are sufficient to constitute solicitation that prevent reliance on reverse solicitation. This also brings sponsorship deals within the remit of ‘reverse solicitation’. According to ESMA, sponsoring an EU- or Member State-centric sporting event such as a national championship, or a European championship is likely “solicitation”. Even sponsoring international sporting competitions, in which Member States national teams or EU athletes may also be entering should be considered soliciting clients in the EU. Accordingly, ESMA recommends non-EU firms to geoblock access to their websites for EU IP addresses or not make available the app in mobile app stores for EU jurisdictions to avoid that clients obtain regulated services from non-EU firm in response to such solicitation through sponsorship.
Educational materials and industry events
ESMA recognises the need for pure educational materials and industry events. The aim of the RS Guidelines is not to prevent such activities. However, ESMA also stresses that such activities should not be used as a covert way of soliciting, advertising or promoting to clients in the EU.
Use of non-EU execution venues
ESMA reiterates that non-EU execution venues on which EU-authorised brokers of crypto-assets are looking for liquidity (therefore routing orders to or executing orders on such venues) may be in breach of MiCAR if these trading venues are considered to be proactively offering their services as a trading venue to clients in the EU. ESMA makes express reference to its opinion in which it encouraged NCAs to carefully scrutinise situations where a EU authorised broker systematically routes orders to or executes orders on or conducts riskless back-to-back transactions on a group-internal non-EU execution venue
Promotion through third parties
Already under MiFID II, ESMA had clarified that also prior solicitation through third parties acting on behalf of a non-EU firm could prevent reliance on reverse solicitation. At least in the context of MiCAR, ESMA notes that there does not need to be a formal contract or remuneration in place between the non-EU firm and the third party in order for the later to be acting “on behalf of”. This also applies where an influencer advertises the services of a non-EU firm, although a remunerated contract is a strong indicator for acting “on behalf of”.
Marketing of new types of crypto-assets or services
ESMA confirmed that once a business relationship has been established on the basis of ‘reverse solicitation’, a non-EU firm can market to that client crypto-assets and services of the same type as the one previously requested by that client. It is the non-EU firm’s responsibility to determine whether this is the case, taking into account the category of the crypto-asset or service and the associated risks. Unlike under MiFID II, ESMA has not provided a list of crypto-assets or services of the same type.
ESMA also notes that once some time (without specifying this further) after the initial request from a client has elapsed, one cannot argue that the contact is still maintained at the own exclusive initiative of the client. This time limit only applies to the marketing of crypto-assets or services of the same types and not to ongoing relationships established on the basis of ‘reverse solicitation’ in general.
Impact on ‘reverse solicitation’ under MiFID II and beyond?
One key concern for market participants following the publication of the consultation has been that ESMA’s strict views on ‘reverse solicitation’ under MiCAR might permeate into the provision of investment services under MiFID II.
ESMA responds to this concern by stating, on the one hand, that the RS Guidelines focus “exclusively on providing guidance for the MiCAR reverse solicitation regime” but, on the other hand, that “reverse solicitation regimes under both frameworks adhere to the same overarching principles.” Accordingly, market participants will be confronted with the question which of ESMA’s statements is made specifically in relation to crypto-assets, and which is an expression of an overarching principle that applies mutatis mutandis to the provision of investment services pursuant to Article 42 MiFID II.
A key question for non-EU firms continues to be how the EBA will interpret ‘reverse solicitation’ in the context of Article 21c CRD VI, the wording of which largely mirrors that of Article 61 MiCAR and Article 42 MIFID II. Until such guidance will be issued (if at all), the RS Guidelines should also be understood to be sector-specific requirements without any impact on the provision of core banking services into the EU under Article 21c CRD VI.
Next Steps
The RS Guidelines will be translated into the official EU languages and published on the ESMA website. The publication of the translations will trigger a two-month period during which competent authorities must notify ESMA whether they comply or intend to comply with the RS Guidelines. The RS Guidelines will apply from three months after the publication of the translations. However, given that MiCAR will apply from 30 December 2024 onwards, they may already provide helpful provisional guidance during the interim.
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