Introduction

The European Union’s (“EU”) Markets in Crypto-Assets Regulation (“MiCA”) introduces stringent reverse solicitation requirements¹ that challenge cross-border financial services models.  While designed to safeguard investors, MiCA’s approach raises questions about the continued viability of a centralized hub operating model for financial institutions. Financial centers like Singapore, London, and New York have thrived by allowing institutions to service clients across multiple jurisdictions from a single regulated entity—a model now at risk by territorial regulatory fragmentation. This article examines MiCA’s reverse solicitation framework and its potential to reshape how financial institutions structure their global operations.

Understanding MiCA’s Regulatory Framework and Reverse Solicitation Provisions

Adopted in April 2023, MiCA creates a standardized regulatory framework across EU member states for crypto-asset issuers and service providers. The regulation establishes disclosure requirements and operational standards while addressing consumer protection, market integrity, and financial stability.  The rigorous provisions are somewhat driven by the fact that the regulation of digital asset service providers operate is still evolving and some VASPS do not operate under robust regulatory supervision.  By narrowly defining reverse solicitation, MiCA aims to prevent unregulated or lightly regulated crypto-asset service providers from accessing EU markets without proper oversight.

Under Article 61 of MiCA, a crypto-asset service is considered provided at the client’s initiative only when the client seeks out the service entirely independently, without prior direct or indirect solicitation. MiCA defines solicitation broadly, encompassing any promotion, advertisement, or offer of crypto-asset services to EU clients or prospective clients through any means. This includes geo-targeted social media campaigns, influencer partnerships, sponsorship of EU-centric events, and invitations to product demonstrations or industry conferences.  Activities aimed at education or networking may still be deemed solicitation if they promote a brand or services.  The European Securities and Markets Authority (“ESMA”) published final guidelines in December 2024 (the “Final Guidelines”) that establish a notably strict interpretation of reverse solicitation with several significant restrictions:

• Brand advertising may be seen as solicitation.
• The provider can only offer products of the same type as those initially requested by the client and only ‘in the context of the original transaction,’ imposing a strict time limitation.
• Third-country firms may not market further crypto-asset transactions or similar crypto-assets to the client a month later.
• The exemption for reverse solicitation cannot be artificially created through contractual terms, disclaimers, or pre-completed templates like reverse solicitation letters. The client’s initiative must be expressed and explicit, and third-country firms cannot use such documents to override the factual nature of client initiation.
  • For example, a client-initiated request for Bitcoin trading in January would not permit a provider to offer Ethereum services in February, even if the client explicitly asks—a restriction absent in traditional finance frameworks like MiFID II
• Firms must maintain comprehensive evidence of client initiation, imposing substantial record-keeping requirements. Firms authorized under MiCA are prohibited from redirecting clients (for instance, via their website) to crypto-asset services provided by a third-country firm, regardless of whether that third-country firm is part of the same group or not.

ESMA recognizes that firms outside the EU (third-country firms) may unintentionally solicit EU clients, even if they are not specifically targeting them. To comply with MiCA’s strict rules, ESMA recommends these firms take protective steps such as refusing new EU client accounts or using geo-blocking to prevent EU-based clients from accessing their services.²

Regulatory Approaches: MiCA vs Traditional Frameworks

Financial regulation traditionally distinguishes between actively soliciting clients in foreign jurisdictions and passively responding to unsolicited inquiries. This distinction reflects fundamental principles of territorial jurisdiction and regulatory proportionality. When a firm actively markets to clients in a foreign jurisdiction, it deliberately enters that market and should reasonably expect to comply with local regulations. Conversely, when a client independently seeks services from a foreign provider, requiring the provider to obtain full authorization in the client’s jurisdiction can impose disproportionate regulatory burdens.

Instead, MiCA’s approach to reverse solicitation departs significantly from established frameworks like the Markets in Financial Instruments Directive II (“MiFID II“), which governs EU securities markets. Unlike MiCA, MiFID II permits ongoing engagement with professional clients post-initial contact and allows cross-selling of related services. For instance, a MiFID II-authorized firm could legally offer derivative products linked to a client’s prior equity transaction—a flexibility prohibited under MiCA’s strict ‘same type’ and time-limited transaction rules.

This shift in regulatory philosophy imposes stricter rules on digital asset service providers compared to traditional financial service providers and raises questions about the proportionality of applying different standards to crypto assets, particularly for sophisticated investors and institutions that typically require less consumer protection. 

Practical Considerations

What Constitutes Solicitation?

The Final Guidelines specify activities that are likely to constitute solicitation, clarifying regulatory expectations. According to the Final Guidelines, solicitation includes using region-specific search engine optimization, geo-targeted digital advertisements, maintaining websites in EU languages not customary in international finance, sponsoring EU-centric events, or responding to EU-based inquiries while marketing crypto-asset services.

The Final Guidelines also expand on third-party promotion, clarifying that any remuneration (monetary or non-monetary) strongly indicates a third party is acting on the firm’s behalf, though lack of remuneration doesn’t necessarily exclude such determination.

Challenges for Operating Models

Operating a global business from a single entity³ enables firms to concentrate expertise, compliance functions, risk management, and operational resources in a central location while efficiently serving clients across multiple jurisdictions. The model provides numerous advantages including economies of scale, consistent service delivery, efficient capital allocation, and access to specialized talent pools. Additionally, it consolidates governance through a single board of directors and creates financial efficiencies through reduced regulatory capital requirements via a single balance sheet, optimized liquidity management, lower administrative overhead, and supervision by a single regulator.

International Business Impact

Beyond immediate operational restructuring, the secondary effects of widespread adoption of MiCA-like reverse solicitation restrictions could transform global financial markets. Market fragmentation could substantially reduce liquidity as trading volumes become siloed within national boundaries, leading to wider bid-ask spreads and increased price volatility across crypto-asset markets.

While MiCA does not explicitly prohibit centralized order books, it requires appropriate safeguards to be in place for such setups. This suggests a potential middle ground approach that balances the benefits of liquidity concentration with regulatory oversight. However, the regulatory landscape varies significantly across jurisdictions. For instance, crypto exchanges operating under the Seychelles or Bahamas regulatory frameworks may face less stringent controls, particularly regarding the prevention of market abuse.

Capital formation could suffer as investors face limited access to international investment opportunities, while issuers encounter fragmented capital pools requiring multiple jurisdiction-specific offerings. The innovation ecosystem could experience significant disruption as resources shift from product development to regulatory compliance, with emerging financial technologies disproportionately impacted by the inability to scale across borders efficiently.

For financial stability, the unintended consequence could be increased rather than decreased systemic risk, as regulatory visibility becomes fragmented among national supervisors lacking holistic views of global market interconnections. Small and medium-sized enterprises could face particularly severe consequences, with reduced access to specialized financial services as international providers limit operations to high-profit markets. These cascading secondary effects could reshape global finance to a collection of national services optimized for regulatory compliance rather than economic outcomes.

Singapore as a Case Study

Singapore exemplifies how regulatory fragmentation could impact established financial hubs. As a leading financial center with a pragmatic regulatory framework under the Monetary Authority of Singapore (the “MAS“), Singapore hosts a substantial ecosystem of digital asset firms serving global markets. The city-state’s success as a gateway for international capital while maintaining strong regulatory standards is precisely the balance that MiCA’s approach could disrupt.  Unlike MiCA’s restrictive approach, while Singapore has a prohibition against soliciting payment services without a license or exemption, we interpret the regulatory regime to allow for reverse solicitation. 

In addition, Singapore financial institutions would likely need to demonstrate adherence to MiCA’s reverse solicitation rules as part of their commitment to meeting the applicable “fit and proper” criteria, even if they have no direct nexus to the EU.  As part of Singapore’s robust regulatory environment, financial institutions are expected to demonstrate competence, honesty, integrity, and sound financial standing pursuant to the fit and proper criteria. Although not explicitly stated, we consider compliance with applicable foreign regulations to be part of demonstrating integrity and sound management practices.

Conclusion

We believe MiCA’s approach to reverse solicitation represents a significant departure from previously established regulatory norms that have facilitated efficiency in the global financial markets. This regulatory shift may transform operating models by effectively requiring financial institutions to establish local legal entities in any key customer market they wish to serve. While consumer protection remains a legitimate regulatory objective, disproportionately restrictive cross-border provisions risk fragmenting markets, increasing costs, and ultimately reducing client choice.

A more balanced regulatory approach might include tiered exemptions based on client sophistication, with broader reverse solicitation provisions for professional and institutional investors who require less protection. Regulators could also consider mutual recognition frameworks where jurisdictions with comparable regulatory standards agree to honor each other’s authorizations for specific client categories.

As financial institutions navigate this evolving regulatory landscape, professional guidance becomes increasingly valuable. HM specializes in helping organizations address these complex challenges through jurisdictional impact assessments, optimal operating structure design that balances compliance requirements with operational efficiency, and development of tailored reverse solicitation policies. The firm also offers MiCA compliance assistance via its partner Braithwate. With deep expertise in both traditional financial regulations and crypto-specific frameworks, HM provides strategic guidance on maintaining cross-border service capabilities while effectively managing regulatory risk in an increasingly fragmented landscape.

For further information, contact:

Chris Holland: Partner | chris.holland@hmstrategy.com

Disclaimer: The material in this post represents general information only and should not be relied upon as legal advice. Holland & Marie Pte. Ltd. is not a law firm and may not act as an advocate or solicitor for purposes of the Singapore Legal Profession Act.

¹ See Article 61.

² See Paragraph 16 of the Final Guidelines.

³ Branch structures represent a potential middle ground, allowing firms to maintain a single legal entity while establishing local presence. Unlike subsidiaries, branches operate under a single board of directors with consolidated financial reporting while maintaining a unified capital base and balance sheet. However, branch structures still subject the entity to supervision by multiple regulators, creating unique compliance challenges as the parent entity must simultaneously satisfy its home regulator and all host regulators where branches operate.