How does investment advice on crypto assets work?
Advisory services on and portfolio management of crypto assets describe the offer or provision of personalized investment recommendations to clients. This also includes the agreement to make such recommendations at the request of the client or at the initiative of the advisory services provider, as well as the management of portfolios containing one or more crypto assets.
Advisory services on and portfolio management of crypto assets are based on classic investment advice on traditional securities. Providers of crypto asset services that advise on crypto assets or offer portfolio management of crypto assets form an interface between clients and the tradable range of crypto assets (e.g. Bitcoin ETPs) offered by financial institutions.
As part of the investment advisory process, the provider creates a client profile, assesses the clientโs suitability for crypto assets and the clientโs requirements, e.g. in terms of sustainability, and then makes a recommendation to the client. Following the advisory meeting and with the clientโs consent, the advisor places orders to buy or sell crypto assets on a crypto exchange.
In portfolio management, the portfolio manager makes investment decisions on behalf of the client. These decisions are based on the investorโs specific investment objectives and risk appetite, which are used to develop an investment strategy.
Clients must be fully informed about the cryptocurrencies and other digital assets being offered before they mandate portfolio management. In addition to information on risks, volatility and market conditions, it is also necessary to provide information on sustainability and technical aspects, such as explanations on how the DLT network and technical infrastructure work. Clients must also be provided with comprehensive information in the context of disclosure and transparency obligations under MiCAR. This includes providing information on costs and ancillary costs related to crypto asset services.
What are the regulatory requirements?
MiCAR (Markets in Crypto-Assets Regulation), the first pan-European regulation regarding crypto assets such as e-money tokens, value-referenced and non-value-referenced tokens, will apply from 2025.ย The requirements are similar to those of MiFIDย II. An appropriateness test is conducted to ensure that the clients possess the necessary knowledge of crypto assets and that these are consistent with their investment objectives, risk tolerance and financial circumstances.
The advisor must therefore determine whether the crypto-asset services or crypto assets are suitable or appropriate for the (potential) client. The client must be informed about potential risks, pricing and monetary policy, ESG issues and the avoidance and disclosure of conflicts of interest. All relevant information, such as the content of a crypto assetโs white paper, must be provided. Additionally, the client must be informed about the type of advisory service, ancillary costs incurred and payment options. They must also be made aware of the scope of the underlying analyses and risks, such as fluctuating performance, lack of liquidity and absence of deposit guarantee schemes.
Related digital asset services according to MiCAR:
