When “Exchange” is not exchange: ESMA’s test for classifying CASP order flows under MiCA

Under Markets in Crypto-Assets Regulation (hereinafter – “MiCA”), service classification often turns on practical details that are easy to overlook. A crypto-asset service provider (hereinafter – “CASP”) may describe its offering as “exchange”, while the actual order flow shows agency-style execution or pure order routing to a third party. ESMA’s recent guidance makes this point particularly clear, and in 2026, it is becoming a common issue in authorisation reviews and supervisory conversations.

At Manimama Law Firm, we help CASPs map their order flows against MiCA’s service definitions and European Securities and Markets Authority (hereinafter – “ESMA”) Q&A, then align the authorisation scope and client documentation with how the model really works. In practice, this reduces licensing friction, avoids mismatched conduct obligations, and gives both regulators and clients a clearer picture of what the CASP is actually doing.

The regulatory starting point: labels do not control the outcome

In ESMA Q&A 2653, ESMA states that service classification must reflect operational reality. National Competent Authorities (hereinafter – “NCAs”) should focus on the order fulfilment flow and examine whether the CASP acts as:

a counterparty to the client,
an agent concluding agreements on behalf of the client, or
An intermediary routes orders to third parties that enter into agreements on behalf of clients.

This is a substance-over-form test applied to service qualification, and it is directly relevant for authorisation strategy and supervisory dialogue.

Execution: when the CASP behaves like a broker

MiCA defines execution as the conclusion of purchase/sale agreements on behalf of clients.

ESMA then anchors this to a practical criterion: execution occurs when the CASP acts as the client’s agent and concludes the purchase/sale contract on the client’s behalf. This includes execution through a crypto-asset trading platform.

From a supervisory perspective, the logic is familiar from Markets in Financial Instruments Directive II (hereinafter – “MiFID II”): where a firm participates in fulfilling the order and assumes responsibility for the outcome, it is “executing,” not merely facilitating. ESMA’s MiFID II work on order execution policies illustrates why regulators care. Weak documentation, unclear venue selection, and generic execution disclosures are repeatedly identified as shortcomings.

Reception and transmission of orders: when the CASP is only a router

Reception and transmission of orders for crypto-assets on behalf of clients under MiCA is narrower in scope. It is the reception of an order and its transmission to a third party for execution.

ESMA confirms that where a CASP merely transmits the order, and the third party concludes the contract (or further transmits), the CASP is providing reception and transmission of orders.

In other words, the CASP stays out of execution. It does not become a contracting party and does not intervene in the mechanics of fulfilment.

Exchange: the firm-price model using proprietary capital

Exchange is defined as concluding purchase/sale contracts with clients using proprietary capital, including exchanges for funds and exchanges for other crypto-assets.

ESMA highlights the operational consequences of this classification through Article 77 MiCA. An exchange CASP must maintain a non-discriminatory commercial policy, publish a firm price (or pricing method), and execute orders at the displayed price when the order becomes final.

This has a practical implication. A genuine “exchange” model looks like a firm-price service, where the client decides whether to accept the terms offered, rather than expecting the CASP to seek the best market outcome.

The hard case: the CASP is a counterparty, but the service behaves like execution

A common misconception is that “being the counterparty” automatically means the CASP provides only exchange.

ESMA rejects that shortcut. It explicitly notes that counterparty status does not, by itself, determine service classification. Recital 87 MiCA recognises that best execution expectations can apply in execution scenarios even when the CASP acts as the client’s counterparty, depending on the service features and client expectations.

ESMA’s proposed client-centric lens is particularly useful: would a reasonable client expect the CASP to act as an agent/broker and seek the best result, or would it be clear that the CASP simply offers a firm price?

And where retail clients are involved, ESMA signals a conservative supervisory stance: in case of doubt, presume execution.

Corporate accounts on exchanges: the practical classification trigger

If a CASP uses its own corporate account on a trading platform to place the client’s order, the classification hinges on who is actually executing:

If the CASP routes the order to another executing entity, it appears to be an RTO.
If the CASP places and executes the order itself on the trading platform, ESMA’s guidance supports an “execution” qualification.

This distinction is not academic. It determines whether the CASP must build an execution policy framework and align internal controls with an “execution” service profile.

Practical takeaways for CASPs

Map your order flow first, label services second. NCAs will do the same.
Execution is about agency and responsibility for outcome. If you are effectively “getting the trade done,” you are closer to execution than to RTO.
RTO is narrow. The moment you stop “routing” and start “executing,” your perimeter changes.
Exchange requires proprietary capital and a firm-price logic. Article 77 MiCA obligations are a strong indicator of what regulators expect an exchange model to look like.
Retail clients drive conservative outcomes. If your disclosures and client experience look like those of a brokerage, do not assume you can position the service as a simple exchange.

As conclusion

Under MiCA, service classification falls within the regulatory perimeter and will be tested during authorisation reviews and supervisory discussions. NCAs will look past contractual labels and marketing language and focus on what actually happens in the order flow. If a model that functions as execution or order routing is presented as “exchange”, the result is often the wrong authorisation scope and the wrong set of conduct obligations.

This matters not only for licensing strategy, but also for how a CASP designs its product and client experience. The way a CASP explains its role to clients, structures its order handling, and allocates responsibilities across third parties will shape both supervisory outcomes and client trust. Firms that treat classification as a box-ticking step tend to discover issues late, when changes are expensive. Firms that map and align the model early can build a clearer regulatory narrative and avoid unnecessary friction.

At Manimama Law Firm, we help CASPs do exactly that. We translate real operational flows into the correct MiCA service perimeter, align the authorisation scope and client documentation, and structure execution and routing arrangements in a way that is credible for regulators and clear for clients. Because under MiCA, the right classification is not about wording. It is about running a model that can withstand supervision.

At Manimama Law Firm

At Manimama Law Firm, we help businesses adapt to new regulations. We handle documentation, manage applications, and build long-term compliance strategies for crypto companies.