Crypto lending rarely fits inside one regulatory box. A platform may hold a client’s tokens, recommend a lending program, transfer collateral to a protocol, and liquidate positions using oracle prices. Each step can carry a different legal and operational classification.
That issue moved into sharper focus when the European Securities and Markets Authority published new MiCA questions and answers on July 10, 2026. The guidance addressed crypto-asset lending and the perimeter of advice under MiCA compared with MiFID II. ESMA’s approach looks beyond the product label to the substance of the service, the client relationship, and the rights created by each transaction.
Lending Can Sit Outside MiCA While the Provider Remains Inside
MiCA does not directly regulate the lending and borrowing of crypto-assets. ESMA’s crypto-lending Q&A confirms that a crypto-asset service provider, or CASP, may offer lending, but the product does not become a regulated MiCA service merely because an authorized CASP provides it.
A CASP still remains subject to MiCA’s general duties when it places an unregulated lending product beside regulated custody, exchange, transfer, or advisory services. Communications must be fair, clear, and not misleading. The provider should not imply that lending carries the same protections as its regulated services.
Assets used in a lending program may fall outside MiCA’s safeguarding arrangements. Depending on the contract, a client may move from having crypto-assets held in custody to holding a repayment claim against a borrower, intermediary, or protocol. The interface may look unchanged while the legal exposure changes substantially.
Advice Under MiCA Can Begin Earlier Than Expected
ESMA’s Q&A on the advice perimeter states that MiCA reaches more broadly than investment advice under MiFID II. MiCA covers personalized recommendations concerning either transactions in crypto-assets or the use of crypto-asset services.
A firm does not need to recommend a particular token transaction for an interaction to become advice. A personalized recommendation that a client use a lending, custody, or transfer service may fall within the perimeter, depending on its presentation and the client information considered. A generic reference available equally to all users is less likely to qualify.
Marketing funnels, onboarding questionnaires, relationship-manager scripts, and automated prompts all require review. A platform may believe it is providing introductory information while its personalization logic is effectively identifying a service as suitable for a particular user. This is a core part of institutional digital asset readiness.
Token Classification Changes the Rulebook
The perimeter becomes more complicated when tokenization produces an instrument that qualifies as a financial instrument under EU law. MiCA generally covers crypto-assets not already governed by other EU financial-services legislation. If a token is a transferable security or another MiFID II financial instrument, MiFID II may govern the advisory activity instead.
MiFID II advice can trigger suitability assessments, statements explaining why recommendations fit clients, product-governance controls, conflicts management, and recordkeeping. ESMA’s MiFID II suitability guidance details the information and controls expected when firms provide investment advice or portfolio management. MiCA also imposes suitability requirements for advice and portfolio management of crypto-assets, but the starting perimeter is not identical.
One product can therefore move across frameworks. Lending a non-security crypto-asset may sit outside MiCA’s service list. Recommending that service may constitute MiCA advice. Structuring the exposure through a tokenized note or fund interest may bring MiFID II or the Alternative Investment Fund Managers Directive into view.
Kenson Investments’ Digital Assets for Retirement Planning makes a related educational point: the label “digital asset” does not describe the legal rights, custody structure, or controls surrounding an instrument. Those details become more important when lending and tokenized securities overlap.
Custody and Lending Require Different Disclosures
A custody relationship centers on safekeeping, segregation, position records, access controls, and the return of client assets. Lending introduces counterparty exposure, collateral shortfall risk, maturity terms, rehypothecation concerns, and possible withdrawal restrictions.
ESMA says the use of client crypto-assets for lending requires prior, express, and specific consent under clearly defined terms. Consent hidden in general terms and conditions is not sufficient. It also states that revenues generated from lending should accrue to the client bearing the risks, apart from a fair and proportionate fee reflecting operational costs.
For digital asset custody architecture, systems must track state changes. Records should show when an asset is in segregated custody, when it has been committed to lending, which entity or protocol controls it, and what rights the client retains. Private key management alone cannot answer those questions.
Collateral Design Becomes a Compliance Control
Crypto lending controls cannot stop at an initial loan-to-value ratio. Collateral can move rapidly, while liquidity fragmentation, slippage, and cross-chain exposure may complicate liquidation. An oracle can publish an accurate price even when the market lacks enough depth to close a position near that value.
ESMA expects CASPs to assess collateral and the robustness of lending arrangements, including decentralized protocols. Controls should cover eligible collateral, valuation sources, margin thresholds, liquidation sequencing, concentration limits, stablecoin reserves, and contingency actions during network disruption.
Institutional smart contract governance also matters. Firms need to know who can change collateral factors, pause liquidations, or update oracle sources. Procedures are also needed for interoperability failures and delayed blockchain settlement finality. These decisions become digital asset internal controls because they determine how exposure is managed under stress.
The joint EBA and ESMA review of crypto lending, borrowing, and staking previously identified information asymmetries, leverage, rehypothecation, collateral chains, and interconnectedness as material risks.
Product Design Should Start With a Regulatory Map
A workable compliance workflow begins by separating a product into functions. Firms should identify the asset classification, regulated and unregulated services, custody transitions, advisory touchpoints, counterparties, collateral mechanics, and jurisdictions involved. The analysis should follow the client journey rather than the app menu.
This is where digital asset consulting for compliance and blockchain and digital asset consulting can support internal education. The useful output is a service-by-service map showing which permissions, disclosures, suitability processes, custody controls, and contractual protections apply at each stage.
That map also exposes digital asset operational risk before launch. A legally structured product can still fail if systems cannot separate custody balances from lent balances, preserve evidence of consent, monitor collateral across protocols, or explain counterparty failure.
Build a More Precise View of Digital-Asset Services
ESMA’s July Q&As do not place every crypto-lending model inside MiCA. They show why the perimeter must be tested at several points: what the token represents, what the provider does, how the service is recommended, where client assets move, and which protections remain in force.
Kenson Investments develops educational resources that help institutions and informed market participants examine these distinctions with greater precision. Contact Kenson Investments to strengthen your understanding of the custody, compliance, and market-structure questions shaping digital-asset services.
Disclaimer: The information provided on this page is for educational and informational purposes only and should not be construed as financial advice. Crypto currency assets involve inherent risks, and past performance is not indicative of future results. Always conduct thorough research and consult with a qualified financial advisor before making investment decisions.
“The crypto currency and digital asset space is an emerging asset class that has not yet been regulated by the SEC and US Federal Government. None of the information provided by Kenson LLC should be considered as financial investment advice. Please consult your Registered Financial Advisor for guidance. Kenson LLC does not offer any products regulated by the SEC including, equities, registered securities, ETFs, stocks, bonds, or equivalents”
