MiCA Annex IV · Class selection
Choosing CASP Class 1, 2, or 3: A Decision Guide for MiCA Applicants
The CASP class decision sits at the start of every MiCA application. Pick too low and the firm needs an extension authorisation as soon as the business model adds custody or a trading platform. Pick too high and the firm carries Class 3 capital and governance overhead that the operating model does not need. Either error is expensive.
A MiCA CASP class is the prudential and authorisation tier assigned under Annex IV of Regulation (EU) 2023/1114 to a crypto-asset service provider based on the highest-risk service it offers — Class 1 for advisory, order-routing, placement, portfolio management, and transfer services (€50,000 minimum capital); Class 2 adding custody and exchange of crypto-assets (€125,000); Class 3 adding operation of a trading platform for crypto-assets (€150,000).
Quick facts
| Parameter | Value |
|---|---|
| Class 1 services (€50,000 minimum capital) | Reception and transmission of orders, providing advice on crypto-assets, portfolio management, placing of crypto-assets, execution of orders on behalf of clients, providing transfer services for crypto-assets |
| Class 2 services (€125,000 minimum capital) | All Class 1 services PLUS custody and administration of crypto-assets on behalf of clients, exchange of crypto-assets for funds, exchange of crypto-assets for other crypto-assets |
| Class 3 services (€150,000 minimum capital) | All Class 2 services PLUS operation of a trading platform for crypto-assets |
| Class is set by | The single highest-risk service the CASP intends to offer (Annex IV); the firm carries the capital and governance for the highest tier even if the bulk of activity is at lower tiers |
| Ongoing capital | Higher of (a) class-specific minimum capital floor or (b) one-quarter of the previous year's fixed overheads (the own-funds requirement(b)) |
| Adding services post-authorisation | Requires a variation of authorisation if it shifts the firm into a higher class; supervisor reviews afresh against the higher tier's expectations |
How MiCA Annex IV actually classifies CASPs
MiCA Annex IV lists ten crypto-asset services and groups them into three nested tiers. The structure is not three independent buckets — Class 2 includes everything Class 1 covers, and Class 3 includes everything Class 2 covers. A CASP’s class is set by the single highest-risk service it intends to offer.
The ten services and their tier:
Class 1 — €50,000 minimum capital:
- Reception and transmission of orders for crypto-assets on behalf of clients
- Providing advice on crypto-assets
- Providing portfolio management on crypto-assets
- Placing of crypto-assets
- Execution of orders for crypto-assets on behalf of clients
- Providing transfer services for crypto-assets on behalf of clients
Class 2 — €125,000 minimum capital (adds three services): 7. Custody and administration of crypto-assets on behalf of clients 8. Exchange of crypto-assets for funds 9. Exchange of crypto-assets for other crypto-assets
Class 3 — €150,000 minimum capital (adds one service): 10. Operation of a trading platform for crypto-assets
The economic logic: Class 1 services involve client information and decision-making but no direct custody of client assets; Class 2 brings the firm onto the balance-sheet-risk side by introducing custody and the exchange function; Class 3 adds the systemic risk of running an organised market.
How does the class affect capital, governance, and substance?
The visible step-up between classes is the capital floor — €50,000 → €125,000 → €150,000. The floors are small relative to operating costs at any meaningful scale, and the on-going requirement (one-quarter of fixed overheads under the own-funds requirement(b)) typically dominates within the first year of operation.
The less-visible step-ups are governance and substance:
Class 1 → Class 2 (introducing custody):
- Insurance against custody-related liability risks (the own-funds requirement + Annex IV requirements)
- Operational rules for custody under MiCA Title V Chapter 3
- Segregation of client crypto-assets from firm assets
- Client asset reporting obligations
- DORA ICT-resilience expectations scale up due to custody-keeping technology dependency
Class 2 → Class 3 (adding trading-platform operation):
- Operating-rules document for the trading platform (MiCA’s trading-platform rule)
- Market-abuse monitoring under MiCA Title VI
- Pre- and post-trade transparency
- Order-execution policies and best-execution obligations
- Significantly stricter ICT-resilience expectations under DORA — trading-platform CASPs are typically treated as systemically more important by national supervisors
The capital differential between Class 2 and Class 3 (€25,000) materially understates the governance differential. A firm choosing between the two should weight governance discipline far above headline capital.
When does each class fit the business model?
Class 1 fits:
- Pure advisory or research businesses (Bloomberg-style crypto-asset analytics)
- Order-introduction businesses (introducing brokers routing flow to custody-operating CASPs)
- Portfolio managers managing client crypto-assets held at third-party custody
- Transfer-services-only providers (initiating on-chain transactions for clients without holding them)
- Pre-launch protocol teams placing tokens through MiCA-compliant placement workflows
Class 2 fits:
- Most retail and prosumer crypto exchanges (custody + exchange + execution)
- Custody-only providers (specialist institutional custody, MPC custody platforms)
- Hybrid wallet-and-exchange consumer products
Class 3 fits:
- Multilateral matching exchanges (orderbook-based or RFQ trading platforms)
- Crypto-asset auction platforms
- Specialist DEX-front-end providers operating an organised matched-trading layer
The vast majority of commercially active CASPs end up at Class 2 — exchange or custody is part of the economic model. Class 1 fits a small set of specialised use cases. Class 3 fits the smaller set of firms whose core business is operating an organised market.
How does authorisation expansion work?
A CASP authorised at one class can later expand to a higher class — but the expansion is a variation of authorisation, not an automatic uplift. The supervisor reviews the firm against the new tier’s expectations afresh. Practically:
- Capital top-up to the new floor before the variation takes effect
- Governance package update to reflect the new tier’s discipline (e.g. custody operational rules when moving Class 1 → Class 2)
- Substance review — the supervisor may interview senior management on their understanding of the new services
- ICT resilience review under DORA, scaled to the new operations
Timelines for variations are typically shorter than fresh authorisations because much of the file is already on supervisory record, but they are not instant. Plan 2-4 months for a variation, varying by supervisor and complexity.
How to decide upfront
Three questions decide the class:
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Will the firm hold client crypto-assets at any point? If yes, Class 2 minimum. The custody scope extends to any arrangement where the firm controls the keys, even briefly between order execution and client-side wallet delivery.
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Will the firm operate any matched-trading or auction venue? If yes, Class 3. This includes orderbook exchanges, RFQ platforms, and any matching infrastructure where multiple buyers and sellers interact through the firm’s system.
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Will the firm only advise, route, or transfer without custody? If all three are yes, Class 1 may be the right choice — but verify the business model is genuinely custody-light and revenue can sustain at a Class 1 economic footprint.
The single most expensive mistake is launching at Class 1 with a hidden custody dependency that surfaces in operations within the first six months. The fix is a variation of authorisation — at fresh capital, fresh governance review, and a meaningful timeline. Authorise once at the right tier.
Working with counsel on the class decision
The diagnostic for counsel: ask how the firm’s typical Class 2 file differs from a Class 1 file at the same firm. Counsel that has processed both within the same applicant should be able to describe the marginal cost and timeline difference concretely. Counsel that gives a generic “we cover all classes” answer typically has not surfaced the operational decision points.
The firms in our index with relevant cross-class experience are listed below.
Pitfalls and nuances
1 Picking Class 1 to save capital, then needing custody
Several firms have launched at Class 1 with order-execution-only models, then discovered customer demand for custodied accounts. Adding custody requires upgrading to Class 2 — meaning fresh capital, fresh governance review, fresh substance demonstration. The path 'authorise small, scale up' is more expensive than 'authorise once at the right tier'.
2 Treating the class breakdown as additive rather than nested
Class 2 includes Class 1; Class 3 includes Class 2. Some founders read Annex IV as separate buckets and assume a Class 3 trading-platform firm needs only the Class 3 services. In fact a Class 3 firm can offer the full menu — order reception, advice, custody, exchange, trading platform — with the single Class 3 authorisation.
3 Underestimating the Class 3 governance step-up
The capital differential between Class 2 (€125,000) and Class 3 (€150,000) is small. The governance differential is large. Class 3 brings market-abuse-related obligations, trading-platform-specific operational rules, and stricter ICT-resilience expectations. Plan for the governance work, not just the capital.
4 Forgetting the fixed-overheads test
The €50K/€125K/€150K figures are floors, not ceilings. Firms with growing operating expenses see their ongoing capital requirement scale with their cost base under the own-funds requirement(b). A Class 1 firm with €1M annual fixed overheads carries €250K in ongoing capital — five times the headline Class 1 floor — until the firm shrinks the overhead base.
Frequently asked questions
What's the practical difference between Class 1 and Class 2?
Class 2 holds customer assets — it includes custody and the exchange of crypto-assets. Class 1 firms only transmit, advise, place, manage, execute, or transfer without custody. Capital jumps €50,000 → €125,000.
Why does operating a trading platform require Class 3?
Operating a multilateral trading venue for crypto-assets brings infrastructure-level systemic risk that custody alone does not. Annex IV places it in its own tier with the highest capital floor (€150,000) and the deepest governance expectations.
Can a firm authorised at Class 2 add a trading platform without re-authorisation?
No. Adding operation of a trading platform requires a variation of authorisation under MiCA, with the supervisor reviewing the firm against Class 3 expectations afresh — capital, governance, ICT resilience, market-abuse controls.
Does the ongoing capital scale with the firm's activity?
Yes. The own-funds requirement(b) requires ongoing capital equal to the higher of the class minimum or one-quarter of the previous year's fixed overheads — capital scales with the cost base.
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Get a firm shortlist →Sources cited
- Regulation (EU) 2023/1114 (MiCA), Annex IV and Article 67 — regulation
- Article 67 — Prudential requirements (mica.wtf interactive text) — official document
- ESMA — Markets in Crypto-Assets Regulation (MiCA) — regulator