Recent developments in the EU’s crypto regulation, particularly France’s alleged intention to block passported CASPs authorised in other Member States and transfer supervision to ESMA, raise key questions about the Markets in Crypto Assets Regulation’s (MiCA) enforcement scope—particularly whether host Member States can lawfully prohibit firms with EU-wide authorisations under Article 102. This article analyses the strict proof requirements and practical challenges of implementing these standards, emphasising that prohibitions must be based on “clear and demonstrable grounds” supported by concrete evidence. Ensuring these measures are necessary, proportionate, and coordinated is crucial, especially given the jurisprudence demanding objective necessity. Clarifying the scope of Article 102 is essential to balance effective supervision with protecting service providers’ rights in the integrated EU crypto market. The constitutional relevance of this issue centres on whether a host Member State can restrict an EU-wide CASP authorisation under MiCA’s Article 102 without violating the fundamental EU right to the free movement of services. Furthermore, any such restriction must adhere to the Rule of Law, specifically the principles of necessity, proportionality, and legal certainty, by requiring prohibitions to be based on clear, demonstrable, and objective evidence.

Conditions to Restrict Activities

Articles 94, 102, and 103 outline the supervisory framework within MiCA. Article 94 lists the tools available to supervisors, while Article 102 governs precautionary measures that demand “clear and demonstrable grounds” of irregularities. Under Article 102, host authorities are required to notify the home regulator and ESMA (and the EBA where applicable) and can only prohibit or restrict activities if less restrictive remedies have first been considered and exhausted. Crucially, the standard mandates concrete evidence—mere suspicion is insufficient—to demonstrate misconduct, regulatory breaches, or threats to market integrity or client interests. Recitals support this approach, emphasizing that authorities should suspend or prohibit offerings not meeting MiCA’s requirements and that actions must be coordinated across borders. For instance, if a crypto-asset service provider (CASP) is suspected of misleading advertising—such as falsely claiming investments are “guaranteed safe”—the host authority must have documented evidence like misleading ads, complaints, or fake testimonials before acting. Therefore, restrictions must be evidence-led, coordinated, and reflect a precise process rather than broad enforcement tools.

Once the necessary evidence collected, the host authority’s initial step is to notify the home authority and relevant European authorities—ESMA and, where applicable, EBA—of its concerns. This communication ensures the coordinated supervision of cross-border crypto activities and provides the home authority the opportunity to address the issues internally. Should the irregularities persist despite efforts by the home authority, the host authority gains the right to take more restrictive measures. These include preventing the service provider from continuing activities within its jurisdiction, thus safeguarding investors and maintaining market stability. Crucially, these actions must be supported by tangible proof of ongoing irregularities and must adhere to the procedural safeguards outlined in the regulation and must be proportionate to the identified risks.

The Role of Evidence: Establishing ‘Clear and Demonstrable Grounds’

The phrase “clear and demonstrable grounds” is not defined in MiCA. Its meaning must be drawn from the wider acquis and from the jurisprudence of the Court. The closest analogue is found in Markets in Financial Instruments Directive II. Article 68 MiFID II allows a host authority to intervene against a branch only where breaches are established and the home authority has been informed (establishing that restrictions on the freedom of services must be based on concrete evidence of established wrongdoing, rather than mere suspicion, upholding due process and proportionality). Article 95 MiFID II provides for emergency measures, but only where the functioning of financial markets is threatened or the protection of investors is jeopardised (setting an exceptionally high threshold—the threat to a recognised public interest objective—for national action that severely restricts the Single Market ‘passport’, reinforcing the necessity test).  In practice, host regulators invoking these provisions have been required to demonstrate concrete evidence rather than rely on broad prudential concerns. Article 102 MiCA inherits this logic and confines host intervention to necessity, evidence and proportionality[DB1] [CB2] .

The Court’s case law defines the standard more firmly. The most directly relevant precedent is Commission v Germany (Insurance), Case C-205/84, EUR-Lex. Germany prohibited foreign insurers from operating unless they established locally, arguing that physical presence was necessary for prudential supervision and consumer protection. The Court rejected this at paragraph 56, holding that Germany had not shown establishment was an “indispensable requirement.” This is the Article 102 test in embryo: a host state cannot bar passported financial services on the basis of supervisory convenience or prudential preference.

The same approach is visible in other sectors. In Säger v Dennemeyer, Case C-76/90, EUR-Lex, Germany blocked a UK patent renewal service unless it obtained a German licence. At paragraph 12 the Court ruled that restrictions on cross-border services are lawful only if they are objectively necessary and proportionate. In Gambelli, Case C-243/01, EUR-Lex, Italy criminalised the collection of bets for UK bookmakers. The Court held that such prohibitions constitute restrictions on Article 56 TFEU and can only be justified if they are suitable, necessary and consistently applied.

Together, these judgments establish the interpretive standard for MiCA Article 102. When the Regulation speaks of “clear and demonstrable grounds,” it means what these cases mean: the host state must prove that prohibition is indispensable and that coordination, remediation or targeted supervision would not suffice. This is consistent with the four-part test in Gebhard, Case C-55/94, EUR-Lex, which requires that restrictions on establishment or services be non-discriminatory, justified by imperative requirements, suitable for their objective, and not go beyond what is necessary. It is this last prong, necessity, where national prohibitions consistently fail. This line of case law reflects fundamental constitutional principles of the internal market, particularly the free movement of services under Article 56 TFEU.

Keeping with the example in the previous section, establishing clear and demonstrable grounds could include and require a collection of misleading advertisements, such as printed or digital promotional materials, screenshots of promotional messages, or social media posts that make these false claims. In addition, the host authority would be expected to carry out its own analysis against the product or service advertised to establish why this advertisement is misleading. Furthermore, records of customer complaints which have been investigated and decided in favour of the consumer raising concerns about being misled or defrauded are crucial. Known instances of fake testimonials or manipulated reviews can also serve as supporting evidence. Such evidence must be thorough enough to establish a pattern of misconduct—perhaps, for example, a series of similar false claims about the safety of tokens that mislead a significant number of consumers or financial damage to investors caused by the false promises.

This evidentiary burden ensures that restrictions are not arbitrarily imposed, balancing the need for enforcement with respect for the rights of service providers. It also aims to prevent abuse or misuse of enforcement powers, which could otherwise lead to legal challenges and undermine trust in the supervisory framework.

Procedural safeguards

Article 102 of MiCA establishes that the imposition of precautionary measures by a host authority must adhere to a structured procedural framework, emphasizing that such measures are not discretionary but subject to specific requirements. Nonetheless, their practical implementation presents significant challenges. The criterion of “clear and demonstrable grounds” necessitates the collection of sufficient, admissible evidence within limited timeframes amid dynamic circumstances, demanding considerable investigative capacity. Moreover, restrictions imposed must adhere to principles of proportionality, procedural fairness, and non-discrimination. Actions such as suspending a service provider’s operations must be commensurate with the severity of the irregularity; broad bans may often be disproportionate, whereas targeted measures addressing specific misconduct are more proportionate.

Procedural fairness mandates that affected service providers are entitled to a fair process—being informed of allegations, given an opportunity to respond, and ensuring decisions are based on reliable evidence. Non-discrimination further requires that measures are applied uniformly and without bias, avoiding arbitrary distinctions based on nationality, firm size, or political considerations. Ignoring these principles risks legal challenges asserting violations of fundamental rights or discriminatory treatment, thus compromising the legitimacy of enforcement actions.

Although MiCA does not explicitly enshrine a right of defense in Article 102, such rights are implied through Union law and the Charter of Fundamental Rights, notably Articles 41(2) and 47, which guarantee the right to be heard and effective remedies. The Court of Justice has affirmed these principles apply whenever EU law measures adversely affect individuals, and failure to observe them can lead to annulment proceedings either before national courts or EU courts under Articles 267 and 263 TFEU. Additionally, disputes involving conflicting jurisdiction between home and host authorities are addressed through binding dispute-settlement mechanisms outlined in Article 19 of the ESMA and EBA Regulations. In the final analysis, The Rule of Law and due process are constitutionally guaranteed, including the of a CASP’s right to be heard and the right to an effective judicial remedy in the context of restrictions under Article 102, upholding the supremacy and uniformity of EU law.

Conclusion: A Critical Balance Between Enforcement and Rights

The application of Article 102 of the MiCA regulation is instrumental in protecting consumers amid the EU’s evolving digital asset landscape. Nonetheless, the regulation’s evidentiary standards, and procedural safeguards pose considerable practical and legal challenges for supervisory authorities. Ensuring that restrictions are both justified and proportionate necessitates meticulous assessment, comprehensive evidence gathering, and strict adherence to principles of fairness and non-discrimination. Authority actions cannot be predicated solely on suspicion or political considerations; rather, prohibitions must be demonstrably indispensable, coordinated, and employed as a last resort.

In light of these complexities, there is a pressing need for greater convergence in supervisory approaches. The development of shared guidelines or standards—potentially coordinated through ESMA—could foster a coherent, transparent, and predictable framework for applying Article 102. Such measures would aid in standardising the interpretation of “clear and demonstrable grounds” and associated evidence requirements, thereby enabling more consistent enforcement, minimizing legal uncertainties, and bolstering trust among regulators, service providers, and consumers. Ultimately, establishing targeted convergence mechanisms represents a critical step toward a more integrated and effective supervisory regime for cross-border crypto activities within the EU.

Christopher P Buttigieg is the Chief Officer Supervision of Malta Financial Services Authority and an Associate Professor of the University of Malta.

Ian Gauci is the Managing Partner of GTG Law Firm.