EU Regulators Urge Scrutiny of Crypto Firms Seeking MiCA Authorization
The European Securities and Markets Authority (ESMA) has issued a new Opinion underscoring the significant risks posed by global crypto firms seeking partial authorization under the Markets in Crypto Assets (MiCA) regulation while conducting substantial operations offshore.
The Opinion highlights the complex organizational structures of many global crypto firms that use EU-authorized brokers to route orders to execution venues outside the EU. This practice, often involving offshore jurisdictions, is seen as undermining consumer protection and creating an uneven playing field that disadvantages EU-based execution venues.
To address these concerns, ESMA has called on National Competent Authorities (NCAs) within individual EU member states to rigorously scrutinize the business models of these global firms during the authorization process. ESMA’s Opinion emphasizes that execution venues for crypto-assets are crucial to the overall function of the crypto-asset ecosystem. It notes that while most crypto-asset conglomerates are expected to operate multilateral trading platforms outside the EU, some non-EU entities might internalize order flow, executing orders from EU clients on their own account. The goal is to ensure full compliance with MiCA regulations to protect consumers and maintain the integrity of the crypto industry.
Additionally, ESMA stresses the importance of a meticulous, case-by-case assessment for firms seeking MiCA authorization. Specific requirements outlined include ensuring best execution practices, effectively managing conflicts of interest, and upholding the duty to act in the best interests of clients. Firms must also adhere to stringent guidelines regarding the custody and administration of crypto-assets on behalf of their clients.
Alongside its Opinion, ESMA published a Final Report under the MiCA framework on July 3, presenting eight draft technical standards aimed at enhancing transparency and clarity for both retail investors and crypto-asset service providers (CASPs). These standards cover areas such as sustainability indicators, business continuity plans for CASPs, trade transparency, order book formats, record-keeping protocols, and the readability of white papers. Since the MiCA regulation took effect in June 2023, EU regulators have been diligent in enforcing the legislation’s key provisions while also working to clarify compliance challenges businesses might encounter.
