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The following is a guest post by Mark Gofaizen, Senior Partner at Gofaizen & Sherle.
As the MiCA regulation that will reshape the crypto industry approaches, crypto companies need to ensure compliance for a smooth transition.
Crypto-asset market regulation (MiCA), which represents an important step by the European Union (EU) towards regulating the crypto-asset market, is one of the hot topics of 2024. MiCA seeks to infuse the market with clarity and security, addressing the needs of crypto-asset service providers (CASPs) and issuers while safeguarding investors.
For companies operating in the crypto space, MiCA clearly calls for changes to their processes in order to adapt to the new regulatory environment. Covering topics ranging from operational flexibility to consumer protection, MiCA ensures that the crypto asset market is sustainable and compliant with wider financial market regulations.
Industry stakeholders and companies need support and guidance during this transition period. This article will cover how MiCA can impact companies, focusing on processes that need attention, potential cost increases, and staffing needs.
Core Requirements Under MiCA
The crypto industry is on the verge of a regulatory evolution, with the draft Regulatory Technical Standards (RTS) outlined by the European Securities and Markets Authority (ESMA). These forthcoming standards, anticipated to be presented to the European Commission by June 30, 2024, are crucial for CASPs aiming to secure a MiCA license.
Essential aspects of MiCA include:
- Anti-Money Laundering (AML): CASPs must adhere to a comprehensive suite of laws and procedures to prevent the disguise of illicit funds as legitimate.
- Combating the Financing of Terrorism (CFT): Crypto-asset service providers are responsible for measures to prevent the flow of funds to terrorist organizations.
- Authorized Capital: CASPs are required to define the maximum capital they can issue, as stated in their charter.
- Customer Due Diligence (CDD): Crypto-asset service providers must verify customer identities and assess transactional risks.
- Suspicious Transaction Reporting (STR): CASPs must have procedures for detecting and reporting suspicious transactions to competent authorities.
- Cooperation and Information Sharing: Cooperating with competent authorities and sharing necessary information is another obligation for CASPs.
These foundational requirements align CASPs with broader fiscal and regulatory expectations, tailoring to their unique operational frameworks.
Aligning with Wider Financial Regulations
MiCA’s introduction necessitates comprehensive adjustments across CASP operations, underscoring the necessity for a holistic strategy to foster a transparent, secure, and consumer-centric crypto market in sync with broader financial regulations.
Key business process areas for review include:
Personnel Training and Recruitment
To comply with MiCA, companies need to create a team specializing in regulatory compliance specific to financial services or crypto assets. Acquiring risk management experts and legal advisors is crucial to tackling the complexities of MiCA. These professionals will be instrumental in identifying, assessing, and mitigating risks and ensuring all company operations fully comply with the new regulation.
CASPs should have at least one person from senior management (director) located in the country of establishment and organize activity through the place of business in the EU.
Collection and Use of Personal Data
MiCA mandates the protection of consumer information and the segregation of customer assets. Companies must ensure compliance with privacy and data protection by developing secure systems for collecting and using personal data. Additionally, the regulation requires implementing customer separation systems to protect customer assets, a measure aimed at improving consumer protection in the crypto market.
Reporting and Accounting
Companies must improve their reporting and accounting practices to meet MiCA’s transparency and accountability standards. These standards include accurately reporting financial transactions and keeping company records compliant with regulatory requirements.
Advisory Services for Crypto Assets Users
MiCA significantly emphasizes the quality of advisory services provided to crypto asset users. Companies offering advisory services must ensure that advice is personalized, transparent, fair, and not misleading, considering the client’s personal circumstances, investment objectives, and risk appetite.
Crypto Exchange Services and Related Policies
For companies providing crypto exchange services, MiCA seeks to ensure fair and orderly trading, set rules for order execution, and provide clear information on the exchange of crypto assets. The regulation aims to improve the integrity and stability of crypto exchange services by promoting a safer trading environment for consumers.
MiCA: An Opportunity, Not a Challenge
The launch of MiCA is a milestone for the cryptoasset market in the European Union and sets a precedent for regulatory frameworks worldwide. As we approach a new era of compliance and regulation, companies in the crypto sector are being given a transition period until June 2025. With the proposed changes being submitted to institutions for coordination and feedback by March 28, the regulatory changes are expected to create a more secure and reliable crypto environment.
As companies seek to comply with regulations, focusing on strategic planning, investing in compliance infrastructure, and developing a knowledgeable compliance team becomes extremely important. Embracing MiCA not just as a compliance challenge but as an opportunity to increase operational integrity and consumer trust can position companies for success in the increasingly regulated global crypto market.