ESMA Pushes Crypto Regulation Moves Amid MiCA Emergence

The European Securities and Markets Authority (ESMA), the regulatory body supervising financial markets in the European Union, has reached a significant milestone in its efforts to usher in robust crypto regulation.

ESMA Establishes Regulatory Clarity and Standards

In its first Final Report under the Markets in Crypto-Assets Regulation (MiCA) initiative, ESMA outlines key rules aimed at bringing clarity, predictability, and investor protection to the growing crypto sector and enhancing compliance.

This report is a sequel to ESMA’s earlier publication of a Consultation Paper in July 2023, which sought input from stakeholders on proposed regulatory technical standards (RTSs) and implementing technical standards (ITSs). With the consultation period concluding on 20 September 2023, ESMA received feedback from a diverse range of stakeholders, informing its final decisions.

The European Union in 2022 first reached a tripartite agreement that involved the European Commission, the European Parliament, and the Council of the European Union to have a comprehensive crypto regulation through the Markets in Crypto Assets (MiCA) framework.

ESMA and its Crypto Regulations Target

The Final Report addresses several critical areas related to crypto-asset service providers (CASPs), with a focus on enhancing transparency, facilitating fair competition, and safeguarding investor interests. Some critical proposals include specifications on authorization requirements, notification procedures, assessment of acquisitions, and complaint handling.

On authorization requirements, the ESMA listed the information required for the authorization of CASPs, aiming to establish stringent criteria to ensure the credibility and reliability of service providers in the crypto space. It also mandates that financial entities intending to offer crypto-asset services are required to provide specific information as part of their notification process. This will enable regulatory oversight and compliance with established standards.

Standardizing Activities of Crypto-Asset Service Providers

The ESMA report exhaustively enumerates the information required for evaluating the acquisition of a qualifying holding in a CASP, emphasizing the need for thorough due diligence to mitigate potential risks and vulnerabilities. Meanwhile, for those with complaints, ESMA explains how CASPs should address and resolve complaints from investors to promote accountability and transparency in their operations.

ESMA maintains that all measures taken are targeted at creating a safer environment for investors while fostering innovation and competition within the crypto industry. 

By setting clear standards and expectations for CASPs, ESMA aims to instill confidence in market participants and promote the responsible growth of the crypto sector. Looking ahead, ESMA has submitted the Final Report to the European Commission (EC) for further consideration. Recall that the EU in stepping up its regulatory processes recently rendered cryptocurrency payments through unidentified self-custody wallets illegal across the continent.

Some countries including France have in the past favoured the enactment of stricter licensing requirements for new cryptocurrency businesses to improve consumer protection. This is to ensure service providers follow stringent regulations and prioritize customer funds.