The following is a guest post from Mark Gofaizen, Senior Partner at Gofaizen & Sherle.
As MiCA regulations that will reform the crypto industry approach, crypto companies must ensure compliance for a smooth transition.
Regulation of the Crypto Asset Market (MiCA), an important step by the European Union (EU) towards regulating the crypto asset market, is one of the hot topics of 2024. MiCA aims to to provide clarity and security, meeting the needs of crypto asset service providers (CASPs) and issuers, while protecting investors.
For companies operating in the crypto space, MiCA is clearly calling for changes in their processes to adapt to the new regulations. MiCA addresses topics ranging from operational flexibility to consumer protection, ensuring the crypto asset market is sustainable and compliant with broader financial markets regulations.
Industry stakeholders and companies need support and guidance during this transition period. This article discusses how MiCA can impact businesses, focusing on processes that need attention, potential cost increases and staffing needs.
Core requirements under MiCA
The crypto industry is on the cusp of a regulatory evolution, with the draft Regulatory Technical Standards (RTS) set by the European Securities and Markets Authority (ESMA). These upcoming standards, which are expected to be presented to the European Commission by June 30, 2024, are critical for CASPs looking to secure a MiCA license.
Essential aspects of MiCA include:
- Anti-money laundering (AML): CASPs must adhere to a comprehensive set of laws and procedures to prevent illicit funds from being disguised 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 Survey (CDD): Crypto asset service providers must verify customer identities and assess transaction risks.
- Suspicious Transaction Reporting (STR): CASPs must have procedures in place to detect and report suspicious transactions to the competent authorities.
- Collaboration and information exchange: Cooperating with competent authorities and sharing necessary information is another obligation for CASPs.
These foundational requirements align CASPs with broader budget and regulatory expectations tailored to their unique operational frameworks.
Alignment with broader financial regulations
The introduction of MiCA will require extensive adjustments to CASP operations, underscoring the need for a holistic strategy to promote a transparent, secure and consumer-centric crypto market, in line with broader financial regulations.
Key business process areas to assess include:
Staff training and recruitment
To comply with MiCA, companies must assemble a team specialized in complying with regulations specific to financial services or crypto assets. Attracting risk management experts and legal advisors is critical to tackling the complexity of MiCA. These professionals will play an important role in identifying, assessing and mitigating risks and ensuring that all business activities are fully compliant with the new regulations.
CASPs must have at least one senior management person (director) based in the country of establishment and must organize their activities through the place of business in the EU.
Collection and Use of Personal Information
MiCA mandates the protection of consumer information and the separation of customer assets. Companies must ensure privacy and data protection compliance by developing secure systems for collecting and using personal data. Furthermore, regulations require the implementation of 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 maintaining business records that meet legal requirements.
Advisory services for crypto asset users
MiCA places significant emphasis on the quality of advisory services offered to crypto asset users. Companies offering advisory services must ensure that advice is personalised, transparent, fair and not misleading, taking into account the client’s personal circumstances, investment objectives and risk appetite.
Crypto Exchange Services and Related Policies
For companies offering crypto exchange services, MiCA seeks to ensure fair and orderly trading, establish rules for the execution of orders 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 crypto asset market in the European Union and sets a precedent for regulatory frameworks worldwide. As we move into a new era of compliance and regulation, companies in the crypto sector will have 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 provide a more secure and reliable crypto environment.
As companies try to comply with regulations, focusing on strategic planning, investing in compliance infrastructure and developing an expert compliance team becomes extremely important. Embracing MiCA not only as a compliance challenge, but also as an opportunity to increase operational integrity and consumer trust, can position companies for success in the increasingly regulated global crypto market.
