New Rules for Crypto-Asset Service Providers (CASPs) in Cyprus: Key Updates
The Cyprus Securities and Exchange Commission (CySEC) has made an important announcement regarding regulating Crypto-Asset Service Providers (CASPs). Here’s what you need to know:
- Transition to EU’s MiCA Regulation As of 30/12/2024, the European Union’s Markets in Crypto-Assets Regulation (MiCA) will come into full effect for CASPs. This regulation aims to create a clear framework across the EU for the operation of crypto-asset services, enhancing investor protection and market integrity.
- What Happens During the Transitional Period? CySEC has set a transitional period for CASPs already operating under current national rules. Suppose a CASP is registered before 30/12/2024. In that case, it can continue to offer services until 1/7/2026, or until it receives a decision on its application for authorization under MiCA, whichever comes first.
- No New Applications Under National Rules Starting from 17/10/2024, CySEC will no longer accept new applications for CASP registration under the existing national framework. All new applications will need to comply with the MiCA requirements once the regulation is fully in place.
- Preparation for MiCA Applications CySEC is awaiting the finalization of the Regulatory and Implementing Technical Standards (RTS and ITS) by the European Commission. Once these are released, CySEC will publish guidelines on how to apply for authorization under MiCA. In the meantime, interested parties can refer to draft technical standards by the European Securities and Markets Authority (ESMA) to get a head start on their preparations.
- Cross-Border Services For entities that are already providing crypto-asset services across the European Economic Area (EEA), the deadline to submit notifications to CySEC under the current rules is 30/10/2024. After this date, new cross-border service notifications will not be processed until MiCA is fully in effect.
These changes mark a significant shift in how crypto-asset services are regulated, aiming for more consistent rules across Europe. Entities currently offering these services should make sure they understand the new requirements and prepare for the transition to ensure compliance. For more details, you can refer to CySEC’s official announcement.
These updates represent a key step in aligning Cyprus’s crypto regulations with the broader EU framework, ensuring a smooth transition for CASPs and enhanced protection for users across the region.
In case you have any questions or need any assistance, please do not hesitate to contact us for further professional assistance.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
The EU’s Digital Operational Resilience Act 2022/2554 (DORA)
Financial regulators have long faced the challenge of ensuring stability in financial markets, especially given the growing reliance on third-party systems, technology, and platforms. The integration of cloud solutions has heightened these complexities, and the potential risk to financial markets increases if a technology provider experiences a cyber incident.
In today’s interconnected financial ecosystem, long chains of IT subcontractors can make it difficult for institutions to fully understand the vulnerabilities in their systems. This is further complicated when key functions are outsourced to entities without direct contractual ties to the financial institution.
The EU introduced the Digital Operational Resilience Act (DORA) with these issues in mind. DORA mandates that financial institutions identify ICT services supporting critical functions and strengthen their contractual protections. It became effective in January 2023, and affected financial entities and ICT providers have until January 2025 to ensure full compliance. After that, regulators will have the power to impose fines and require firms to remedy security vulnerabilities.
DORA has implications beyond the EU, as it also applies to non-EU companies providing ICT services to EU-based financial institutions.
Key stakeholders in the financial industry must prepare for compliance by aligning their contracts with the new standards, as non-compliance can result in severe penalties, including fines, sanctions for board members, reputational damage, and even criminal liability.
Key Dates:
- January 2023: DORA came into force.
- January 2024: Technical standards to be finalized.
- July 2024: Final set of standards published.
- January 2025: Full compliance required.
Who Will Be Affected?
DORA applies to a broad range of financial entities, such as banks, investment firms, and insurance companies, as well as certain ICT service providers who meet specific criteria outlined in the regulation. Some providers will be classified as critical, subjecting them to oversight by EU regulatory authorities.
ICT Services Defined:
ICT services encompass digital and data services provided via IT systems, including hardware, software, and support services. Critical providers are identified based on their impact on the stability and quality of financial services.
Impact and Compliance:
Financial institutions must ensure robust ICT risk management frameworks, incident reporting protocols, and resilience testing. Contracts with third-party ICT providers must meet DORA’s standards, including pre-contractual due diligence, monitoring service levels, and planning for termination or exit strategies.
While DORA applies to the EU, it has a similar counterpart in the UK, with regulations designed to align with global standards on operational resilience. Firms in both regions should ensure they meet impact tolerances for critical services by March 2025.
With the compliance deadline fast approaching, it is crucial for affected organizations to identify gaps in their processes, update their policies, and negotiate contracts that reflect the new requirements.
In case you have any questions or need any assistance, please do not hesitate to contact us for further professional assistance.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
EU Financial Services: Key points to watch for the rest of 2024
Last week, Maria Luís Albuquerque from Portugal was appointed as the new EU Commissioner for Financial Services and the Savings and Investment Union. With her appointment, alongside Mario Draghi’s report on European competitiveness, the EU is set to focus on significant developments in the financial services sector in the coming months.
Key priorities include scaling up sustainable finance, with a focus on transition finance and climate resilience. This aligns with the recommendations from the European Supervisory Authorities (ESAs) and the European Securities and Markets Authority (ESMA) to introduce a product categorization system for financial products with sustainability features. Additionally, digital finance will be a major theme, with a push for an open-access framework and the use of AI in financial services.
Other areas of focus include revitalizing securitization markets and addressing macroprudential concerns with non-bank financial institutions (NBFIs). Upcoming consultations, including one on securitization regulations and another on macroprudential policies for NBFIs, are expected to bring significant regulatory changes.
While work will continue by the Commission and the ESAs to prepare Level 2 and Level 3 measures under key financial services mandates over the coming months (in particular MiCA, DORA, the new AML/CFT package and the EU Banking Package), a number of Level 1 measures (directives and regulations) actioned during the term of the last Commission still need to be finalised.
Several important legislative proposals, such as EMIR 3.0, the ESG Ratings Regulation, and amendments to Solvency II, are expected to be published by the end of 2024. Additionally, trilogue negotiations on key regulations like Payment Services Directive 3 (PSD3) and the retail investment package are set to commence soon.
The move towards a T+1 settlement cycle and developments in short-term funding instruments, such as commercial paper, are also worth monitoring, though immediate changes are not expected.
This period marks a transformative time for EU financial services as the region aims to strengthen its competitive edge and regulatory framework.
In case you have any questions, please do not hesitate to contact us for further professional assistance.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
ASIC Wins Landmark Case Against Kraken Crypto Exchange Operator for Compliance Failures
In a landmark decision, the Australian Securities and Investments Commission (ASIC) successfully sued Bit Trade Pty Ltd, the operator of the Kraken cryptocurrency exchange in Australia, for failing to meet its design and distribution obligations under the Corporations Act 2001. This court ruling sends a clear message to the cryptocurrency industry about the importance of regulatory compliance and the need to protect consumers from potentially risky financial products.
A. Background of the Case
The case revolves around the “margin extension” product offered by Bit Trade Pty Ltd to Australian customers on the Kraken platform. This product, which allowed users to extend their margin for trading digital assets or national currencies, was offered without a proper target market determination—a requirement under Australian law since October 2021. By failing to comply with these design and distribution obligations (DDO), Bit Trade was found to have breached Section 994B(2) of the Corporations Act each time the product was made available.
B. Court’s Findings
Justice Nicholas of the Federal Court highlighted that the failure to establish a target market determination was a significant violation. Although Bit Trade argued that the obligations related to margin extensions did not constitute a “deferred debt” or a credit facility, the court ruled otherwise. It was determined that when margin extensions were provided in a national currency like US dollars, they indeed created a deferred debt, making the product a credit facility under the law.
The court further clarified that while digital assets might not be considered money, margin extensions involving national currencies fall under the definition of a financial product that requires a target market determination. As a result, the court concluded that Bit Trade had breached its obligations under the Corporations Act, and the company now faces potential financial penalties pending further court orders.
You can read the full Judgement here.
C. Implications for the Crypto Industry
This ruling is a wake-up call for all entities operating within the crypto space. ASIC Deputy Chair Sarah Court emphasized the importance of compliance with legal requirements to protect consumers. She stated, “Today’s outcome sends a salient reminder to the crypto industry about the importance of compliance with the design and distribution obligations.”
The decision underlines that financial products, including those involving digital assets, must be distributed appropriately to consumers who understand the risks involved. It also reaffirms ASIC’s commitment to scrutinizing the design and distribution of financial products in the crypto sector to ensure they meet regulatory standards.
D. What’s Next for Bit Trade and Kraken?
Following the court’s decision, ASIC and Bit Trade have been given seven days to agree on declarations and injunctions. ASIC has also indicated its intent to seek financial penalties against Bit Trade, with the details of these penalties to be determined at a later date.
For Kraken and its operator, Bit Trade, this ruling could lead to significant operational changes, especially regarding how they offer products to Australian customers. The company may need to reassess its product offerings and ensure full compliance with Australian financial regulations.
E. Conclusion
This case is a significant victory for ASIC and a crucial moment for the crypto industry in Australia. It highlights the importance of compliance with financial regulations and the need for transparent and responsible distribution of financial products. As the crypto market continues to evolve, regulatory bodies like ASIC will undoubtedly continue to play a pivotal role in shaping the future of the industry, ensuring it operates in a manner that is fair and safe for all participants.
In case you have any questions, please do not hesitate to contact us for further professional assistance.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
CySEC Policy Statement on the enhancement of the non-face-to-face customer onboarding process with electronic methods
In today’s fast-paced digital landscape, the need for efficient and secure customer onboarding processes has never been more critical. Recognizing this, the Cyprus Securities and Exchange Commission (CySEC) has introduced a groundbreaking Policy Statement (PS-01-2024), designed to revolutionize the way financial institutions onboard non-face-to-face (NFTF) customers.
A. A New Era for Remote Customer Onboarding
The new policy marks a significant step forward in integrating electronic methods and technologies within the customer due diligence (CDD) process. CySEC’s policy is built on the principle of technological neutrality, giving financial institutions the flexibility to choose the most appropriate Remote Customer Onboarding Solutions (RCOS) that suit their operational needs.
This policy is not just a regulatory update; it is a roadmap for the future of digital finance in Cyprus. It aligns with the European Banking Authority (EBA) Guidelines and leverages lessons learned during the COVID-19 pandemic, ensuring that the financial industry remains robust, secure, and resilient in the face of evolving challenges.
B. Key Highlights of the Policy
- Technological Neutrality: CySEC encourages the use of diverse RCOS, whether through video calls, dynamic selfies, or other innovative technologies. The policy does not favor any specific technology, allowing businesses to adapt and innovate as they see fit.
- Mandatory Risk Assessments: Before implementing any RCOS, financial institutions are required to conduct comprehensive risk assessments. This ensures that the chosen technologies are not only compliant with existing regulations but also robust enough to handle potential security threats.
- Supervisory Guidance: CySEC has provided detailed guidelines to help institutions navigate the complex regulatory environment. These guidelines ensure that all remote onboarding processes meet the highest standards of security, reliability, and customer protection.
- Ongoing Compliance and Monitoring: The policy emphasizes the need for continuous monitoring and assessment of RCOS, ensuring that they remain effective and compliant with all relevant laws and regulations.
C. How We Can Help
At Andria Papageorgiou Law Firm, we have over a decade of experience in the fintech industry, specializing in regulatory compliance and innovative financial solutions. Our team of experts is ready to assist your business in implementing these new onboarding requirements seamlessly.
Whether you need help with risk assessments, compliance checks, or choosing the right RCOS for your business, we are here to guide you every step of the way. We understand the complexities of the fintech landscape and are committed to helping you stay ahead in this dynamic industry.
D. Last word
CySEC’s new policy is a significant development for the financial industry, offering both opportunities and challenges. By embracing these changes and leveraging the right expertise, your business can not only comply with the new regulations but also thrive in the digital age.
In case you have any questions, please do not hesitate to contact us for further professional assistance.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
CySEC Circular C556 on addressing AML/CFT Compliance – Insights from CySEC’s Recent Inspections
The Cyprus Securities and Exchange Commission (CySEC) has recently issued a Circular C656 highlighting the findings from its inspections of various regulated entities over the past two years. These inspections assessed compliance with the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007 and CySEC’s Directive for the Prevention and Suppression of Money Laundering and Terrorist Financing. The circular provides valuable insights into good practices and common deficiencies observed, offering a roadmap for entities to enhance their Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) frameworks.
A. Good Practices Identified
CySEC’s inspections revealed several commendable practices among regulated entities, which can serve as benchmarks for others aiming to strengthen their AML/CFT controls:
- Utilization of Local Knowledge: Supplementing commercially available databases with local knowledge and open-source internet checks proved effective in researching potential high-risk customers, including Politically Exposed Persons (PEPs).
- Clear Escalation Processes: Establishing clear processes for escalating the review and approval of high-risk and PEP customer relationships to senior management.
- Face-to-Face Interactions: Conducting face-to-face meetings with high-risk and PEP prospects before onboarding them as customers.
- Comprehensive Customer Files: Maintaining detailed customer files that cover risk assessment, documentation, verification, expected account activity, and profiles of the customer or business relationship.
- Robust Transaction Monitoring: Ensuring transaction and account monitoring considers up-to-date Customer Due Diligence (CDD) information, including expected activity, source of wealth, and source of funds.
- Active Involvement of Senior Management: Involving senior management and AML/CFT staff in decisions regarding the maintenance or termination of high-risk relationships.
- Updated Policies and Procedures: Keeping AML/CFT policies and procedures current to comply with evolving legal and regulatory obligations.
B. Common Weaknesses and Deficiencies
Despite the good practices, several weaknesses were commonly identified, which need immediate attention to mitigate AML/CFT risks:
- Risk Management and Procedures Manual: Manuals often contained generic descriptions rather than tailored procedures specific to the entity’s risks. In some cases, procedures for identifying and detecting unusual cash transactions were inadequate.
- Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD): Entities sometimes failed to construct comprehensive customer economic profiles or verify the identity of beneficial owners adequately. There was also a lack of additional information for high-risk customers.
- AML/CFT Risk Assessments: Risk assessments often did not consider guidelines from the European Banking Authority (EBA) or the Financial Action Task Force (FATF). In some instances, entities did not account for the risks posed by customers with Cypriot citizenship acquired through the Cyprus Investment Program.
- Source of Funds and Transactions Monitoring: Insufficient documentation to support customer transactions and initial source of funds was a recurrent issue. Entities need to gather detailed evidence and maintain updated customer profiles.
- Reporting of Suspicious Transactions: Compliance officers sometimes failed to examine internal reports adequately to determine if there was a suspicion of money laundering or terrorist financing.
- Record Keeping: Entities did not always ensure prompt availability of documents and information required by CySEC for regulatory duties.
CySEC’s circular serves as a crucial reminder for all regulated entities to review and enhance their AML/CFT policies, controls, and procedures. By addressing the identified deficiencies and adopting the highlighted good practices, entities can better align with regulatory expectations and effectively mitigate the risks associated with money laundering and terrorist financing.
In case you have any questions, please do not hesitate to contact us for further professional assistance.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
CySEC Circular C655: Findings of the assessment of Compliance Officers’ Annual Reports and Internal Audit Reports on the prevention of money laundering and terrorist financing, for the year 2022
The Cyprus Securities and Exchange Commission (CySEC) has published Circular No. C655, summarizing the findings from its 2023 assessment of Compliance Officers’ Annual Reports and Internal Audit Reports submitted by various regulated entities for the year 2022. The report underscores critical areas of non-compliance and provides detailed recommendations for improvement.
A. Targeted Entities
The circular addresses the following regulated entities:
- Crypto Asset Service Providers (CASPs)
- Cyprus Investment Firms (CIFs)
- Administrative Service Providers (ASPs)
- UCITS Management Companies (UCITS MC)
- Self-Managed UCITS (SM UCITS)
- Alternative Investment Fund Managers (AIFMs)
- Self-Managed Alternative Investment Funds (SM AIFs)
- Self-Managed Alternative Investment Funds with Limited Number of Persons (SM AIFLNP)
- Companies managing AIFLNPs
- Small Alternative Investment Fund Managers (Small AIFMs)
B. Scope of the Assessment
The assessment aimed to evaluate compliance with the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007, and the CySEC Directive for the Prevention of Money Laundering and Terrorist Financing. The evaluation included the review of Compliance Officers’ Annual Reports and Internal Audit Reports submitted in 2023, reflecting the activities of the previous year.
C. Key Findings
CySEC identified several common weaknesses and deficiencies across the reports:
- Lack of Detailed Analysis: Many reports lacked sufficient analysis of the inspection methods used by Compliance Officers. Reports often provided results without explaining the methodologies, sample sizes, and the specifics of the inspections and reviews conducted.
- General Overviews: Some reports offered only general overviews rather than detailed descriptions of identified deficiencies, their seriousness, risk implications, and recommended corrective actions.
- Inadequate Customer Monitoring: Reports frequently did not provide adequate details on ongoing monitoring systems for customer accounts, including methods used and variations in monitoring based on customer risk categories.
- Insufficient Organizational Structure Information: The organizational structure and duties of the Compliance Officer’s department were often not sufficiently detailed.
- Incomplete Training Program Information: Information on recommended training programs for the upcoming year was frequently inadequate.
- Late Submissions: There were late submissions of Compliance Officers’ Annual Reports, Internal Audit Reports, and relevant Board of Directors (BoD) minutes.
D. Recommendations
CySEC has outlined several recommendations to address these deficiencies:
- Enhance Report Preparation: Ensure detailed and methodologically sound preparation of both Compliance Officers’ Annual Reports and Internal Audit Reports, including a thorough analysis of inspection methods and results.
- Improve Monitoring Systems: Establish robust systems for ongoing monitoring of customer accounts and transactions, providing detailed documentation of methods and findings.
- Detail Organizational Structure and Training: Include comprehensive information on the Compliance Department’s structure and staff duties, and clearly outline training programs for the next year.
- Adhere to Submission Deadlines: Comply with the specified timeframes for submitting reports and BoD minutes.
E. CySEC’s Expectations
CySEC expects all regulated entities to consider these findings and recommendations seriously when preparing their reports for 2023 and beyond. The Commission has emphasized that recurring weaknesses will be subject to rigorous compliance checks, and strict administrative sanctions may be imposed for non-compliance with the Law and Directive.
D. Conclusion
CySEC’s 2023 assessment report highlights significant areas for improvement in AML compliance and overall governance among regulated entities. By addressing the identified deficiencies and adhering to CySEC’s recommendations, entities can ensure robust compliance frameworks, thereby enhancing the integrity and trustworthiness of Cyprus’s financial sector.
E. How we can assist you
With ten years of experience in the financial services industry, our law firm is well-equipped to assist you with outsourced legal and compliance services. We provide comprehensive support and guidance for the preparation of annual CySEC reports, ensuring your compliance with all regulatory requirements.
In case you have any questions, please do not hesitate to contact us for further professional assistance.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
The EU’s Regulatory Framework for Artificial Intelligence: A New Era for AI Governance
The European Union (EU) is pioneering a comprehensive approach to artificial intelligence (AI) regulation with the introduction of the AI Act. This landmark legislation, the first of its kind globally, aims to balance innovation and safety, ensuring AI systems are trustworthy, transparent, and respect fundamental rights.
A. Core Objectives of the AI Act
The AI Act establishes a risk-based framework to regulate AI technologies across the EU. It categorizes AI systems into four risk levels:
- Unacceptable Risk: AI systems that pose a significant threat to safety, livelihood, or rights, such as those used for social scoring or cognitive behavioral manipulation, are banned.
- High Risk: These systems, which include applications in critical infrastructure, education, and employment, must meet stringent requirements before they can be marketed. This includes obtaining a CE marking to ensure compliance with EU standards.
- Limited Risk: AI systems in this category are subject to specific transparency obligations, such as informing users they are interacting with an AI system.
- Minimal or No Risk: These are largely exempt from additional regulatory burdens.
The Regulatory Framework defines 4 levels of risk for AI systems:
B. How does it all work in practice for providers of high-risk AI systems?
Once an AI system is on the market, authorities are in charge of market surveillance, deployers ensure human oversight and monitoring, and providers have a post-market monitoring system in place. Providers and deployers will also report serious incidents and malfunctioning.
C. Ensuring Trustworthy AI
To foster trust and transparency, the AI Act mandates several key measures:
- Pre-Market Conformity Assessments: High-risk AI systems must undergo thorough evaluations to ensure they meet EU standards for safety, security, and ethical considerations.
- CE Marking: Similar to other products within the European Economic Area, AI systems will require CE marking to indicate conformity with health, safety, and environmental protection standards.
- Transparency and Accountability: Developers must provide clear information on the AI system’s capabilities and limitations, ensuring users are well-informed.
D. Supporting Innovation
The EU aims to promote innovation without compromising safety through mechanisms such as:
- AI Regulatory Sandboxes: These allow developers to test AI systems in a controlled environment, facilitating innovation while ensuring regulatory compliance.
- Proportional Penalties: Fines for non-compliance are scaled based on the company’s size and revenue, ensuring that penalties are fair and encourage adherence to the regulations.
E. Governance and Enforcement
A robust governance structure will oversee the implementation of the AI Act:
- European Artificial Intelligence Board (EAIB): This new body will ensure consistent application of the rules across the EU.
- National Supervisory Authorities: These bodies will work alongside the EAIB to monitor compliance at the member state level.
F. Impact and Future Outlook
The AI Act is set to transform the AI landscape in Europe, creating a unified legal framework that not only protects consumers and citizens but also encourages technological advancement and market growth. By setting high standards for AI development and deployment, the EU aims to lead the world in ethical and innovative AI practices.
This pioneering regulation underscores the EU’s commitment to harnessing the benefits of AI while safeguarding its citizens’ rights and promoting a thriving digital economy.
Should you have any further questions, please do not hesitate to contact us at info@apapageorgiou.com.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
ESMA’s Opinion on Ensuring Consistent Application of MiCA for Crypto-Asset Brokers
The European Securities and Markets Authority (ESMA) issued an opinion on 31/7/2024, to support the consistent application of the Markets in Crypto-Assets Regulation (MiCA) across the European Union.
Here are the key points from the opinion, useful for a blog post:
1. Legal Framework and Background:
- MiCA Overview: MiCA, published in June 2023, establishes obligations for crypto-asset issuers and service providers, aiming to enhance investor protection, market integrity, and financial stability.
- Importance of Trading Platforms: Trading platforms, particularly Multifunction Crypto-asset Intermediaries (MCIs), are pivotal in the crypto ecosystem. The collapse of FTX highlighted the potential risks posed by these platforms.
2. Regulatory Arbitrage Concerns:
- MCIs and EU Market Access: Some MCIs may try to bypass EU regulations by structuring their businesses to maintain access to EU clients without fully adhering to MiCA, leading to regulatory arbitrage and an unlevel playing field.
- Reverse Solicitation: MiCA allows third-country firms to provide services to EU clients only if initiated by the client, known as “reverse solicitation.” ESMA stresses this should be narrowly applied to prevent circumvention of MiCA regulations.
3. Supervisory Guidance and Practices:
- Assessment of Business Models: ESMA advises national competent authorities (NCAs) to scrutinize the business models of crypto firms, ensuring they comply with MiCA and do not exploit regulatory loopholes.
- Conflict of Interest: MCIs must manage conflicts of interest, especially when offering both brokerage and trading platform services. NCAs should ensure these conflicts are adequately managed to protect clients’ interests.
- Best Execution: EU brokers must ensure the best possible execution of client orders, considering various factors like price, costs, and execution speed. Reliance on a single non-EU execution venue without proper justification is discouraged.
4. Custody and Administration of Assets:
- Custody Rules: EU brokers must ensure that non-EU execution venues do not take custody of EU clients’ assets, complying with MiCA’s stringent custody requirements.
ESMA is committed to promoting common supervisory approaches across the EU, and developing new tools and forums to ensure the effective application of MiCA. This proactive stance aims to foster a secure and transparent crypto-asset market, benefitting both investors and market participants.
At Andria Papageorgiou Law Firm, we specialize in navigating the complex regulatory landscape of the crypto-asset market. Our experienced legal team can provide comprehensive guidance on MiCA compliance, helping your organisation adapt to the new regulations effectively. Whether you need assistance with authorization processes, managing conflicts of interest, or ensuring best execution practices, we are here to support you.
Should you have any further questions, please do not hesitate to contact us at info@apapageorgiou.com.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
The Future of Prop Trading Regulation: An Industry in Transition
The rising popularity of proprietary trading firms, where traders use the firm’s capital to trade, has drawn the scrutiny of global regulators. Recent reports indicate that the European Securities and Markets Authority (ESMA) and other regulatory bodies are conducting preliminary reviews and consultations to understand the implications of prop trading and potentially introduce regulations. This move aims to enhance transparency and investor protection within the industry. While some jurisdictions, like Belgium, have taken a firm stance, the overall regulatory landscape remains uncertain, with further clarity expected by the end of the year.
In Europe, proposed regulations may require prop trading firms to be authorized under the Markets in Financial Instruments Directive (MiFID), aligning their operations with broader financial regulatory frameworks. Industry experts anticipate that new rules could enforce stricter operational requirements and transparency, potentially treating some aspects of prop trading similarly to financial services.
The regulatory drive is partly fueled by high-profile enforcement actions and growing concerns over the unregulated nature of many prop trading activities, which often operate on demo accounts. The lack of regulation has led to numerous firms entering the market, some of which have faced allegations of unethical practices, such as denying payouts.
As the industry evolves, it remains to be seen how regulators will balance the need for oversight with the innovative nature of prop trading. Stakeholders are advised to stay informed and prepared for impending regulatory changes.
Should you have any further questions, please do not hesitate to contact us at info@apapageorgiou.com.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
For further details, please refer to the original articles on Finance Magnates.