by Andria Papageorgiou

COMPLIANCE, News, REGULATORYJuly 31, 20240 comments

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.