by Andria PapageorgiouESMA’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.
by Andria PapageorgiouA practical guide on CySEC Regulatory Sandbox
The Cyprus Securities and Exchange Commission (CySEC) has taken a significant leap forward with the launch of its Regulatory Sandbox. This initiative builds upon CySEC’s ongoing dialogue with market participants and experts since the inception of the Innovation Hub. The Regulatory Sandbox aims to strike a balance between fostering technological innovation, ensuring investor protection, and maintaining market integrity.
Overview & Objectives
CySEC’s Regulatory Sandbox is designed to provide a controlled testing environment where both regulated and unregulated firms can trial their technologically innovative solutions. The primary objectives are to build a transparent channel of cooperation between entities developing tech-based solutions in the financial services sector and to ensure that the regulatory landscape evolves with technological advancements. This initiative is poised to enhance CySEC’s understanding of innovative technologies and facilitate continuous regulatory adaptation to new market developments.
Why Join the CySEC Regulatory Sandbox?
Participation in the Sandbox offers an unparalleled opportunity for firms to test their innovative products and services on a small scale within a controlled environment. Under CySEC’s close monitoring and guidance, participants will receive constructive feedback on how the regulatory framework applies to their innovations. This guidance can prove invaluable in refining products to meet regulatory standards and achieving successful market entry.
Eligibility Criteria
The CySEC Regulatory Sandbox is open to regulated and unregulated entities engaging in financial innovation through technology. To participate, unregulated entities must:
- Obtain prior CySEC authorization for the regulated services they intend to engage in.
- Test innovative solutions solely within their corporate group or use any other exemption provided under the applicable framework.
- Perform demo services.
- Enter into a collaboration agreement with a CySEC-regulated entity.
It is important to note that the Sandbox is not a space for “light touch” regulation. Any unregulated entities providing regulated services must secure CySEC authorization before participating.
Additionally, applicants must ensure their proposed innovative solution:
- Directly or indirectly facilitates activities within CySEC’s supervisory scope.
- Introduces authentic innovation in terms of product, service, or business model.
- Is ready for testing in a production environment.
- Benefits the financial services industry.
The Four Phases of the Sandbox
- Application Phase: Interested firms must complete and submit the application form available on CySEC’s website. CySEC will assess applications based on the eligibility criteria and inform applicants of the results within 6-8 weeks.
- Preparation Phase: Successful applicants will collaborate with CySEC to agree on specific testing parameters, which will be documented in a testing agreement. A dedicated case officer will be assigned to guide the participant through the testing phase, with a communication and reporting plan established.
- Testing Phase: Lasting typically six months, this phase allows participants to conduct small-scale testing of their innovative solutions within a controlled environment. CySEC will monitor progress and compliance through interim reports submitted by participants.
- Evaluation/Exit Phase: After testing, participants must prepare a comprehensive exit report analyzing the test’s milestones and key performance indicators. These reports, which reflect participants’ views on the testing process, will be used by CySEC for internal assessment and feedback.
Conclusion
The CySEC Regulatory Sandbox represents a significant advancement in fostering financial innovation while ensuring regulatory compliance and market integrity. By providing a structured and supportive environment, CySEC is enabling firms to develop and refine innovative financial solutions that can meet the challenges of tomorrow’s financial landscape.
For any professional assisstance, 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.
by Andria PapageorgiouCySEC launches its regulatory sandbox
The Cyprus Securities and Exchange Commission (CySEC) has successfully launched its Regulatory Sandbox during an online event held on the 11th of June 2024. This initiative marks a significant milestone in the advancement of financial, regulatory, and supervisory technologies (FinTech, RegTech, and SupTech) in Cyprus.
The Regulatory Sandbox is a crucial step in promoting responsible innovation in the financial services sector. Dr. George Theocharides, Chairman of CySEC, highlighted the importance of this initiative: “With the introduction of the Regulatory Sandbox, we are taking another major step in fostering responsible innovation in the financial services sector. Our goal is to support the development of cutting-edge solutions that meet technological advancements, without compromising market integrity and investor protection.”
Event Highlights
The virtual launch event attracted over 500 stakeholders from the financial sector, including representatives from regulatory bodies, financial institutions, and technologically innovative firms. Attendees were briefed on the Sandbox’s operational framework and the potential benefits for market participants.
The event underscored CySEC’s commitment to striking a balance between technological innovation, investor protection, and market integrity. Building upon CySEC’s ongoing dialogue with market participants and experts since the launch of the Innovation Hub, CySEC has established the Regulatory Sandbox to support this balanced approach.
Objectives of the Regulatory Sandbox
The Regulatory Sandbox aims to:
- Build a transparent channel of cooperation between entities developing technology-based solutions in the financial services falling within CySEC’s supervisory mandate and CySEC.
- Ensure that the regulatory landscape evolves in line with technological developments in the financial services sector.
Designed for both regulated and unregulated firms, the CySEC Regulatory Sandbox allows companies to test their technologically innovative solutions and/or products related to financial activities subject to CySEC’s supervision. This controlled, time-bound testing environment will enhance CySEC’s understanding of innovative technologies and facilitate continuous regulatory adaptation to new market developments.
Participation and Benefits
For firms interested in participating, the Regulatory Sandbox offers a unique opportunity to develop and refine their products while ensuring compliance with regulatory standards. This initiative not only supports innovation but also helps maintain the integrity and safety of the financial market.
Participants in the Sandbox will benefit from:
- Direct engagement with CySEC to ensure their solutions meet regulatory requirements.
- A structured environment to test and validate new technologies and business models.
- Insights and feedback from CySEC to improve their products and services.
For more information on the Regulatory Sandbox and how to participate, please visit the Cyprus Securities and Exchange Commission’s website.
Conclusion
The launch of CySEC’s Regulatory Sandbox is a pivotal development for the financial services sector in Cyprus. By providing a supportive environment for innovation, CySEC is helping to drive technological advancement while safeguarding market integrity and investor protection. This initiative is set to position Cyprus as a leader in financial innovation and regulatory excellence.
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.