ESMA has released a set of detailed proposals on how crypto companies within the European Union should be authorized. This is the first use of new powers given under the bloc’s Markets in Crypto Assets (MiCA) law. The 160-page consultation includes how crypto firms should handle user complaints and manage conflicts of interest.
MiCA, which takes effect in 2024, gives wallet providers and exchanges, known as crypto asset service providers or CASPs, the ability to operate across the 27-nation bloc with one license and sets reserve requirements for stablecoins tied to the value of other assets. ESMA has taken into account recent allegations of poor governance and security in the crypto sector, such as those that followed the FTX exchange filing for bankruptcy in November. Some of the recent collapses in the crypto world have shown a misuse of clients’ funds and crypto-assets, said the consultation.
The agency is also seeking confidential information about crypto companies’ expected revenue, number of white papers, and the use of on- and off-chain trading in a consultation that lasts until September 20. ESMA said a further tranche of consultations will follow in October, covering sustainability and record-keeping, with a final batch due early 2024 that will consider when crypto counts as a security and how foreign companies will be able to serve EU clients.
Applicants must show that clients’ funds and crypto are segregated and not used for the company’s own account, as well as detailing the security of their ICT system and underlying distributed ledger technology. Companies will also have to identify and manage potentially conflicting interests with or among clients if, say, they execute orders for clients while also operating a trading platform, or if a staffer has access to confidential information about the issuer of a crypto asset they hold.
ESMA has issued a set of proposals for crypto companies in the European Union, outlining how they should be authorized and how to handle user complaints and conflicts of interest. The 160-page consultation, which is part of the Markets in Crypto Assets (MiCA) law, is open until September 20. It includes requirements for applicants to show that clients’ funds and crypto are segregated and not used for the company’s own account, as well as detailing the security of their ICT system and underlying distributed ledger technology.