Regulation
How MiCA affects your business
The following is a guest post by Mark Gofaizen, Senior Associate at Gofaizen & Sherle.
As MiCA regulations approach that will reshape the crypto industry, crypto companies must ensure compliance for a smooth transition.
Crypto-Asset Market Regulation (MiCA), which represents an important step by the European Union (EU) towards the regulation of the crypto-asset market, is one of the hot topics of 2024. MiCA seeks to bring clarity and security to the market, addressing the needs of crypto-asset service providers (CASPs) and issuers while protecting investors.
For companies operating in the crypto space, MiCA clearly calls for changes to their processes in order to adapt to the new regulatory environment. Covering topics from operational flexibility to consumer protection, MiCA ensures that the crypto asset market is sustainable and compliant with broader financial market regulations.
Sector players and businesses need support and guidance during this transition period. This article will explain how MiCA can impact businesses, focusing on processes that require attention, potential cost increases, and staffing needs.
Basic requirements under MiCA
The crypto industry is set for a regulatory evolution, with the draft Regulatory Technical Standards (RTS) being developed 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 crucial for PSAPs aiming to obtain a MiCA license.
Essential aspects of MiCA include:
- Anti-money laundering (AML): PSAPs must adhere to a comprehensive set of laws and procedures to prevent illicit funds from being disguised as legitimate funds.
- Fight against the financing of terrorism (CFT): Cryptoasset service providers are responsible for measures to prevent the flow of funds to terrorist organizations.
- Authorised capital: CASPs are required to define the maximum capital they can issue, as indicated in their charter.
- Customer Due Diligence (CDD): Crypto-asset service providers must verify the identity of customers and assess transactional risks.
- Suspicious Transaction Reporting (STR): PSAPs must have procedures in place to detect and report suspicious transactions to the relevant authorities.
- Cooperation and information sharing: Cooperating with relevant authorities and sharing necessary information is another obligation of PSAPs.
These core requirements align PSAPs with broader tax and regulatory expectations, tailoring them to their unique operational frameworks.
Align with broader financial regulation
The introduction of MiCA requires comprehensive adjustments in CASP operations, highlighting the need for a holistic strategy to foster a transparent, secure and consumer-centric crypto market, in line with broader financial regulation.
Key business process areas to review include:
Staff training and recruitment
To comply with MiCA, businesses must create a specialized regulatory compliance team specific to financial services or crypto assets. Acquiring risk management experts and legal advisors is crucial to addressing the complexities of MiCA. These professionals will play an instrumental role in identifying, assessing and mitigating risks and ensuring that all company operations are fully compliant with the new regulations.
PSAPs should have at least one senior management person (director) located in the country of establishment and organize the activity through the location of activity in the EU.
Collection and use of personal data
MiCA mandates protection of consumer information and segregation of customer assets. Companies must ensure privacy and data protection by developing secure systems for collecting and using personal data. Additionally, the regulations require the implementation of client segregation systems to protect client 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 company records in accordance with regulatory requirements.
Advisory Services for Crypto Asset Users
MiCA places significant emphasis on the quality of advisory services provided to crypto asset users. Companies offering advisory services must ensure that advice is personalized, transparent, fair and non-misleading, taking into account the client’s personal circumstances, investment objectives and risk appetite.
Cryptocurrency exchange services and related policies
For companies providing cryptocurrency exchange services, MiCA seeks to ensure fair and orderly trading, define order execution rules and provide clear information on the exchange of crypto assets. The regulation aims to improve the integrity and stability of cryptocurrency exchange services by promoting a safer trading environment for consumers.
MiCA: an opportunity, not a challenge
The launch of MiCA is an important milestone for the crypto-asset market in the European Union and sets a precedent for regulatory frameworks around the world. As a new era of compliance and regulation approaches, companies in the crypto industry are being given a transition period until June 2025. With the proposed changes being submitted to institutions for coordination and feedback by March 28, regulatory changes are expected to create a more secure and trusted crypto environment.
As businesses seek to comply with regulations, it becomes extremely important to focus on strategic planning, invest in compliance infrastructure, and develop a competent compliance team. Embracing MiCA not only as a compliance challenge, but also as an opportunity to increase operational integrity and consumer trust can position businesses for success in the increasingly regulated global crypto market.