Crypto MiCA Draft Regulation Finalized With Concerns of Overreach and Clarity Flagged by Crypto Service Providers

• The EU’s sweeping crypto regulations are aiming to enter into force this year.
• Feedback on the proposed rules and requirements has been mixed, with calls for greater clarity.
• The “rapidly evolving” nature of crypto could hinder applications for crypto licenses.

The European Union’s (EU) financial markets watchdog has published a finalized report on the draft technical standards for its Markets in Crypto Assets (MiCA) regulations.

The report, which is the first of several, sets out to harmonize crypto regulations across its 27 member states. However, stakeholder feedback indicates there may still be some contention with the proposed regulations. Is MiCA on track to be implemented in 2024?

Processes and Operations

Following a consultation that began in 2023, the European Securities and Markets Authority (ESMA) report  outlines the new standards and requirements that crypto asset service providers (CASPs) and other crypto entities will need to adhere to.

In this report , ESMA outlines provisions on the operations and prudence of CASPs, detailing the CASP license’s requirements.

These include CASPs needing to provide a “competent” three-year outlook on their operations, safeguarding measures when it comes to cyber security, and segregation of client funds from the CASP. Furthermore, it notes rules around business continuity plans, complaints handling procedures, and exchange and transfer reporting standards.

Notably, the list stresses the need for firms to show intention to provide crypto services and hold crypto assets.

Three-Year Outlook Unfeasible

The consultation, which sought feedback from stakeholders, has a common thread of contention surrounding regulatory technical standards (RTS) and implementing technical standards (ITS) that require a three-year outlook. It says:

“With regards to the programme of operations (Article one of the draft RTS), some respondents stated that the three-year outlook as required in the draft RTS was excessive and hardly feasible to comply with, particularly due to the high speed of development in the crypto-asset service sector”

Article one establishes  the uniform requirements for CASPs when it comes to public offerings of crypto assets and crypto trading platform activities. People seeking a license will also need to outline a “three-year outlook” for their business operations before going to market.

The proposed timeframe also irked consultation respondents with regard to Article two. This sets out the regulatory “scope ” regarding who the rules apply to.

That said, this is already a timeframe that FinTech companies also adhere to when obtaining an operating license. Regulators often seek a three to five-year  financial forecast, which can vary depending on the type of service offered. The ESMA raises this point in its response.

According to the draft technical standards, the European Commission will be making its decision on whether to adopt this first set of standards within three months.

Will MiCA Miss 2024?

The timeline and concerns over whether or not the EU has the resources to implement these new standards may hinder ambitions  to see MiCA fully implemented this year.

ESMA’s third consultation is seeking feedback  on rules focused on market abuse detection and reporting. It is also looking at crypto transfer services, suitability requirements, and others.

The deadline for feedback is June 25, 2024, while it aims to publish the final report for draft technical standards by December 30, 2024, “at the latest”.