ESMA Pushes For Stronger Crypto Regulations Under MiCA Framework

Benzinga · 10/17 11:13

The European Securities and Markets Authority (ESMA) is calling for modifications to the European Union's Markets in Crypto-Assets Regulation (MiCA), expressing concerns over the framework's current structure.

ESMA on Oct. 16 issued an official opinion urging the European Commission to pursue amendments that would enhance regulatory oversight in the crypto space.

"ESMA acknowledges the legal limitations raised by the Commission but emphasizes the importance of the policy objectives behind the initial proposal," the regulator wrote, emphasizing the need for tighter standards in crypto markets.

ESMA's recommendations focus on refining two key regulatory technical standards (RTS) within MiCA.

These RTS cover essential elements such as disclosures regarding the intent to offer crypto services and the process of obtaining authorization as a crypto asset service provider (CASP).

One significant change ESMA is advocating for is a requirement for external cybersecurity audits for CASP applicants.

According to the regulator, applicants should provide an external assessment of their management's integrity, alongside confirmation that the organization has no record of penalties beyond areas like commercial law, insolvency law, or anti-money laundering (AML).

The regulator also emphasized the need to check for any involvement in fraud, professional liability, or other financial services-related misconduct.

"This will increase the resilience of the crypto assets market and enhance investor protection in the crypto-assets space," ESMA noted, underscoring the importance of these stricter entry requirements for service providers.

ESMA believes that these adjustments will ensure a more robust review process for applicants intending to offer crypto-related services in the EU.

By improving scrutiny, the regulator hopes to strengthen market resilience and build investor trust in the crypto ecosystem.

The final decision on whether to incorporate ESMA's proposed amendments now rests with the European Parliament and the European Council.

The council has the authority to either adopt the RTS with modifications or reject them altogether.

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Meanwhile, the European Parliament retains the power to object to the revised RTS proposed by the Commission within a three-month window.

These regulatory efforts come as the EU prepares for the final implementation of MiCA, which is expected to take effect on Dec. 30, marking a pivotal moment in the region's efforts to regulate digital assets comprehensively.

In a statement shared with Benzinga, Anthony Yeung, Global Head of Strategic Development at blockchain protection firm Coincover said the Web3 industry can only continue growing and be attractive to the next wave of users by having tougher cyber protection rules and that beyond the immediate financial impact, firms’ reputations are needlessly ruined by instances of theft and hacking which also damages wider confidence in the market.

“Centralised exchanges in particular are increasingly becoming prime targets for hackers who are being more and more innovative in their approaches. While regular external security audits will certainly help improve the industry, it won't eliminate this threat completely. Crypto firms need to continue investing in threat prevention and recovery technology, focused on their users, to fully bolster their security infrastructure,” he said.

The evolving landscape of crypto regulation will take center stage at Benzinga's Future of Digital Assets event on Nov. 19.

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