The following is a guest post by Mark Gofaizen, Senior Partner at Gofaizen & Sherle.
As the MiCA regulation approaches that will reshape the cryptocurrency industry, crypto companies need to ensure compliance for a smooth transition.
The Cryptoassets Market Regulation (MiCA) represents an important step towards the regulation of cryptoassets markets by the European Union (EU) and is one of the hot topics for 2024. MiCA aims to inject transparency and security into the market, addressing issues such as: Meeting the needs of crypto asset service providers (CASPs) and issuers while protecting investors.
For companies operating in the cryptocurrency space, MiCA specifically requires them to change their processes to adapt to the new regulatory environment. MiCA covers a wide range of topics from operational flexibility to consumer protection, ensuring that crypto asset markets are sustainable and comply with wider financial market regulations.
Industry participants and businesses need support and guidance during this transition period. This article discusses how MiCA can impact your business, focusing on processes that require attention, potential cost increases, and staffing needs.
Core requirements based on MiCA
The cryptocurrency industry is on the brink of regulatory evolution, with the publication of draft Regulatory Technical Standards (RTS) outlined by the European Securities and Markets Authority (ESMA). These upcoming standards are expected to be submitted to the European Commission by June 30, 2024 and are of critical importance for CASPs aiming to secure a MiCA license.
Important aspects of MiCA are:
- Anti-Money Laundering (AML): CASPs must adhere to a comprehensive set of laws and procedures to prevent illicit funds from being passed off as legitimate.
- Combating the Financing of Terrorism (CFT): Crypto asset service providers are responsible for taking measures to prevent funds from flowing to terrorist organizations.
- Authorized capital: The CASP must define the maximum capital it can issue, as stated in its charter.
- Customer Due Diligence (CDD): Crypto asset service providers must verify customer identity and assess transaction risk.
- Report a suspicious transaction (STR): CASPs must have procedures in place to detect and report suspicious transactions to competent authorities.
- Cooperation and information sharing: It is also the duty of CASP to cooperate with the competent authorities and share the necessary information.
These fundamental requirements align CASP with broader fiscal and regulatory expectations and align with your unique operational framework.
Alignment with broader financial regulation
Implementation of MiCA requires comprehensive coordination across CASP operations, and a comprehensive strategy to promote transparent, secure, and consumer-centric cryptocurrency markets in sync with broader financial regulation. The need for this is emphasized.
The key business process areas reviewed are:
Human resource development and recruitment
To comply with MiCA, companies must have a team dedicated to regulatory compliance specific to financial services or crypto assets. Retaining risk management experts and legal advisors is essential to tackling the complexities of MiCA. These professionals can help you identify, assess, and mitigate risks and ensure that all business operations are fully compliant with new regulations.
CASPs must have at least one senior executive (director) in the country of establishment and organize their activities through an office in the EU.
Collection and use of personal data
MiCA mandates the protection of consumer information and the segregation of customer assets. Businesses must ensure privacy and data protection compliance by developing secure systems for collecting and using personal data. Furthermore, the regulation requires the introduction of a customer separation system to protect customer assets, a measure aimed at improving consumer protection in the virtual currency 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 compliance with regulatory requirements.
Advisory service for crypto asset users
MiCA attaches great importance to the quality of advisory services provided to crypto asset users. Companies providing advisory services ensure that advice is personalized, transparent, fair and non-misleading, taking into account customers' personal circumstances, investment objectives and risk appetite. is needed.
Crypto exchange services and related policies
MiCA strives to ensure fair and orderly transactions, set rules for order execution, and provide clear information regarding the exchange of crypto assets for companies providing crypto asset exchange services. This regulation aims to improve the integrity and stability of crypto exchange services by promoting a safer trading environment for consumers.
MiCA: An opportunity, not a challenge
The launch of MiCA is a milestone for the European Union's crypto asset market and sets a precedent for regulatory frameworks around the world. As we approach a new era of compliance and regulation, companies in the cryptocurrency sector have been given a transition period until June 2025. The proposed changes will be submitted to agencies for coordination and feedback by March 28th, and this regulatory change will create a more secure and reliable cryptographic environment.
As companies strive to comply with regulations, it is critical to focus on strategic planning, invest in compliance infrastructure, and develop knowledgeable compliance teams. Embracing MiCA not only as a compliance challenge but also as an opportunity to improve operational integrity and consumer trust can help businesses succeed in the increasingly regulated global crypto market.
