The European Securities and Markets Authority (ESMA) has expressed concerns about global crypto firms seeking authorization under the Markets in Crypto Assets (MiCA) regulation while maintaining significant operations outside the European Union. On July 31, 2024, ESMA issued an opinion highlighting the risks associated with these firms’ complex structures, particularly when intra-group execution venues fall outside MiCA’s jurisdiction. ESMA advised national competent authorities (NCAs) to exercise increased vigilance and announced plans to release additional guidelines on “reverse solicitation” by the end of the year.

Key Regulatory Concerns
ESMA’s opinion underscores several risks tied to the operational models of global crypto firms. Notably:
– Consumer Protection Risks: EU-authorized brokers may route orders to intra-group execution venues outside the EU, potentially compromising consumer protection.
– Market Integrity Issues: Such practices could create an uneven playing field between EU-authorized and non-EU execution venues.

MiCA Regulation Goals
MiCA aims to create a comprehensive framework for regulating crypto-asset issuance and services within the EU, emphasizing:
– Transparency and Disclosure: Ensuring clear and consistent information for investors.
– Authorization and Supervision: Establishing stringent processes for authorizing and supervising crypto transactions.
– Investor Protection and Market Integrity: Enhancing the safety and reliability of the financial market.

Exemptions and Implementation
– Article 59: Prohibits third-country firms from offering crypto-asset services within the EU.
– Article 61: Introduces a “reverse solicitation” exemption, allowing EU clients to request services from third-country firms on their own initiative, provided the firms do not solicit or advertise within the EU.

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NCA Responsibilities
ESMA emphasized that NCAs must:
– Ensure compliance with MiCA articles 59 and 61 during both the authorization process and ongoing operations.
– Scrutinize applications to prevent third-country firms from circumventing regulations by using EU-authorized entities to solicit clients while operating outside the EU.
– Assess whether EU-authorized brokers are soliciting clients for non-EU entities within the same group.

Indicators of Potential Non-Compliance
NCAs should be alert to potential non-compliance indicators, such as:
– EU-authorized brokers consistently routing orders to non-EU venues without evaluating other options.
– Brokers using the reputation of non-EU exchanges to attract clients.
– Disproportionately low revenue reports from brokerage activities compared to expected independent broker and execution venue interactions.

Future Guidance
ESMA plans to issue further guidance on the reverse solicitation exemption in the second half of 2024. This guidance aims to:
– Clarify the application of the reverse solicitation exemption.
– Address ongoing regulatory concerns.

ESMA’s opinion highlights the necessity for rigorous oversight of global crypto firms and their cross-border operations. Effective implementation of the MiCA regulation is crucial to uphold investor protection and market integrity within the EU. This move underscores the EU’s commitment to creating a safe and transparent regulatory environment for the growing crypto industry.

Source: delano.lu

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