The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor authority, has issued an Opinion to address the risks presented by global crypto firms seeking authorisation under the Markets in Crypto Assets (MiCA) Regulation in the European Union for part of their activities (i.e. crypto brokerage), while keeping a substantial part of their group activities (intra-group execution venues) outside the EU regulatory scope.
ESMA said it recognises risks associated with global crypto firms’ complex structures where execution venues fall outside of the scope of MiCA. Such structures may include the involvement of an EU-authorised broker effectively routing orders to an intra-group execution venue based outside the EU (often offshore), potentially leading to diminished consumer protection and to an unlevel playing field with EU-authorised execution venues.
Considering these risks, ESMA said it recommends National Competent Authorities (NCAs) – i.e. the individual country financial regulators such as BaFIN in Germany and CySEC in Cyprus – to be vigilant during the authorisation process, and to assess business structures of global firms to ensure that they do not bypass obligations established in MiCA, to protect consumers and ensure transparent and orderly functioning of crypto markets.
The Opinion calls for a case-by-case assessment, outlining the specific requirements that should be met regarding best execution, conflicts of interest, the obligation to act honestly, fairly and professionally in the best interests of clients and the obligation relating to the custody and administration of crypto-assets on behalf of clients.
Crypto-asset execution venues play an important role in the functioning of the crypto-asset ecosystem, and MiCA sets out comprehensive rules regarding the functioning of trading platforms for crypto-assets. This Opinion is part of broader efforts by ESMA and NCAs to ensure effective application of MiCA and convergent supervisory practices throughout the EU.
ESMA’s Opinion to support the convergent application of MiCA can be downloaded here (pdf).
