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EU watchdog tells crypto regulators to get their act together ahead of MiCA and stop ‘letter-box’ firms

EU watchdog tells crypto regulators to get their act together ahead of MiCA and stop ‘letter-box’ firms
The European Union's securities and markets authority is overseeing the bloc's implementation of the MiCA regulation. Credit: Andrés Núñez/DL News.
  • National authorities better snap into action to get ready before MiCA is implemented in 2024, ESMA urges.
  • The European markets and securities watchdog tells national regulators to start pulling resources into their crypto departments.
  • It urges them to put a stop to so-called "letter-box entities" and venue shopping.

The clock is ticking for financial regulators in the European Union’s member states to implement a new crypto rulebook. And the European Securities and Markets Authority is telling national regulators to not get caught slacking.

In a message to national authorities, ESMA urged regulators to set aside enough resources to enforce the bloc’s comprehensive, landmark crypto regulation, known as MiCA.

The markets watchdog took special aim against regulatory arbitrage, or venue shopping, where crypto firms pick and choose which country to apply for a licence, urging regulators to implement the new supervision rules evenly across the bloc.

ESMA wants regulators to stop what they call “letter-box entities,” where firms register for just an EU foothold but rely on non-EU entities and clients to stay afloat.

DL News’ Europe Crypto Tracker recently found that countries like Czechia and Poland have far more crypto legal entities registered compared to other countries because they allow companies to register even if they are not physically present in the country.

The Markets in Crypto-Assets regulation raises the bar for firms offering crypto services with rules for consumer protection, market integrity and environmental impact disclosures. For stablecoins, the new laws set standards on capital requirements and investor protection.

Until those laws are in place, ESMA reminds regulators that crypto investors should continue to be warned of the risks.

“Can you afford to lose all the money you are planning to invest?” ESMA recommends that crypto firms check with their clients. “Are the firms/parties you are dealing with reputable? Are you ready to take on high risks to earn the advertised returns?”

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ESMA is one of the European supervisory authorities that is responsible for drafting up the standards for exactly how the laws should be implemented.

On October 5, regulators published consultations on topics like indicators for blockchain sustainability, requirements for crypto asset whitepapers. This is the securities regulator’s second call for industry responses for how to implement these rules.

ESMA will continue to oversee how crypto firms are licensed and how consumers are protected once the regulation is nailed into place. The European Banking Authority is responsible for the stablecoin rules.

The new laws are scheduled to come into effect at the end of 2024. But, member states can choose to buy extra time with a transitional period that pushes that deadline up to July 1, 2026.

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