On 16 November 2023, the European Securities and Markets Authority (ESMA) published a speech by its chair, Verena Ross, entitled Innovation with protection: the next steps on the MiCA journey.
In the speech Verena Ross covers some of the key features of ESMA’s October consultation paper on the second package of level 2 measures for the Regulation on Markets in crypto assets (MiCA). She also discusses how ESMA is preparing for the transition to the new MiCA regime, in close cooperation with colleagues from Member State competent authorities. ESMA is working hard with such competent authorities to harmonise practices when it comes to authorisation, supervision, and enforcement, starting with authorisation procedures as the most urgent necessity.
As regards authorisation Verena Ross mentions that aligning authorisation procedures is one of several ways ESMA is aiming to prevent regulatory arbitrage before MiCA and its level 2 measures apply. On this point Verena Ross states that the example of the MFSA’s risk-based licensing framework for virtual financial asset service providers may serve as one model to look at as Member State competent authorities design their own authorisation procedures for crypto asset service providers.
In terms of Member States preparing for MiCA, Verena Ross states:
- ESMA’s work on technical standards and supervisory convergence cannot fully be put into practice until Member States designate competent authorities and empower them with the resources and expertise to carry out their new supervisory and enforcement functions under MiCA. Therefore, ESMA encourages Member States to make this designation (before the June 2024 deadline mandated in legislation) ideally by the end of this year.
- ESMA is calling on Member States to consider limiting MiCA’s transitional phase to 12 months. ESMA is of the view that minimising the time during which a patchwork of different laws will apply across Member States will assist in creating a level playing field and limit potential harm to investors who may have difficulty discerning the regulatory status of an asset or service they are using during the transitional phase. This would also set a clear deadline for the industry by which they must align their business practices to comply with incoming requirements under MiCA.
- Certain large crypto firms have made a ‘borderless’ philosophy part of their modus operandi, providing their services globally without a formal operational presence in any single jurisdiction. Such a set up should be discouraged. ESMA will favour a firm presence and commitment to the EU regulatory framework. With this comes a broad interpretation of what constitutes solicitation of EU clients from third-country firms, through which the scope of ‘reverse solicitation’ will be limited to exceptional cases. Therefore, breaches of the reverse solicitation clause will be met with stringent enforcement by ESMA and Member State competent authorities.