The European Securities and Markets Authority (ESMA) has released an Opinion concerning the authorization of global crypto firms under the Markets in Crypto Assets (MiCA) Regulation.

This Opinion addresses the risks associated with crypto firms that seek EU authorization for activities such as crypto brokerage while keeping significant parts of their operations, such as intra-group execution venues, outside the EU’s regulatory framework.

EU Brokers Routing Orders Concerns

ESMA highlights concerns about the complex structures of global crypto firms. These structures may involve an EU-authorized broker routing orders to an execution venue Execution Venue Execution venues can be defined as a regulated market but as a whole is a broad financial term that covers a wide scope of trading terminology. A market in which government and regulatory bodies supervise and exert some degree of control is known as a regulated market. Execution venues may also include an organized trading facility, systemic internalizers, market makers, multilateral trading facility, or other liquidity providers that operate under a similar capacity but generally from a third w Execution venues can be defined as a regulated market but as a whole is a broad financial term that covers a wide scope of trading terminology. A market in which government and regulatory bodies supervise and exert some degree of control is known as a regulated market. Execution venues may also include an organized trading facility, systemic internalizers, market makers, multilateral trading facility, or other liquidity providers that operate under a similar capacity but generally from a third w Read this Term located outside the EU. Such arrangements could undermine consumer protection and create an uneven playing field compared to EU-authorized execution venues.

In response to these risks, ESMA advises National Competent Authorities (NCAs) to exercise caution during the authorization process. It recommends that NCAs carefully evaluate the business structures of global firms to prevent them from circumventing MiCA obligations Obligations In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you Read this Term. This approach aims to protect consumers and ensure the transparent and orderly operation of crypto markets.

The Opinion emphasizes the need for a case-by-case assessment. It specifies requirements related to best execution, conflicts of interest, and the obligation to act in the best interests of clients. It also covers responsibilities regarding the custody and administration of crypto-assets on behalf of clients.

Crypto-asset execution venues are crucial for the crypto-asset ecosystem, and MiCA establishes detailed rules for the operation of trading platforms for these assets.

#ESMA address risks presented by global #crypto firms seeking authorisation ☂️ #MiCA for part of their activities (crypto brokerage)

👇 while keeping a substantial part of their group activities (intra-group execution venues) outside 🇪🇺 regulatory scopehttps://t.co/duh7HHVs0A pic.twitter.com/8M53rwpkX9

— ESMA - EU Securities Markets Regulator 🇪🇺 (@ESMAComms) July 31, 2024

Technical Standards for CASPs

Meanwhile, ESMA has released its second Final Report under the Markets in Crypto-Assets Regulation, as reported by Finance Magnates. This report outlines eight draft technical standards aimed at increasing transparency for retail investors and clarity for providers.

The standards cover sustainability indicators, business continuity for crypto-asset service providers (CASPs), trade transparency, orderbook formats, record-keeping, and the readability of white papers. They include data protocols to aid supervision by NCAs. The draft standards set technical requirements for both human and machine readability of crypto-asset white papers and provide templates for CASP records.