As of October 20, 2023, the regulatory landscape for crypto assets in the European Union is undergoing significant developments, with a focus on promoting market integrity and investor protection. This comprehensive overview will delve into three key developments, shedding light on the recent joint guidelines proposed by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA), Germany’s approach to MiCA and the Digitalisation of Financial Markets, and the United Kingdom’s plans for formal legislation in the crypto industry by 2024.
EBA and ESMA’s Joint Guidelines on MiCA Implementation
The EBA and ESMA have jointly released a Consultation Paper on two sets of guidelines under MiCA. These guidelines pertain to the suitability assessment of members of the management body and the suitability of shareholders and members with qualifying holdings of issuers of asset-referenced tokens (ARTs) and crypto-asset service providers (CASPs). The primary objective is to provide clarity and harmonization in assessing the suitability of management bodies, shareholders and members with qualifying holdings, thereby reducing the risk of regulatory arbitrage.
The draft guidelines on the suitability assessment of the management body focus on criteria such as knowledge, skills, experience, good repute, honesty, integrity and the ability to commit sufficient time to duties. Simultaneously, the guidelines for assessing shareholders and members with qualifying holdings aim to establish a common methodology for competent authorities to evaluate suitability for authorization as ART issuers or CASPs. The consultation period extends until January 22, 2024, allowing stakeholders to contribute their insights.
Germany’s Approach to MiCA Implementation
Germany has already taken proactive steps towards aligning its regulatory framework with MiCA. The German Ministry of Finance introduced the Draft Act on the Digitalisation of the Financial Markets revealing key provisions to be analysed closely. The proposed Crypto Markets Supervision Act (KMAG) grants the German regulator the necessary competences to oversee compliance with MiCA, covering activities such as the issuance of asset-referenced and e-money tokens and the provision of crypto-asset services.
The Draft Act introduces the concept of “cryptographic instruments”, aligning with MiCA’s definition of crypto-assets. Notably, it establishes a new licensable activity called “qualified crypto-custody business” covering the safeguarding, custody, and management of cryptographic instruments. The document also addresses NFTs, crypto-lending, safeguarding of reserve assets, sanctions and transitional measures. Germany, in line with ESMA’s recommendation, limits reliance on existing licenses until December 30, 2025.
UK’s Plans for Crypto Legislation
The United Kingdom has confirmed its intention to regulate the cryptocurrency industry by formal legislation, with plans to introduce laws before Parliament by 2024. The government’s response to a consultation paper emphasizes bringing crypto asset activities under regulations similar to those governing traditional financial services. The proposed regulations include stricter rules for exchanges, custodians and crypto lending companies.
The UK aims to establish a robust regulatory framework, ensuring market abuse prevention and enhanced disclosure standards for cryptoasset issuance. While the exact nature of UK crypto laws remains unclear, the government’s proactive approach aligns with the EU’s MiCA regulation, providing a clear framework for digital assets.
As we approach the implementation date of MiCA on December 30, 2024, the European regulatory landscape is witnessing dynamic changes. The collaborative efforts of regulatory authorities such as that between the EBA and ESMA, aim to create a harmonized and secure environment for crypto assets. Germany’s proactive alignment with MiCA through the Draft Act reflects a commitment to effective oversight and regulation. The UK’s announcement to legislate the crypto industry underscores its determination to establish a comprehensive regulatory framework, positioning itself as a global player in cryptoasset technology. Stakeholders and industry participants are encouraged to actively engage in the consultation processes and stay informed about evolving regulations in this rapidly advancing sector.
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Joint EBA & ESMA Consultation: Consultation on joint EBA and ESMA Guidelines on the suitability assessment under MiCA (europa.eu)
Proposed UK Crypto Regulations: Future_financial_services_regulatory_regime_for_cryptoassets_RESPONSE.pdf (publishing.service.gov.uk)