June 2024 marked significant progress in the European Union's Markets in Crypto-Assets (MiCA) framework. The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) provided clarity and guidance to the crypto-asset industry.
Guiding the Industry: EBA/ESMA Joint Guidelines on Suitability Assessments
These guidelines set the standards for assessing the suitability of management bodies and shareholders with qualifying holdings in issuers of asset-referenced tokens (ARTs) and crypto-asset service providers (CASPs). This ensures that individuals and entities involved in the crypto-asset market are of good repute, possess the necessary qualifications, and are free from conflicts of interest.
For firms, this means:
Rigorous assessment of management body members and shareholders' qualifications.
Ongoing monitoring to maintain suitability throughout the authorisation period.
Proactive disclosure of any changes in the management body to relevant authorities.
EBA Regulatory Products under MiCA
The EBA published technical standards and guidelines for reporting, liquidity stress testing, and supervisory colleges for ARTs and electronic money tokens (EMTs). These measures enhance the crypto-asset market's transparency, stability, and risk management.
For firms, this means:
Issuers of non-EU currency ARTs and EMTs must adhere to new reporting requirements.
Crypto-asset service providers must understand and support issuers' reporting obligations.
Financial entities should assess risks related to their exposure to ARTs and EMTs.
All relevant entities must prepare for liquidity stress testing and participate in supervisory colleges when required.
EBA Technical Standards and Guidelines on Prudential Matters
The EBA released a comprehensive package addressing own funds, liquidity requirements, and recovery plans for ART and EMT issuers. These prudential measures aim to ensure issuers' financial soundness and resilience and protect consumers.
For firms, this means:
Issuers must adhere to stricter requirements for their funds and liquidity.
Robust stress testing programs and comprehensive liquidity management policies are essential.
Recovery plans that meet specific format and content requirements must be prepared.
EBA Final Report on Remuneration Policy
The EBA's final report sets out regulatory technical standards on remuneration policies for issuers of significant ARTs and e-money tokens. The guidelines aim to align remuneration practices with sound risk management principles and prevent excessive risk-taking.
For firms, this means:
Developing and implementing remuneration policies that comply with the RTS.
Establishing robust governance arrangements and risk management processes to oversee these policies.
Adjusting compensation practices to align with the specific guidance on remuneration structures.
Ensure compliance and be prepared to demonstrate it to competent authorities.
ESMA Draft Technical Standards on Conflicts of Interest
ESMA's draft technical standards focus on managing conflicts of interest for crypto-asset service providers (CASPs). These standards aim to protect investors and ensure fair and transparent market practices.
For firms, this means:
Developing comprehensive policies and procedures to address conflicts of interest.
Ensuring these policies are proportionate to the size and operations of the firm.
Conducting thorough risk assessments to identify all potential conflicts.
Implementing effective measures to prevent, manage, and mitigate conflicts.
Transparent disclosure of conflicts of interest on their websites.
June 2024 has been a month of significant regulatory advancements in the European crypto-asset landscape. The EBA and ESMA have clarified and solidified the MiCA framework, enhancing transparency, stability, and investor protection in the evolving crypto-asset market.