In its first consultation package on the Markets in Crypto-Assets Regulation (MiCA) published in July this year, the European Securities and Markets Authority (ESMA) warned that there is “no such thing as a safe crypto asset”. Almost half a year on, the authority’s stance doesn’t appear to have changed, but is leaning on robust technical standards and supervisory convergence to manage the crypto asset market. At the recent Financial Supervisors Academy (FSA) forum in Malta, ESMA chair Verena Ross spoke about the areas of focus in the ongoing second MiCA consultation.
There are currently no requirements on the information that crypto asset issuers publish, which makes proper comparisons between different crypto assets, and understanding their inherent risks difficult. For regulators, this lack of consistency “limits the possibilities of classification and cross-sector analysis,” said Verena Ross.
Technical standards would therefore “be useful tools for investors to navigate the troubled waters of crypto asset markets”. The goal is to define a standardised format for white papers that will be required of all crypto assets offered in the EU.
In addition to establishing technical standards, ESMA has the ambition to achieve machine readability in these white papers. This will “turn an otherwise unmanageable pile of information into an invaluable source of supervisory intelligence”.
The authority is particularly concerned about permissionless distributed ledgers. “The absence of a viable “back-up” or redundancy option in the event of a disruption to these types of ledgers poses significant “lock-in” risk for crypto asset service providers (CASPs),” Verena Ross explained. ESMA thus proposes that CASPs be required to take extra precautions for permissionless distributed ledgers in their business continuity measures.
Follow the rules
On supervisory convergence, member states are encouraged to designate competent authorities before the June 2024 deadline, and ideally by the end of this year. Firms already offering crypto services will be given an adjustment period of 18 months before they have to comply with MiCA, but ESMA considers this too long and is suggesting that member states limit this period to 12 months.
”It is our view that minimising the time during which a patchwork of different laws will apply across the 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,” said Verena Ross.