Publication of an important final report for crypto service providers

The report addresses some requirements for cryptocurrency vendor policies and procedures An appendix to the final report is a draft of regulatory technical standards on a number of practical issues.

These include criteria for identifying conflicts of interest and potential situations and circumstances affecting the possibility of conflicts of interest.

Why has there been a change?

The report summarizes the European Securities and Markets Authority’s (hereinafter: the Regulator) previous actions resulting from the Regulation of Crypto-Actives Markets (hereinafter: MICA). In July 2023, a consultation period began with interested cryptoasset providers. In September 2023, the Regulator analyzed 36 sets of responses to prepared questions and, based on them, presented a proposal for regulatory technical standards.

The report consists of a brief summary of the regulator’s activities to date and 3 annexes. The first two appendices deal with cost-benefit analysis and advice to a group of exchange and securities stakeholders. The last appendix is of particular importance, as it is a draft of regulatory standards aimed at crypto service providers.

Legal basis

The starting point for the scope of the legislative changes is Article 72 of MICA. This provision requires crypto service providers to:

1. implement and maintain effective policies and procedures to identify, prevent, manage and disclose conflicts of interest;
2. and disclose prominently on their website to their customers and potential customers the general nature and sources of conflicts of interest and the steps taken to mitigate them.

Further excerpts also set forth examples of conflicts of interest between crypto-asset service providers and conflicts between two or more clients whose interests are mutually exclusive.

The regulator was obligated under Article 72 of MICA to create specific requirements for policies and procedures relating to the above aspects by June 30, 2024.

What does the draft concern?

The draft regulation of technical standards is a clear document consisting of 10 articles.

The most relevant aspects described in the draft concern:

1. conflicts of interest potentially harmful to customers (Article 2),
2. conflicts of interest potentially harmful to the crypto service provider (Article 3),
3. policies and procedures regarding conflicts of interest (Article 4),
4. remuneration procedures, policies, and arrangements (Article 5),
5. scope of personal transactions (Article 6),
6. personal transactions (Article 7),
7. disclosure of the general nature and source of conflicts of interest and steps taken to mitigate them (Article 8),
8. additional requirements for the introduction of certain services (“placing”) (Article 9).

The most attention was paid to Article 4 of the RTS on, actions taken in the case of conflicts of interest. It lists the minimum actions that must be taken into account by a provider when establishing procedures to address conflicts of interest, mentioning, among other things: o promptly reporting and submitting to the appropriate internal reporting channel any matter that may result in a conflict of interest.

When will the changes take effect?

The draft is expected to take effect on the 20th day after publication in the Official Journal of the European Union.

ESMA’s crucial changes for cryptocurrency providers

The described amendments are characterized by great importance for the practice of the FINTECH sector and, in particular, cryptocurrency service providers. They organize mandatory procedures and clarify frequently used terms.

If you have doubts related to the adjustment of your internal procedures, please contact us at [email protected]!