Markets in Crypto Assets (MiCA)

2024 marks the introduction of MiCA — a regulatory framework proposed by the European Commission to regulate crypto assets and related activities within the European Union.

Whilst the regulation technically came into force in June 2023, it is still in the implementation phase with an intended deadline of December 2024. During this time, ESMA is consulting with the public on a range of technical standards that will be published sequentially in three packages. The first and second packages were published in June and October respectively, and the third package is due to be published in Q1 2024 — you can find the UK government’s response to the consultation here.

Package 3 will cover monitoring, detection and notification of market abuse. Publicly listed organisations in the UK and EU will be aware of some of the regulatory challenges this entails as they have had to comply with the Market Abuse Regulation (MAR) since 2016. The crucial difference, however, is that MiCA applies to all companies, not just publicly traded companies.

Given the speed at which the crypto industry is evolving, it is likely that there will be higher volumes of inside information compared to more ‘traditional’ markets and, hence, a greater need to keep track of who has access to that information at any one time.

Bearing in mind the crypto industry has suffered a fair amount of turbulence over the last few years — the collapse of FTX in 2022 being one of the most high-profile cases and, arguably, one of the most damaging for the industry — it would be prudent for issuers and service providers to start thinking about how they will incorporate MiCA into their governance structure.

The introduction of MiCA marks a sea change in terms of both industry- and Europe-wide regulation that brings the Crypto industry more in line with more ‘traditional’ markets. That said, ESMA note that it is an evolving and highly innovative industry that they don’t want to impinge with overbearing regulations that are too onerous to manage — bearing in mind that most Crypto projects are emerging entities with small or medium sized operational teams who will need to manage the regulatory burden.

It is therefore likely that this will be a new requirement for many crypto organisations. This will apply pressure on:

Personnel —

small teams won’t have the bandwidth or potentially the skill set to manage the additional requirements;

The bottom line —

they may need to invest in 3rd party systems or build new internal systems to ensure compliance;

Risk management —

failure to comply could result in both financial and reputational damage; and

Legal and compliance framework —

the need for implementing policies and procedures, and monitoring ongoing compliance.

Whichever approach they take, harnessing technology will be a big help to ensure they are compliant and demonstrate good governance to the regulator.

Managing the risks and obligations around inside information can be a significant challenge, particularly in terms of being able to provide a detailed audit trail. Crypto organisations required to do this for the first time will likely need guidance and the right tools to capture the right data sets and store it appropriately.

MiCA is going to take some time to bed in, but in an industry that’s suffered due to a lack of regulation, it will be a welcome change for the integrity of the markets. Identifying and managing inside information and lists of those who have access to it, will become part of the governance landscape.