Response to ESMA's consultation on MiCA

Earlier last year the #DLT team within x-markets consulting came together to respond to ESMA’s consultation on the Technical Standards of the Markets in Crypto Assets Regulation (MiCA).

Recently, ESMA published the list of stakeholders who responded to the call for consultation. The responses can be viewed here:

Consultation on the Technical Standards specifying certain requirements of MiCA (1st package) (europa.eu)?

We are happy to share that x-markets is one of the 26 stakeholders who had responded to ESMA’s consultation. We are delighted to have our team members provide their expert opinion at a crucial juncture when the regulatory framework for crypto-asssets is being developed and the crypto space is exploring its next steps after the long crypto-winter.

Upon reviewing the responses of the other stakeholders five key themes stood out

1. Asset Segregation
2. Complaints Handling
3. Business Continuity Practices
4. Conflict of Interest
5. Liquidity Pools

Asset Segregation

Stakeholders have identified the need for clear asset segregation. Key industry players such as Kraken Digital Asset Exchange and ABI - Associazione Bancaria Italiana have underscored the need for this in their responses. We agree with KRAKEN’s stand viz; “It should be explicitly recognised that omnibus accounts are allowed as they represent best practices existing in both traditional finance and in crypto-asset markets”. Furthermore, we are in agreement with Bitpanda regarding the need for clearer definitions of segregation in relation to Crypto-Asset Service Provider’s (CASPs) own accounts and clients, as well as segregation between clients' funds. This area requires further clarification to ensure consistency and transparency.?

Complaints Handling

Safello underscored the need to establish what would constitute a customer complaint. This reiterates our position that MiCA should ensure that CASPs are well positioned to investigate and resolve client complaints in a timely manner. Having a clear understanding of what constitutes a customer complaint would be the first step in this regard. We agree with multiple respondents that uniform and harmonised complaint handling standards and guidelines are essential across financial sectors. This is needed to prevent the compliance overburden on CASPs and issuers.

Business Continuity Practices

Responses on this topic varied from highlighting the importance of risk assessment methodologies to identify and mitigate cyber risk, to combining the best of multiple regulations. For example, Kraken Digital Asset Exchange recommended that MiCA should align with the Digital Operational Resilience Act (‘DORA’). Lukka suggested that CASPs provide supplemental information to include a brief documentation on how it would approach unexpected down-time of its systems. We agree that by doing so, CASPs would uphold the highest regulatory standard on Operational Resilience & Business Continuity Practices.

Conflict of Interest

The topic of conflict of interest (COI) was addressed by multiple respondents. According to their feedback, the handling of COI requires further clarification and could potentially overburden CASPs without proper harmonisation of requirements. We are fully aligned with Federation of European Securities Exchanges on the proposal that it would be beneficial to leverage the experience gained from the implementation and enforcement of the Market Abuse Regulation (MAR) and to reference it in the COI requirements for CASPs.

Liquidity Pools

We agree with Federation of European Securities Exchanges on the inclusion of other trading systems, such as liquidity pools, as mechanisms for collecting and executing orders by the trading platform for crypto-assets. We advocate for additional liquidity lock-up requirements for liquidity providers within these pools.?

We are delighted to see the level of technical discourse being maintained in these discussions. By laying emphasis on topics such as BCP, Asset Segregation, Complaints Handling, and Conflict of Interest, we see the importance being laid on good governance and investor protection.

We firmly believe that good governance and investor protection are key pillars for sustainable growth in the long run.

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