The
European Securities and Markets Authority’s (ESMA’s) latest opinion on conflict-of-interest
requirements introduces a paradigm shift for Crypto-Asset Service Providers
(CASPs). The regulatory body’s enhanced framework, unveiled in January 2025,
not only suggests potential legal entity separation for conflicting services but
also implements stringent personal transaction monitoring and broadens the
definition of remuneration.
Last
week ESMA published a new opinion document, unveiling significant modifications to
its regulatory technical standards (RTS) on conflicts of interest for CASPs
under MiCA. These changes represent a crucial step toward stronger investor
protection and market integrity.
“ESMA suggests a limited number of changes to the amendments proposed
by the European Commission, as explained further below,” the regulatory body commented in the newest document. “ESMA acknowledges
that an appropriate balance should be found between, on the one hand, the protection of
investors and financial stability related objectives, and on the other hand, promoting safe
and sustainable innovation.”
A notable
addition appears in Recital 4, which introduces a more stringent approach to
managing acute conflicts of interest. When standard policies and procedures
prove insufficient, CASPs
may need to segregate conflicting crypto-asset services into separate legal
entities with independent management. This requirement particularly targets
situations where conflicts cannot be adequately managed within a single entity
or group structure.
Moreover, the
new Recital 11 introduces comprehensive requirements for monitoring the personal
transactions of connected persons. The framework now explicitly:
- Requires
close scrutiny of transactions by connected persons - Mandates
documentation and approval processes - Prohibits
transactions that would violate MiCA regulation
“Recital
11 mandating the monitoring of personal transactions of connected persons (with
the addition of article 6 on this very specific topic (Policies and procedures
on conflicts of interest in the context of personal transactions) and that
policies and procedures should include the prohibition of those transactions that infringe MiCA in particular title VI (prevention and prohibition of
market abuse),” commented Delphine Forma, Policy Lead at Solidus Labs.
Crypto Firms Face Enhanced
Oversight
Moving
further, the expanded scope of Article 5 introduces a comprehensive definition
of remuneration that covers all forms of payment, including both financial and
non-financial benefits, whether provided directly or indirectly by CASPs in
connection with crypto-asset services. This thorough approach aims to close
potential loopholes that could be exploited through alternative compensation
structures.
The
modifications, according to ESMA, should create a more robust framework for
CASPs to:
- Identify
and manage conflicts of interest more effectively - Implement
stronger internal controls - Maintain
clearer separation between potentially conflicting activities
Under the
new framework, CASPs must also implement comprehensive policies that integrate
three key elements. First, they need to establish detailed procedures for
monitoring and identifying personal transactions. Second, they must maintain
transparent remuneration disclosure frameworks that capture all forms of
compensation.
🪙 #ESMA and @EBA_News analysed recent developments in crypto-assets, decentralised finance (DeFi), #crypto lending, borrowing and staking → https://t.co/k2wSsoEHwa.
This publication contributes to the @EU_Commission report under Article 142 of #MiCA. pic.twitter.com/LEd9aEmxdz
— ESMA – EU Securities Markets Regulator 🇪🇺 (@ESMAComms) January 17, 2025
Finally,
they are required to develop organizational structures specifically designed to
prevent and manage potential conflicts of interest, with clear separation of
duties and responsibilities where necessary.
Proposed
changes are one thing, but reality is another. During an interview with Finance
Magnates at FMLS:24, Forma
candidly admitted that “the crypto industry is not ready for MiCA.”
“I don’t
think the regulators are even ready,” she added. “Some countries haven’t even
implemented an enforcement law. Furthermore, Belgium hasn’t even decided yet
who will be the regulator in charge of MiCA in the country.”
The
European Securities and Markets Authority’s (ESMA’s) latest opinion on conflict-of-interest
requirements introduces a paradigm shift for Crypto-Asset Service Providers
(CASPs). The regulatory body’s enhanced framework, unveiled in January 2025,
not only suggests potential legal entity separation for conflicting services but
also implements stringent personal transaction monitoring and broadens the
definition of remuneration.
Last
week ESMA published a new opinion document, unveiling significant modifications to
its regulatory technical standards (RTS) on conflicts of interest for CASPs
under MiCA. These changes represent a crucial step toward stronger investor
protection and market integrity.
“ESMA suggests a limited number of changes to the amendments proposed
by the European Commission, as explained further below,” the regulatory body commented in the newest document. “ESMA acknowledges
that an appropriate balance should be found between, on the one hand, the protection of
investors and financial stability related objectives, and on the other hand, promoting safe
and sustainable innovation.”
A notable
addition appears in Recital 4, which introduces a more stringent approach to
managing acute conflicts of interest. When standard policies and procedures
prove insufficient, CASPs
may need to segregate conflicting crypto-asset services into separate legal
entities with independent management. This requirement particularly targets
situations where conflicts cannot be adequately managed within a single entity
or group structure.
Moreover, the
new Recital 11 introduces comprehensive requirements for monitoring the personal
transactions of connected persons. The framework now explicitly:
- Requires
close scrutiny of transactions by connected persons - Mandates
documentation and approval processes - Prohibits
transactions that would violate MiCA regulation
“Recital
11 mandating the monitoring of personal transactions of connected persons (with
the addition of article 6 on this very specific topic (Policies and procedures
on conflicts of interest in the context of personal transactions) and that
policies and procedures should include the prohibition of those transactions that infringe MiCA in particular title VI (prevention and prohibition of
market abuse),” commented Delphine Forma, Policy Lead at Solidus Labs.
Crypto Firms Face Enhanced
Oversight
Moving
further, the expanded scope of Article 5 introduces a comprehensive definition
of remuneration that covers all forms of payment, including both financial and
non-financial benefits, whether provided directly or indirectly by CASPs in
connection with crypto-asset services. This thorough approach aims to close
potential loopholes that could be exploited through alternative compensation
structures.
The
modifications, according to ESMA, should create a more robust framework for
CASPs to:
- Identify
and manage conflicts of interest more effectively - Implement
stronger internal controls - Maintain
clearer separation between potentially conflicting activities
Under the
new framework, CASPs must also implement comprehensive policies that integrate
three key elements. First, they need to establish detailed procedures for
monitoring and identifying personal transactions. Second, they must maintain
transparent remuneration disclosure frameworks that capture all forms of
compensation.
🪙 #ESMA and @EBA_News analysed recent developments in crypto-assets, decentralised finance (DeFi), #crypto lending, borrowing and staking → https://t.co/k2wSsoEHwa.
This publication contributes to the @EU_Commission report under Article 142 of #MiCA. pic.twitter.com/LEd9aEmxdz
— ESMA – EU Securities Markets Regulator 🇪🇺 (@ESMAComms) January 17, 2025
Finally,
they are required to develop organizational structures specifically designed to
prevent and manage potential conflicts of interest, with clear separation of
duties and responsibilities where necessary.
Proposed
changes are one thing, but reality is another. During an interview with Finance
Magnates at FMLS:24, Forma
candidly admitted that “the crypto industry is not ready for MiCA.”
“I don’t
think the regulators are even ready,” she added. “Some countries haven’t even
implemented an enforcement law. Furthermore, Belgium hasn’t even decided yet
who will be the regulator in charge of MiCA in the country.”