The European Securities and Markets Authority (ESMA) is advocating for a more robust regulatory landscape for crypto assets within the European Union. In an official opinion issued on October 16, ESMA has called on the European Commission to implement amendments to the Markets in Crypto-Assets Regulation (MiCA), expressing concerns over the current framework’s ability to effectively oversee the crypto space.
ESMA’s proposed changes primarily focus on refining two key regulatory technical standards (RTS) within MiCA. These RTS cover crucial aspects like disclosure requirements for crypto service providers and the authorization process for crypto asset service providers (CASPs). One significant change advocated by ESMA is the mandatory requirement for external cybersecurity audits for all CASP applicants. ESMA believes this measure is critical for bolstering investor protection and enhancing market resilience.
Under these proposed rules, CASP applicants would be required to undergo an external assessment of their management’s integrity, confirming the absence of any past penalties beyond standard commercial or financial law issues. The regulator further emphasizes the need to thoroughly examine any potential involvement in fraudulent activities, professional liability claims, or other financial misconduct.
ESMA’s position underscores the importance of stricter entry requirements for service providers, particularly in light of increasing concerns about cybersecurity within the crypto ecosystem. This proactive approach aims to improve the review process for applicants seeking to offer crypto-related services within the EU, ultimately strengthening market resilience and fostering investor confidence.
The proposed amendments will now be reviewed by the European Parliament and the European Council. The council has the authority to adopt the RTS with modifications or reject them entirely. The European Parliament, within a three-month window, can also object to the revised RTS proposed by the Commission.
These regulatory efforts come at a critical juncture as the EU prepares for the final implementation of MiCA on December 30. This implementation marks a pivotal moment in the region’s efforts to comprehensively regulate digital assets.
Anthony Yeung, Global Head of Strategic Development at blockchain protection firm Coincover, commented on the evolving landscape of crypto regulation. He stated that the Web3 industry can only continue to attract new users and grow through stricter cyber protection rules. Yeung emphasized that beyond financial losses, instances of theft and hacking damage the reputation of firms and erode broader market confidence.
“Centralised exchanges in particular are increasingly becoming prime targets for hackers who are being more and more innovative in their approaches. While regular external security audits will certainly help improve the industry, it won’t eliminate this threat completely. Crypto firms need to continue investing in threat prevention and recovery technology, focused on their users, to fully bolster their security infrastructure,” he said.
The ongoing evolution of crypto regulation will be a central topic at Benzinga’s Future of Digital Assets event on November 19.