The European securities regulator warned about the significant risks associated with global companies conducting crypto transactions outside the European Union to circumvent MiCA legislation.
The European Securities and Markets Authority (ESMA) issued a special document highlighting the possibility of cryptocurrencies being used for offshore transactions by Multifunction Crypto-asset Intermediaries (MCI) operating both inside and outside the EU.
MCIs are individual firms or groups of affiliated companies organized around a wide range of services or products. They’re typically centered around the operation of a single trading platform. A prime example of an MCI is the FTX crypto exchange ecosystem prior to its collapse.
In the paper, the ESMA expresses its greatest concern about the possibility of regulatory arbitrage by such entities. The regulator fears that MCIs may seek to minimize the MiCA bill’s exposure by conducting part of their business outside the EU. This could lead to conflicts of interest, reduce investor protection, and create uneven competition between platforms inside and outside the EU.
The ESMA warns that some crypto companies that are part of MCIs may be unregulated trading platforms located outside the EU. Accordingly, their level of consumer protection won’t meet MiCA standards, creating extra risks for investors.
The regulator recommended that national competent authorities (NCA) carefully assess the business models and activities of MCI to prevent them from becoming offshore. In particular, regulators should closely monitor the delegation of functions within MCIs to ensure they don’t breach regulatory requirements. In turn, the ESMA stands ready to provide its expertise and use its powers to support a harmonized and uniform approach to the supervision of MCIs seeking to provide services in the EU.
The MiCA bill came into force in the EU this year. European financial regulators also developed a standardized test to assess whether a particular cryptocurrency meets regulatory requirements under the MiCA bill. That said, regulators are warning crypto users that MiCA won’t be able to protect their interests for the next three years fully.
