Providers of crypto services are expected to be subject to authorization requirements in 2024 when the new Markets in Crypto Assets Regulations (MiCA) of the European Union comes into force. In addition to the obligation to obtain permission before commencing business, crypto service providers will also have to fulfill far-reaching duties of care and good conduct in the new regulatory regime in ongoing business operations. In this respect, the legislator would like to ensure a professional, honest and transparent European crypto market.
Financial instruments within the meaning of the market in the Financial Instruments Directive (MiFID2) will not be crypto assets and will therefore not be subject to the MiCA regulations. However, the compliance requirements of crypto service providers are largely based on the obligations arising from securities compliance in the MiFID2 regulatory regime. But which due diligence and code of conduct obligations will crypto service providers in Europe have to fulfill in the future?
What compliance obligations do crypto service providers have under MiCA?
Like securities service providers under MiFID2, crypto service providers will have to act honestly, fairly and professionally towards their customers and in the best interests of their customers under the MiCA regulations in the future in the course of their business activities.
Professional and promotional communication will always have to be clear, unambiguous and not misleading. According to MiCA, crypto service providers must also identify advertising statements and marketing communication as such. They will also always make their customers aware of the risks associated with crypto transactions and, if they operate a crypto trading platform, provide exchange services in relation to crypto values, crypto consulting services or crypto portfolio management services, they must provide their customers with hyperlinks to white papers, published on the crypto assets at which they offer crypto services.
Crypto service providers will always have to publish the prices of their services prominently on their website. Likewise, they will have to publish information on their website about the environmental and climate effects of the consensus mechanisms of the crypto assets that are the subject of their crypto services.
Detailed questions regarding the future compliance obligations of crypto service providers are to be developed by ESMA within the framework of technical standards and published no later than twelve months before the MiCA becomes legally effective.
Specific requirements for crypto custodians and for customer fiat money
However, the MiCA provides for special obligations for crypto service providers who want to offer their customers the safekeeping of crypto assets. In particular, crypto custodians will have to strictly separate crypto assets from customers from their own holdings. In the event of insolvency, crypto service providers should have effective processes and mechanisms in place to effectively protect customers’ crypto assets from loss. The insolvency law applicable nationally in each individual case will have to clarify which specific processes and mechanisms these are.
Crypto service providers should never mix fiat money from customers with their own assets. Crypto service providers will therefore have to transfer customer funds to a segregated bank account with a central bank or an approved credit institution at the end of each business day.