Why MiCA Won't Protect Your Crypto Investments until December 2024

by Damian Chmiel
  • ESMA calls on EU Member States to expedite preparations for MiCA.
  • It warns retail customers that the regulations won’t protect them until December 2024.
MiCA
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The European Securities and Markets Authority (ESMA), the EU's financial watchdog, today (Tuesday) issued statements urging member states and market participants to prepare for the transition to the Markets in Crypto-Assets Regulation (MiCA). The regulation aims to standardize crypto-asset activities across the EU, enhancing consumer safeguards and market stability.

ESMA's Crypto Call to Action

ESMA's Chairwoman, Verena Ross has addressed a letter to the Economic and Financial Affairs Council, urging Member States to promptly designate competent authorities for MiCA implementation. Ross also suggests limiting the optional "grandfathering" period to 12 months for jurisdictions that choose to offer it.

ESMA has outlined expectations for national authorities and crypto-asset service providers, encouraging them to align their supervisory practices for effective regulation from day one.

MiCA aims to create a unified regulatory framework for crypto-assets across the EU. The regulation, officially approved in May 2023, is set to come into force in December 2024, with a transitional period that could extend until July 2026, depending on the Member State.

During this transitional period, entities already providing crypto-asset services can continue to operate under existing laws if member states choose to apply the "grandfathering" clause.

Risks and Safeguards

ESMA warned that crypto-assets will remain inherently risky even after MiCA's implementation. The regulator advises consumers to be cautious when investing in crypto-assets and to be aware of the regulatory status of their investments. ESMA also noted that full MiCA protections will not apply until the regulation is fully implemented, urging consumers to be aware of the risks and the limited protections available during the transitional period.

“MiCA rules on the provision of crypto-asset services will not enter into application until December 2024. As such, holders of crypto-assets and clients of crypto-asset service providers will not benefit during that period from any EU-level regulatory and supervisory safeguards or recourse mechanisms built into the Regulation,” ESMA commented in the official statement.

ESMA has encouraged market participants to prepare for MiCA by engaging in early dialogue with relevant authorities and informing clients about the regulatory status of their services. Entities are also urged to apply for MiCA authorization as soon as possible to benefit from passporting rights within the EU during the transitional period.

For example, Malta's Financial Services Authority has already taken steps to align the island's existing cryptocurrency regulations with MiCA regulations. As a result, it has initiated public consultations in the country regarding the proposed changes. ESMA has also issued a new consultation document on MiCA, published at the beginning of this month.

In the meantime, the pan-European regulator issued new guidelines to improve circuit breakers for market stability.

The European Securities and Markets Authority (ESMA), the EU's financial watchdog, today (Tuesday) issued statements urging member states and market participants to prepare for the transition to the Markets in Crypto-Assets Regulation (MiCA). The regulation aims to standardize crypto-asset activities across the EU, enhancing consumer safeguards and market stability.

ESMA's Crypto Call to Action

ESMA's Chairwoman, Verena Ross has addressed a letter to the Economic and Financial Affairs Council, urging Member States to promptly designate competent authorities for MiCA implementation. Ross also suggests limiting the optional "grandfathering" period to 12 months for jurisdictions that choose to offer it.

ESMA has outlined expectations for national authorities and crypto-asset service providers, encouraging them to align their supervisory practices for effective regulation from day one.

MiCA aims to create a unified regulatory framework for crypto-assets across the EU. The regulation, officially approved in May 2023, is set to come into force in December 2024, with a transitional period that could extend until July 2026, depending on the Member State.

During this transitional period, entities already providing crypto-asset services can continue to operate under existing laws if member states choose to apply the "grandfathering" clause.

Risks and Safeguards

ESMA warned that crypto-assets will remain inherently risky even after MiCA's implementation. The regulator advises consumers to be cautious when investing in crypto-assets and to be aware of the regulatory status of their investments. ESMA also noted that full MiCA protections will not apply until the regulation is fully implemented, urging consumers to be aware of the risks and the limited protections available during the transitional period.

“MiCA rules on the provision of crypto-asset services will not enter into application until December 2024. As such, holders of crypto-assets and clients of crypto-asset service providers will not benefit during that period from any EU-level regulatory and supervisory safeguards or recourse mechanisms built into the Regulation,” ESMA commented in the official statement.

ESMA has encouraged market participants to prepare for MiCA by engaging in early dialogue with relevant authorities and informing clients about the regulatory status of their services. Entities are also urged to apply for MiCA authorization as soon as possible to benefit from passporting rights within the EU during the transitional period.

For example, Malta's Financial Services Authority has already taken steps to align the island's existing cryptocurrency regulations with MiCA regulations. As a result, it has initiated public consultations in the country regarding the proposed changes. ESMA has also issued a new consultation document on MiCA, published at the beginning of this month.

In the meantime, the pan-European regulator issued new guidelines to improve circuit breakers for market stability.

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