ESMA urges NCAs and CASPs to prepare for a smooth transition to MiCA
Published 27 October 2023
On 17 October 2023, the European Securities and Markets Authority (ESMA) released a letter addressed to the Economic and Financial Affairs Council (ECOFIN) and a statement directed at the national competent authorities (NCA) and crypto-asset service providers (CASPs) with the purpose of promoting comprehensive preparations for a smooth transition to the Markets on Crypto-Assets Regulation (MiCA).
ESMA’s letter to ECOFIN
In the letter addressed to ECOFIN, ESMA urges Member States to promptly designate the competent authorities responsible for carrying out the functions and duties outlined in MiCA. Additionally, ESMA recommends Member States to consider limiting the optional transitional period applicable to CASPs to 12-months, should they choose to offer it in their jurisdictions. This cautious approach stems from concerns that an extended transitional period might compromise the effectiveness of the MiCA rulebook and pose risks to clients. Furthermore, ESMA encourages Member States to notify their approach to the transitional period well in advance of the deadline set for 30 June 2024, ideally aiming to do so by the end of 2023.
The transitional period, as outlined in Article 143(3) of MiCA, permits CASPs offering services in compliance with existing laws before MiCA’s application date of 30 December 2024, to continue their operations without adhering to the authorisation requirements until 1 July 2026. However, the Member States retain the discretion to either not apply or reduce this transitional period.
We anticipate that the majority of Member States will align with ESMA’s recommendations and limit the transitional period to a maximum of 12 months. Additionally, we anticipate that the Danish FSA will serve as the pertinent NCA for overseeing MiCA compliance in Denmark.
ESMA’s statement directed at NCAs and CASPs
In the statement addressed to the NCAs and CASPs, ESMA outlines clear expectations for both groups leading up to and during the MiCA transitional period.
Forum-shopping and reverse solicitation
Furthermore, ESMA’s statement also strongly emphasises that both ESMA and the NCAs are determined to ensure that entities involved in the provision of crypto-asset services understand that the EU is not a place for forum-shopping or illicit practices, and that the reverse solicitation exemption in MiCA, allowing third-country parties to provide crypto-asset services in the EU without complying with MiCA requirements, should be understood as very narrowly framed – it cannot be assumed, nor exploited to circumvent MiCA.
Next steps: ESMA and NCAs will, according to the statement, continue pursuing initiatives to support and promote supervisory convergence during the MiCA implementation and transitional phases.
We expect Member States to notify their approach to the transitional period by the end of 2023. We also anticipate ESMA to further clarify relevant provisions of MiCA in regulatory and implementing technical standards, as well as Q&As.