[ESMA24-229244789-4580 ] SMSG Advice on the Consultation Paper on Technical Standards specifying certain requirements of the Markets in Crypto Assets Regulation (MiCA)

The SMSG has provided advice to ESMA regarding its Consultation Paper on Technical Standards for MiCA. The SMSG emphasizes the need for a balanced approach in regulating the crypto asset sector, considering both investor protection and fostering innovation.
The SMSG believes that entities operating in the crypto space should be subjected to the same level of regulation and oversight as traditional financial intermediaries. This approach is seen as essential not only to ensure a level playing field but also to guarantee financial stability and investor protection. A sound regulatory framework, coupled with rigorous oversight, is deemed vital to promote trust within the crypto ecosystem.
The ’two-track approach’ proposed by ESMA, which differentiates between notification requirements for regulated financial entities and other entities, is deemed appropriate by the SMSG. It is welcomed, especially for highly regulated players who can benefit from an alleviated notification regime.
The SMSG supports ESMA’s approach to considering undesirable developments in the crypto ecosystem while defining the information required for an application, as it is seen as necessary for effective investor protection.
The SMSG calls for the regulation of online marketing activities by ’Finfluencers’ due to their significant role in the distribution of crypto assets, which may lead to potential cases of false advertisements and price manipulation.
Regarding conflicts of interest, the SMSG suggests that they should primarily be prevented, with disclosure as a secondary measure. This approach is in line with the idea of preventing conflicts of interest in the crypto asset sector.
Since crypto markets are inherently global, the SMSG highlights the need for cross-border coordination to enhance investor protection and minimize regulatory arbitrage. It is particularly challenging to define what constitutes solicitation or reverse solicitation in the context of cryptocurrencies due to various channels like blogs and message boards.
The SMSG emphasizes the importance of monitoring developments in the DeFi sector and providing clarifications regarding the applicability of MiCA Regulation to specific operations within DeFi settings.
While MiCA Regulation provides essential safeguards, the SMSG believes it’s crucial to ensure that investors do not overrate the protection it provides. Monitoring how CASPs use the MiCA authorization in their communication is suggested to prevent any misconceptions about the level of protection it offers.
Finally, prudential requirements for CASPs should be functionally equivalent to those applied to regulated institutions. Prudential safeguards need to consider various factors, such as the value of assets in custody or the value of crypto-assets placed or traded, to ensure both investor protection and market stability.