The European Securities and Markets Authority has released a detailed set of proposals regarding how crypto companies in the European Union can be authorized. This is the first time that new powers have been granted under the Markets in Crypto Assets law.

In its 160-page consultation, the EU Securities Agency outlines how crypto firms can handle complaints from users and resolve conflicts of interest.

The law was largely a href=” cryptoauthorizationlaw MICA/” rel=”noopener” target=”_blank”>agreed by June 2022/a>, but ESMA has clearly been influenced by subsequent allegations of poor governance and security in the crypto sector, such as those that followed The law was agreed upon by June 2022 but ESMA clearly influenced the legislation by the subsequent accusations of poor governance and cybersecurity in the crypto industry, including those following the FTX filing for bankruptcy.

The consultation also noted that “media reports on hack attacks against CASPs have resulted in significant amounts of crypto-assets stolen from clients.”

In a consultation lasting until September 20, the agency will also seek confidential information on crypto companies’ anticipated revenue, white paper numbers and their use of off- and on-chain trading.

ESMA announced that a second tranche of consultations would follow in October. These will cover sustainability and record keeping. A final round is due to be released early 2024, and will examine when crypto will count as a financial instrument and how foreign companies can serve EU clients.

The document stated that applicants must demonstrate that client funds and cryptos are not used by the company for its own account and also detail the security of the ICT system as well as the underlying distributed ledger technologies.

Companies will have to manage potential conflicts of interest with or between clients, if they, for example, execute orders on behalf of clients and operate a trading platform. Or if they staff has access to sensitive information about an issuer or crypto asset that they own.

The consultation coincides with the EBA’s (ESMA’s counterpart) warning stablecoin issues to prepare for MiCA rules in order to avoid a cliff edge when new regulations targeting cryptocurrencies linked to fiat come into effect in June 2024.

UPDATE (12 July, 10:09 UTC). Added rule detail to second paragraph. Quoted in the fourth paragraph. Detailed information in last two paragraphs.

UPDATE (12 July, 10:51 UTC). Adds a reference to EBA’s statement in the last paragraph.

Sheldon Reback is the editor.