Benzinga - The European Union's regulatory body expressed concerns over the potential for global cryptocurrency firms to exploit regulatory discrepancies among member states.
This came to light before the Markets in Crypto Assets regulation (MiCA) was slated to be in effect by December 2024.
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Though MiCA licensing will only be mandatory by July 2026, companies can operate until then if registered under existing national anti-money laundering frameworks.
This interim provision has caused unease among officials of the European Securities and Markets Authority (ESMA). They fear it might be misleading for the very consumers MiCA aims to protect, allowing firms to take advantage of the differing stances of national regulators.
In a statement, ESMA highlighted the challenges posed by "complex and opaque" company structures. The organization noted, "Opaque group structures may also render it difficult for clients of service providers to know which entity they are dealing with and its regulatory status."
The statement further emphasized concerns over some crypto entities lacking a robust compliance ethos, thereby exploiting their extensive reach to engage in regulatory maneuvering.
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ESMA is pushing for national regulators to stymie the creation of "letterbox" entities, which would enable overseas companies to function within the EU without significant operations or staff presence.
Although MiCA aims to standardize regulations across member states, the flexibility it offers in terms of transitional measures and exceptions for decentralized networks could pave the way for regulatory arbitrage.
ESMA Chair Verena Ross previously voiced her reservations about the prospect of companies seeking jurisdictions with the most lenient regulations.
Such concerns are underscored by instances like FTX securing approval to operate in the EU via Cyprus prior to its collapse in November 2022.
While the final outlines of MiCA are yet to be solidified, ESMA is urging crypto companies to begin their dialogues with regulators.
ESMA stressed the importance of regulatory bodies expediting the finalization of procedures, hinting at a potential informal vetting process even before firms make their official license applications.
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