The European Union (EU) regulators have proposed new rules that would require crypto asset service providers to undergo strict vetting of their shareholders and board members. These rules are part of the Markets in Crypto Assets regulation (MiCA), aimed at establishing a unified framework for crypto activities across the 27-nation bloc.
MiCA’s Regulatory Requirements for Crypto Entities
MiCA is set to be implemented in December 2024, including crypto assets that are not yet subject to other EU financial regulations. The legislation aims to establish an extensive framework for crypto issuers, service providers, and users. It covers crucial aspects like authorizations, supervision, consumer protection, market integrity, and financial stability.
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One of MiCA’s primary goals is to ensure that crypto asset service providers operate responsibly and without endangering the financial system or public welfare. To achieve this objective, regulators have put forth requirements regarding ownership and government structures for these entities.
Ownership and Governance Requirements
According to the consultations issued by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) on Friday, crypto asset service providers will need to comply with certain requirements. Shareholders who hold a qualifying share (more than 10% of capital or voting rights) must be fit and proper.
They should have no prior convictions related to money laundering, terrorist financing, or any other crimes that could impact their reputation. Board members also need to be considered fit and proper, possessing sufficient knowledge, skills, and experience for their roles. Additionally, they are expected to act with honesty, integrity, and independence.
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Crypto asset service providers are required to establish adequate internal control mechanisms, risk management systems, compliance functions, audit functions, and remuneration policies. Furthermore, they must disclose their crypto exposures and define business lines based on MiCA categories.
The regulators possess the authority to withdraw or suspend the authorization of crypto asset service providers if they fail to meet these requirements. If any breaches of the MiCA rules occur, the regulators can impose sanctions or administrative measures.
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