ESMA’s Guidelines Shape Crypto Regulation under MiCA

ESMA’s Guidelines for Regulating Crypto Firms

The European Securities and Markets Authority (ESMA) recently introduced new supervisory guidelines under the EU’s Markets in Crypto-Assets Regulation (MiCA) with the intention to aid national regulators in the detection and prevention of market abuse within the crypto industry. Although targeted at regulators, these guidelines will have a widespread impact on the crypto sector, altering how organizations are monitored and how data is gathered. The new guidelines signify a shift towards increased scrutiny of exchanges, influencers, and activities associated with blockchain manipulation. Companies operating in the crypto space should anticipate more structured oversight and a greater emphasis on accountability.

MiCA was established to standardize regulations for the crypto-assets market within the EU. This legislation concentrates on areas that were previously unregulated, focusing on aspects like transparency, disclosure, authorization, and supervision of transactions related to the issuance and trading of crypto-assets. By regulating public offerings of crypto-assets and ensuring that consumers are informed about associated risks, MiCA aims to uphold market integrity and financial stability in the European sector. Since coming into effect on June 29, 2023, and applying from December 30, 2024, ESMA is required by Article 92(3) of the regulation to release supervision guidelines for NCAs by June 30, 2025, two years post-regulation commencement.

The main goal of ESMA’s guidelines is to establish consistent, effective, and risk-based supervisory practices among NCAs to combat issues like insider trading, market manipulation, and unauthorized disclosure of inside information. Given the unique characteristics of the crypto markets, such as extensive use of social media, distinct technologies, and cross-border trading, ESMA’s two-level approach focuses on general principles like proportionality, risk evaluation, and the development of a unified EU supervisory culture. Specific supervisory practices also play a crucial role, which includes data-driven surveillance, integration of practices from the Market Abuse Regulation (MAR), and active engagement with stakeholders.

A key aspect of the guidelines is the adoption of a risk-based and proportional supervisory strategy. This means that entities posing higher risks to market integrity, like major trading platforms, brokers, validators, and influential figures, can anticipate heightened scrutiny. NCAs are advised to proactively identify and tackle possible risks, including behaviors unique to crypto markets such as MEV strategies and misinformation proliferation through social media. The guidelines also emphasize the importance of adapting MAR practices to accommodate decentralized market structures, monitoring social media interactions, and examining how specific roles like validators or miners could access or misuse internal data.

Moreover, the guidelines stress the promotion of EU-wide consistency through the sharing of information among NCAs, discussion of best practices, and voluntary collaboration with authorities in related domains. For CASPs, expected to prevent and detect market abuse, regulators will evaluate the adequacy of their systems based on the scale and nature of their operations. Additional guidelines focus on issues such as resource allocation, dialogue with industry stakeholders, education for market integrity, and the development of data-driven monitoring capabilities. Despite being directed at NCAs, these guidelines collectively contribute to a more consistent and adaptable supervisory structure, influencing the evaluation methods of entities in the sector. Lastly, ESMA underscores the importance of cross-border supervision, outlining how authorities should handle suspicious transaction reports and fostering international cooperation to combat market abuse in the crypto sector.