Though the anticipation for MiCA has gone into full throttle, ESMA has warned national regulators against allowing what it calls ‘letterbox’ entities.
The European Securities and Markets Authority (ESMA) is wary of global crypto firms who might try to exploit loopholes currently present in its Markets in Crypto Assets regulation (MiCA).
MiCA, whose rules are set to take effect by December 2024, would allow companies that have been registered under an existing regime to continue doing their business up until July 2026. That is even without a full MiCA license.
Per ESMA, however, this grace period opens up a window of opportunity for “complex and opaque” foreign companies to try to operate from overseas via EU-based branches.
Admitting that some companies have a history of noncompliance, ESMA says that being large and having a very wide geographic reach may still help them operate without boundaries. According to the regulator, this unfortunate reality increases “the risk of conflicts of interest, regulatory arbitrage, and an unlevel playing field.”
The regulator also believes that the temporary provision may hurt the same investors it seeks to protect. It wrote in a statement:
“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.”
ESMA Says National Regulators Must Not Undermine MiCA
Though the anticipation for MiCA has gone into full throttle, ESMA has warned national regulators against allowing what it calls ‘letterbox’ entities. It reminded them of their responsibility to implement the MiCA rule in a way that will not allow foreign providers to operate in the bloc without having real staff or substantial operations there.
Conceptually, MiCA places all crypto firms within the EU bloc under the same rules. This implies that it allows the firms to operate with a single license. However, it also places some responsibilities such as transitioning and exceptions on national regulators. With this kind of authority, however, many enthusiasts have repeatedly raised concerns that some countries may seek to undermine the aims of MiCA. That is as they each strive to score a competitive point.
ESMA has now called on all national authorities under its jurisdiction to immediately “establish authorization procedures and foster dialogue with potential applicants.” For what it’s worth, the urgency appears to suggest that there will be some kind of informal pre-screening process. That is even before companies make formal license applications.
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