On October 17th, 2023, the European Securities and Markets Authority ("ESMA") issued a letter to the Economic and Financial Affairs ("ECOFIN") council, urging Member States to promptly designate the national competent authorities ("NCAs") responsible for executing the functions and responsibilities outlined in the Markets in Crypto-Assets Regulation ("MiCA"). ESMA also recommended that Member States consider shortening the optional grandfathering period to 12 months if they decide to offer it in their respective jurisdictions.
Below, we outline the key points from the letter:
- Forum-Shopping Risk: ESMA emphasized that while MiCA signifies a step forward, it falls short of offering the same level of investor protection as traditional financial products. The letter stressed the need to address the risk of "forum-shopping," where entities could exploit divergent MiCA enforcement, potentially undermining its effectiveness.
- Supervisory Procedures: ESMA underscored the importance of NCAs swiftly establishing supervisory procedures related to MiCA's authorization regimes. Simplifying authorization procedures for entities already authorized under national law is a crucial element.
- Concerns about the Grandfathering Clause: ESMA expressed concerns about the extensive use of the grandfathering clause, highlighting that it may weaken MiCA's effectiveness. This could result in varying levels of client protection, as different entities implement MiCA at different times.
- Call for Coordinated Action: ESMA emphasized that coordinated efforts among EU Member States are essential to ensure the smooth, convergent, and effective application of MiCA.
What that means:
- ESMA encouraged market participants to start planning for a seamless transition and to inform their clients about the regulatory status of their 'grandfathered' crypto-asset offerings.
- ESMA stressed the importance of coordinated action among EU Member States to establish a level playing field and minimize risks in the crypto-asset market. The reduction of the grandfathering clause duration could enhance market stability and investor protection.
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