Opinion Digital Banking Crypto

EU’s MiCA means it’s time for the finance sector to understand crypto compliance

The passage of MiCA through the European Parliament represents progress towards stringent regulation of the crypto industry. Compliance is now the next big challenge for exchanges, writes Bitstamp's Global CEO Jean-Baptiste Graftieaux.

a group of people sitting in a large room with blue chairs and white walls

European Parliament

With an ever-changing regulatory landscape and an increasing number of institutional and retail customers entering the cryptocurrency space, it is crucial that the finance sector works with cryptocurrency exchanges to become deeply familiar with compliance requirements and trends.

This is especially urgent following a landmark moment last month when the European Parliament, as was long hoped for, passed Markets in Crypto-Assets (MiCA) and Transfer of Funds regulation. 

The framework seeks to avert money laundering by requiring crypto firms to obtain originator and beneficiary information immediately and securely during crypto assets transfers. 

Prior to MiCA, different EU member states treated and supervised Crypto Asset Service Providers differently - creating legal ambiguities and raising operating costs. 

The same rules now apply to all states which is a very welcome step in moving the industry towards a consistent and high global standard.

Whilst MiCA represents the first EU-wide comprehensive framework to pass into law, it will most certainly not be the last. 

Governments around the world are liaising with regulators and stakeholders over a variety of different measures to bring much-needed regulation to the industry in the wake of the recent events. 

Those showed that independent supervision of crypto markets is missing.

These latest regulations are absolutely to be welcomed by any serious players in the space as we seek to restore the trust of both retail and institutional investors. 

An evolving regulatory landscape

But it is clear that countries work in silos when it comes to crypto regulation, which means keeping track of what compliance looks like in the sector is no easy task.

Unlike traditional finance, which developed in the pre-digital age and naturally concentrated activities in local geographic areas, cryptocurrency adds complexity. 

Transacted in a borderless, electronic environment, exchanges often serve customers in many different jurisdictions – which has resulted in a myth that crypto is either lightly or non-regulated. 

But this is not the case. 

In the majority of jurisdictions, cryptocurrency exchanges are subject to the same anti-money laundering (AML) and ‘Know Your Customer’ (KYC) requirements as financial institutions. 

And, as more and more financial companies and institutions venture into the crypto market, there’s an increasingly greater need for understanding the regulations surrounding this asset class to mitigate financial risks, ensure protection against fraud and cybercrime, and along with that, comply with regulatory requirements. 

All institutions in the crypto space have an added responsibility to protect their customers from hacks, malware, and other criminal attacks – particularly as it is effectively impossible to reverse transactions. 

Cryptocurrency is similar to a “digital bearer” asset, so if funds are stolen, legal routes are available – but there is often limited recourse. 

Understanding compliance safeguards your customers

To help customers protect their assets, robust cybersecurity practices, including two-factor authorisation, can prevent hackers from gaining access to their information or accounts.

Additionally, customer education about how to recognise and prevent cyber fraud is equally important and crypto firms have invested in providing detailed information to the public. 

Disclosure of the unique characteristics and risks of cryptocurrency is a vital part of compliance. 

For instance, regulators require that cryptocurrency exchanges disclose to customers that cryptocurrency transactions may not be reversible. 

Customer education can go hand in hand with these minimum requirements to help customers understand more about how cryptocurrency works and how they can keep their assets safe. 

Crypto firms have developed resources to address this need, from introductory materials focused on concepts at a broad level to detailed explainers specific to certain technologies and trends. 

Exchanges and financial institutions must both commit to being compliant

As we celebrate the latest regulatory moves in the EU, now is the time for financial institutions to recognise that the crypto world is not an unregulated one. 

Exchanges should demonstrate both their commitment to compliance as well as ensure customers are informed about these important developments. 

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