ESMA Seeks Changes to MiCA

The European Securities and Markets Authority (ESMA) has responded to the European Commission’s public consultation on the review of Markets in Crypto-Assets Regulation (MiCA) with a call to simplify the framework while improving investor protection and addressing innovative business models, such as decentralised finance (DeFi), staking, lending and borrowing.

ESMA’s recommendations to the EC include stricter rules for the marketing of crypto-assets, particularly when they are promoted by influencers and third parties; greater transparency in costs; and proportionate requirements for staking, lending and borrowing, including through disclosure obligations. 

“These measures would provide clearer information on costs, risks, rewards, collateral arrangements, and potential losses before investment decisions are made,” the EU regulator states. 

ESMA also recommends strengthening supervisory powers and address the risks arising from unauthorised services, online fraud and non-compliant stablecoins, by enhancing the EU’s capacity to detect, block and deactivate fraudulent websites and freeze crypto assets in cases of suspicion of market abuse or terrorist financing. It also seeks reinforced supervisory powers to deal with third-country firms which solicit EU investors without being authorised under MiCA, and wants to introduce explicit rules to prevent regulated crypto firms from offering services linked to stablecoins that do not comply with MiCA requirements.

“These measures would support faster and more consistent supervisory action across the EU, better protecting investors, and reducing opportunities for regulatory arbitrage,” ESMA says. 

As crypto markets evolve and activity around DeFi and stablecoins grow, ESMA advocates for the introduction of clearer criteria for determining which activities can be considered genuinely decentralised. It also recommends creating a new regulated crypto asset service for firms that provide users with access to DeFi protocols.

To reduce uncertainty and support harmonised supervision across the EU, ESMA suggests adopting rules on how crypto-assets should be classified, including new products such as hybrid tokens. It also includes granting ESMA the ability to issue binding opinions on token classification to ensure the same products are treated consistently within the EU market. 

In line with the EU’s simplification and burden reduction agenda, ESMA also proposes to streamline parts of the existing rules, including simplifying crypto-asset white-paper notification procedures, reducing duplicative authorisation requirements for some regulated firms, and improving the consistency of prudential requirements. 

Finally, and looking beyond the immediate MiCA review, ESMA highlights the need for a framework for tokenised securities and on-chain settlement that can support the development of an integrated European tokenised capital market and facilitates cross-border activity in the future.