Brokers, mind the gap: EU crypto regulation goes live in three years

Rick Steves

In regard to surveillance, firms will need to cope with new identifiers and cross-market fungibility on a range of new venues and market models.

Financial institutions must prepare to offer trading and investment in a diverse range of crypto instruments sooner than expected, said Joe Schifano, Global Head of Regulatory Affairs at Eventus Systems.

Claiming crypto trading is going mainstream as several new digital securities exchanges and inter-bank transactions in digital assets become daily news, Mr. Schifano is also seeing regulators making moves, with new EU directives being imposed as soon as 2024.

Brokers and asset managers who don’t comply will face serious consequencies, with fines up to EUR 15 million or 15% of total annual turnover for cases of market abuse, for example, with senior managers facing bans and personal fines of up to EUR 5 million.

The EU’s Digital Finance Package will add digital financial instruments to MiFID II, the EU’s overarching securities regulation, and should go forward with the proposed new Market in Crypto Assets Directive (Directive (EU) 2019/1937), or MiCAD, which should go live by 2024.

This should finally put in place appropriate levels of consumer and investor protection and market integrity, financial stability and legal certainty.

The dual regulations, in the shape of MiFID II and MiCAD, will eventually cover a broad range of digital financial instruments, asset-referenced tokens, utility and e-money tokens.

MiCAD mirrors four broad themes of existing MAR regulation, the disclosure of inside information, the prohibition of insider dealing and market manipulation, price fixing and spoofing.

Recognizing that most issuers of crypto-assets and crypto-asset service providers are SMEs, the document makes no explicit mention of market soundings, or the mechanism of suspicious transaction and order reports in the proposed regulations.

In regard to surveillance, firms will need to cope with new identifiers and cross-market fungibility on a range of new venues and market models.

This makes initial setup a challenge for systems with rigid instrument and alert structures, especially those relying on historical data to drive alert optimisation.

The move towards T+0 settlement in digital assets makes real-time monitoring and fast dispute resolution more important than ever.

Firms lining up to offer blockchain and crypto solutions subject to the upcoming European Union’s regulatory framework should stay ahead of the game with advanced and compliant technology.

Prior to joining Eventus Systems as Global Head of Regulatory Affairs, Joe Schifano was Deputy General Counsel and Global Chief Compliance Officer (CCO) of Tower Research Capital in New York.

The 20-year industry veteran has played a number of senior regulatory roles, including at Intercontinental Exchange, Barclays Capital, and UBS Securities.

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