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The Markets in Crypto-Assets (MiCA) regulation introduces a comprehensive regulatory framework for the European Union’s crypto markets, placing strong emphasis on ongoing customer monitoring for Crypto-Asset Service Providers (CASPs). This requirement is central to ensuring financial stability, preventing market abuse, and enhancing consumer protection in the digital asset space. Ongoing customer monitoring under MiCA mandates CASPs to continuously assess customer transactions and behavior, update risk profiles, and detect suspicious activity. This aligns with broader anti-money laundering (AML) and counter-terrorist financing (CTF) goals. Effective monitoring includes implementing real-time transaction analysis, robust Know Your Customer (KYC) protocols, and the use of advanced technological tools to manage compliance. The article outlines best practices for CASPs, including the integration of distributed ledger technology for secure data tracking, collaboration with national competent authorities, and alignment with the Digital Operational Resilience Act (DORA). It also highlights the importance of clear governance structures, staff training, and the use of technical standards to ensure regulatory adherence. For CASPs, adapting to MiCA’s monitoring requirements is not just about compliance—it is a strategic move to gain customer trust, foster market integrity, and ensure long-term growth in a regulated crypto environment.
The Markets in Crypto-Assets (MiCA) Regulation, which entered into force in the European Union in 2023, represents a landmark shift in how crypto asset service providers (CASPs) are regulated across the region. Designed to harmonize the treatment of crypto assets and crypto asset services, MiCA introduces a comprehensive regulatory framework aimed at ensuring financial stability, protecting consumers, and preventing market abuse in the crypto asset markets.
One of the central pillars of this regulation is the requirement for ongoing customer monitoring. In this article, we explore what MiCA mandates for ongoing customer monitoring, the practical implications for CASPs, and the best practices crypto firms should adopt to stay compliant and competitive.
The Markets in Crypto-Assets (MiCA) regulation is a comprehensive regulatory framework established by the European Union to govern crypto assets in Europe. MiCA aims to provide a uniform European legal framework for crypto-assets issuers and service providers not covered by existing financial services regulations. The regulation applies to the issuance, publiac offering, admission to trading, and provision of services related to crypto-assets. MiCA defines crypto-assets as digital representations of value or rights that can be electronically transferred and stored using distributed ledger technology or similar technology.
MiCA applies to a wide range of entities that provide crypto asset services, including crypto exchanges, custodians, and wallet providers. Under the regulation, crypto asset service providers must be authorized and meet a series of prudential, organizational, and conduct requirements. The national competent authority plays a crucial role in this regulatory framework, ensuring that CASPs secure necessary licenses and comply with operational standards and consumer protection measures.
Key areas of coverage include:
Transparency and disclosure requirements for crypto asset issuers
Rules governing the issuance of asset referenced tokens (ARTs) and e-money tokens (EMTs) within the regulatory frameworks for electronic money
Requirements for CASPs that provide crypto asset services, including custody, trading, exchange, and transfer services
Anti-money laundering (AML) and market abuse prevention measures
The European Commission adopts delegated acts to clarify the circumstances under which stablecoin issuers are considered significant, specifying requirements that differ for asset-referenced tokens and electronic money tokens.
MiCA’s regulatory framework aligns with the European Union’s broader financial policy objectives, including those enforced by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA).
Ongoing customer monitoring under MiCA is part of a risk-based approach to anti-money laundering and consumer protection. It requires CASPs to monitor transactions continuously to detect unusual or suspicious activity, reassess customer risk profiles, and ensure that all services provided are aligned with applicable national law and European regulation.
Additionally, the MiCA Regulation mandates that issuers of asset-referenced tokens must obtain prior authorisation from a Member State National Competent Authority (NCA) before offering tokens to the public or allowing them to be traded. This process involves submitting a white paper and complying with various regulatory obligations, illustrating the complexities involved in the authorisation process.
This monitoring is critical not only for compliance purposes but also for protecting market integrity and consumer trust. It enables service providers to:
Detect suspicious activity that could indicate market manipulation or terrorist financing
Maintain up-to-date customer data
Ensure transparency in crypto asset transfers
Prevent the use of crypto services for illegal activities
MiCA refers extensively to ongoing obligations around due diligence, reporting, and customer identification. These obligations are supported by other EU directives and regulations, including:
The Anti-Money Laundering Directive (AMLD)
The Digital Operational Resilience Act (DORA)
Technical standards set by ESMA and the EBA
Credit institutions play a crucial role in the regulatory framework governing e-money tokens, as only authorized credit institutions can issue e-money tokens to the public and are exempt from certain authorization requirements under the MiCA Regulation.
These frameworks collectively require CASPs to:
Conduct customer due diligence at onboarding and throughout the business relationship
Monitor transactions for consistency with the customer profile
Report suspicious transactions to competent authorities
Keep records and audit trails of crypto asset transfers
Issuers of electronic money tokens must comply with strict regulatory requirements, including obtaining authorisation as an electronic money institution and adhering to certain disclosures and governance standards.
Crypto asset service providers (CASPs) must conduct customer due diligence to prevent market abuse and ensure compliance with anti-money laundering regulations. CASPs must implement robust security protocols and establish operational standards that prioritize consumer protection and transparency. The regulation requires CASPs to maintain a registered office within the EU and have at least one EU-based director. CASPs must also comply with comprehensive rules for crypto asset services, covering governance, capital requirements, custody, and administration.
To meet MiCA’s requirements and demonstrate a commitment to compliance, CASPs should implement the following best practices:
The conditions and obligations for such crypto assets under MiCA include the requirement to publish a white paper and obtain necessary authorizations for issuers, highlighting the complexity and regulatory scrutiny involved in the process.
Develop and deploy monitoring systems that assess customer risk based on transaction patterns, asset types, trading volume, and historical behavior. Customers engaging with asset referenced tokens or high-risk crypto asset markets may warrant more frequent scrutiny.
The European Commission has played a crucial role in establishing the Markets in Crypto-Assets (MiCA) regulation, which aims to enhance financial stability and investor protection within the EU's crypto asset sector.
Leverage distributed ledger technology and automated surveillance tools to track and analyze crypto asset transfers in real-time. These tools can identify potential market abuse and ensure compliance with transparency requirements.
It is important to note that under the new MiCA Regulation, crypto-assets are distinguished from financial instruments. Financial instruments, which are covered by the Markets in Financial Instruments Directive (MiFID II), are subject to existing financial services regulations in the EU.
Periodically reassess the risk rating of customers, particularly those operating through a crypto asset trading platform or engaged in large-volume portfolio management. Update their profiles to reflect changes in behavior, asset holdings, or legal status.
Under MiCA, it is necessary for crypto-asset issuers to be a legal entity to ensure accountability and compliance, especially in relation to whitepaper publications and marketing communications.
Set up automated alerts for activities that deviate from the expected behavior or raise suspicion. Design clear escalation pathways to ensure that relevant departments, including legal and compliance, are informed promptly.
Under the MiCA regulation, member states are responsible for appointing competent authorities to ensure regulatory compliance.
Ensure interoperability between ongoing monitoring systems and customer onboarding processes. Identity verification systems must support secure access protocols and align with MiCA’s technical standards for data protection and privacy.
The transitional period under MiCA allows existing crypto-asset service providers to continue operations while transitioning to the new regulatory framework. This period extends up to July 2026 for providers that can demonstrate compliance with national laws prior to the regulation's enforcement on December 30, 2024.
Store all relevant customer and transaction data electronically in a secure manner that meets MiCA’s requirements for public disclosure, audit readiness, and retention timelines.
Additionally, ensure that all marketing communications are clear and compliant with MiCA guidelines to provide complete and accurate information to the public, thereby protecting the interests of potential investors.
MiCA incorporates provisions aimed at detecting and preventing market abuse on crypto-asset markets. The regulation lays down rules to prohibit certain types of behavior, including insider dealing, disclosure of inside information, and market manipulation. These provisions apply not only to transactions on trading platforms but to all transactions in crypto-assets, whether on or off a trading platform. All participants who professionally organize or execute transactions involving crypto-assets must have systems in place to prevent and detect market abuse.
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) are working on the drafting of technical standards (regulatory and implementing technical standards - RTS/ITS) and guidelines that will specify the implementation of certain provisions of the Regulation. A distinction is made between regulatory technical standards (RTS) and implementing technical standards (ITS). These texts are grouped by consultation package, and final publication will take place during 2024.
Implementing MiCA’s customer monitoring requirements is not without its challenges. Some of the key hurdles include:
Legal persons engaging in activities related to crypto-assets under MiCA must obtain authorization to operate as crypto-asset service providers, meeting specific governance and prudential criteria to comply with the regulation.
Scalability: As crypto markets grow, monitoring systems must scale accordingly.
Technology Integration: Integrating new systems with existing compliance stacks and trading platforms can be complex.
Regulatory Fragmentation: Although MiCA harmonizes crypto regulation, differences in national competent authorities’ approaches can complicate compliance.
Data Protection: Balancing transparency requirements with the need to protect customer data and prevent market abuse is a delicate task.
The European Union aims to provide support and guidance to stakeholders during the transition period. The AMF’s departments will be organizing events to help stakeholders understand the authority’s expectations and obtain answers to their questions. The AMF has organized a webinar for all stakeholders involved in the sector, with a view to clarifying the transition from the PACTE regime to the MiCA regulation. The webinar presentation is available on the AMF website. The regulation aims to ensure that stakeholders have access to accurate and up-to-date information on the implementation of the MiCA Regulation.
Crypto asset service providers are now integral to the functioning of Europe’s digital economy. By providing services related to crypto assets—including issuance, custody, and transfer—CASPs must help maintain trust and stability in the crypto markets.
Issuers of asset-referenced tokens under MiCA must meet specific prudential requirements, including governance standards, maintaining sufficient own funds, and managing asset reserves to cover associated risks, highlighting the regulatory framework necessary for operating within the EU market.
Their obligations under MiCA require not just compliance with a set of rules but active participation in the development of a robust, fair, and transparent crypto asset market. This includes:
Collaborating with regulators and markets authority bodies
Contributing to technical standard development
Participating in AML information-sharing initiatives
MiCA’s ongoing monitoring requirements will likely evolve as the European Union refines its approach to crypto assets and as technologies continue to advance. Future developments could include:
Broader application of the Digital Operational Resilience Act to CASPs
Enhanced use of AI for real-time fraud detection
Integration with global regulatory standards
Expansion of reporting obligations under new EU digital finance packages
MiCA regulation represents a comprehensive shift in how crypto assets and crypto services are governed across the European Union. For crypto asset service providers, the implementation of ongoing customer monitoring is a cornerstone of regulatory compliance and a tool for building long-term resilience, consumer confidence, and market credibility.
Under MiCA, entities authorized to issue e money tokens must comply with stringent regulatory frameworks. These tokens represent official currencies and must be issued by authorized financial institutions, ensuring compliance and protective measures for investors in the crypto-asset market.
By adopting risk-based strategies, integrating cutting-edge monitoring tools, and aligning with best practices from other financial institutions, CASPs can not only meet MiCA’s requirements but also strengthen their competitive advantage in the evolving crypto asset markets.
In the new era of crypto regulation, effective ongoing monitoring is no longer optional—it’s foundational.
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