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Customer Due Diligence in the MiCA Era - Best Practices for Crypto Businesses

Apr 04 2025

As the Markets in Crypto-Assets (MiCA) regulation takes effect across the European Union, Customer Due Diligence (CDD) is becoming a cornerstone of compliance for crypto asset service providers (CASPs). MiCA introduces a comprehensive regulatory framework to enhance financial stability, protect consumers, and prevent market abuse in the crypto asset markets. This new regime requires service providers to strengthen their anti-money laundering (AML) and know-your-customer (KYC) processes, particularly in areas such as identity verification, risk-based assessments, and transaction monitoring. This blog post outlines the best practices for implementing CDD under MiCA, including how to handle data related to crypto asset issuers, asset-referenced tokens, e-money tokens, and portfolio management activities. It explores how distributed ledger technology, electronic money institutions, and crypto asset trading platforms must adapt to meet MiCA’s stringent requirements for transparency, security access protocols, and public disclosure. The article also highlights how RegTech solutions like MarketGuard can streamline compliance, improve operational efficiency, and help CASPs stay ahead in a rapidly evolving regulatory landscape. For crypto businesses aiming to thrive under MiCA, embedding strong CDD practices is not only necessary—it’s a key competitive differentiator.

The Markets in Crypto-Assets (MiCA) regulation represents a pivotal shift in how crypto asset service providers (CASPs) must approach compliance, risk management, and transparency across the European Union (EU) as part of the broader crypto assets regulation. As the first comprehensive regulatory framework focused on crypto assets, MiCA introduces rigorous requirements that directly affect how businesses conduct Customer Due Diligence (CDD).

In this article, we explore how crypto businesses can adapt their CDD processes to align with MiCA regulation, ensure regulatory compliance, and foster consumer protection in the evolving crypto asset markets.

Table of Contents

Understanding MiCA and Its Relevance to Customer Due Diligence

MiCA is part of the EU’s broader strategy to regulate crypto assets, aiming to enhance financial stability and protect investors. The regulation applies to crypto asset service providers offering services such as:

  • Custody and administration of crypto assets;

  • Operation of a trading platform;

  • Exchange of crypto assets for fiat currency or other crypto assets;

  • Execution of orders for crypto assets;

  • Placing of crypto assets;

  • Providing transfer services for crypto assets on behalf of third parties.

MiCA classifies crypto assets into categories like asset-referenced tokens, e-money tokens, and other crypto assets, each with tailored compliance requirements. The regulation affects legal persons, credit institutions, electronic money institutions, and investment firms seeking to provide crypto asset services in the EU.

One of the foundational requirements under MiCA is the implementation of robust anti-money laundering (AML) and Customer Due Diligence mechanisms, designed to prevent market manipulation and safeguard financial integrity.

Why Customer Due Diligence Matters Under MiCA

Customer Due Diligence is essential for identifying customers and understanding the nature and purpose of their relationship with the service provider. Under MiCA, CASPs must:

  • Verify the identity of their customers (natural or legal persons);

  • Assess the legitimacy of the source of funds;

  • Conduct risk-based assessments to determine the level of monitoring required;

  • Ensure compliance with applicable national law and EU-level technical standards.

The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) play vital roles in providing oversight and defining guidelines that ensure consistent CDD practices across member states.

Best Practices for Customer Due Diligence Under MiCA

1. Adopt a Risk-Based Approach (RBA) MiCA encourages a risk-based approach to due diligence, meaning crypto asset service providers should calibrate their CDD procedures based on the perceived risk level of the customer or transaction. High-risk customers or transactions (e.g., involving anonymous wallets or high-value crypto asset transfers) require enhanced due diligence.

2. Integrate KYC with Distributed Ledger Technology (DLT) Utilizing blockchain analytics tools can help verify identity and transaction history. Integrating Know Your Customer (KYC) solutions with distributed ledger technology ensures transparency and enhances the traceability of funds across the crypto asset markets.

3. Maintain Records in Line with MiCA’s Transparency Requirements MiCA mandates that information and records related to customers and transactions must be stored electronically and be accessible to the competent authority. CASPs must ensure that details such as customer identities, account activity, and crypto asset white papers are retained securely and in compliance with applicable record-keeping laws.

4. Ensure Clarity in Marketing Communications Marketing communications relating to crypto assets must be clear, fair, and not misleading. Customer due diligence includes verifying that promotional materials align with the product’s actual risk and return profiles. The competent authority has the right to monitor such marketing materials.

5. Monitor Transactions and Report Suspicious Activity Ongoing monitoring of crypto asset transfers, particularly for signs of market abuse or financial crime, is a requirement. If a transaction or customer activity raises red flags, CASPs must submit a Suspicious Activity Report (SAR) to the relevant national competent authorities.

CDD for Different Types of Crypto Assets Under MiCA

Each category of crypto asset under MiCA—asset-referenced tokens, e-money tokens, and other crypto assets—has unique obligations:

  • Asset-referenced tokens must maintain adequate reserve assets and conduct frequent audits. CDD for users dealing in ARTs must verify the legitimacy of both the assets and the entity providing services.

  • E-money tokens are akin to traditional electronic money. As such, crypto asset service providers dealing with EMTs must follow standards similar to those applied to credit institutions and electronic money institutions.

  • Other crypto assets fall under general MiCA provisions and require careful scrutiny regarding volatility, fraud risk, and legal classification.

MiCA’s Intersection with Other Regulations

MiCA does not operate in isolation. It works alongside other frameworks, including:

  • The Digital Operational Resilience Act (DORA), which mandates cybersecurity and IT resilience for financial entities;

  • Existing AML directives, requiring enhanced due diligence for high-risk jurisdictions;

  • National regulations applicable to investment firms, alternative investment fund managers, and electronic money institutions.

CASPs must also comply with rules on public disclosure, own funds, and portfolio management to ensure comprehensive transparency and risk control.

Technological Tools to Support CDD Compliance

MiCA encourages the use of RegTech (Regulatory Technology) to streamline CDD processes. Effective tools include:

  • Identity verification platforms integrated with biometrics and AI;

  • Blockchain monitoring solutions that detect market manipulation or unusual trading activity on a crypto asset trading platform;

  • Automated reporting systems to assist with submitting data to competent authorities.

These tools help crypto asset service providers meet the expectations of MiCA while improving efficiency and scalability.

Building a Culture of Compliance

A compliance-first culture is critical for long-term success. To embed CDD into the organizational DNA, crypto businesses should:

  • Provide regular training for employees involved in compliance and operations;

  • Create clear internal policies outlining procedures for verifying customers and monitoring transactions;

  • Collaborate with legal and compliance experts to interpret MiCA updates and evolving regulatory guidance.

Preparing for Audits and Regulatory Reviews

MiCA empowers national competent authorities and EU-level markets authorities to conduct inspections and reviews. Crypto businesses must be audit-ready by:

  • Keeping up-to-date documentation of CDD procedures;

  • Demonstrating adherence to security access protocols;

  • Providing audit trails of customer onboarding and transaction monitoring.

Failure to comply with CDD obligations under MiCA can result in enforcement actions, fines, or suspension of authorization to provide crypto asset services.

Conclusion

At MarketGuard, we understand that Customer Due Diligence under MiCA is more than a compliance obligation—it’s a strategic imperative. Our RegTech solutions are designed to help crypto asset service providers seamlessly integrate CDD into their operations, ensuring full alignment with the MiCA regulation while preserving efficiency and user experience.

With real-time monitoring, automated risk scoring, and advanced identity verification tools, MarketGuard empowers crypto businesses to prevent market abuse, meet transparency and disclosure requirements, and maintain robust governance standards.

As the European Union ushers in a new era of crypto regulation, MarketGuard stands ready to help you navigate the complexities of MiCA with confidence. Partner with us to future-proof your compliance and lead the way in secure, compliant crypto innovation.

For more information about how we can help reach out to us. We're here to help and answer any questions you may have.

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References

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