MiCA Developments in July

James Ross
Aug 1
4 min read

Executive Summary

July 2025 marked a key phase in the operationalisation of the Markets in Crypto-Assets (MiCA) regulation. The European Securities and Markets Authority (ESMA) issued several key publications, including final guidelines, a peer review report, and clarifying Q&As. These documents transition MiCA from legislative text to practical supervisory expectation, establishing a stringent and harmonised regulatory perimeter for the EU crypto-asset market.

The overarching themes indicate that ESMA will enforce a strict separation between regulated and unregulated activities, mandate high standards for staff competence, demand rigorous NCA-level gatekeeping during authorisation, expand the market abuse surveillance perimeter to include on-chain activities, and prohibit liquidity-sharing models with non-EU entities. Firms must prepare for significant operational, compliance, and strategic adjustments to align with this exacting supervisory landscape.

1. Public Statement on the Provision of Unregulated Services by CASPs

In its statement of July 11, 2025 (ESMA35-1872330276-2329), ESMA addressed the significant investor protection risks arising when Crypto-Asset Service Providers (CASPs) offer both MiCA-regulated and unregulated services. The core issue identified is the "halo effect," a cognitive bias where the authorised status of a CASP may lead clients to incorrectly assume that all services and products offered by the firm, or its affiliates, benefit from MiCA's protective framework.

Implications:

Mitigation of Client Detriment: ESMA expects firms to proactively mitigate the risk of client confusion regarding key MiCA protections, such as conflicts of interest management (Art. 68), prudential requirements (Art. 67), safeguarding of client assets (Art. 70), and complaints handling procedures (Art. 72).
Explicit Communication Protocols: Firms must implement unambiguous communication strategies. Information regarding the unregulated status of a product cannot be relegated to legal disclaimers or terms and conditions. ESMA suggests measures such as physically separate website sections, distinct client documentation, and interactive "click-through" acknowledgements before a client can access an unregulated service.
Prohibition on Misleading Marketing: Leveraging a MiCA authorisation to promote unregulated activities is explicitly forbidden. Marketing materials for unregulated services must not reference the firm's authorisation by a National Competent Authority (NCA).

2. Final Report on Guidelines for Staff Knowledge and Competence

ESMA published its Final Report on guidelines for the assessment of knowledge and competence, establishing a mandatory and granular framework for CASP personnel. The guidelines create a bifurcated standard for staff providing information versus those giving advice, with the latter held to a significantly higher threshold.

Implications:

Mandatory Competence Frameworks: CASPs must develop, implement, and maintain internal policies to assess and document staff competence. This includes structured initial training and auditable Continuous Professional Development (CPD) programs.
Specified Competence for Advisors: Staff providing advice must meet stringent criteria, such as a combination of tertiary education and supervised experience, or a minimum of 160 hours of professional formation plus one year of supervised experience. Their knowledge must encompass portfolio management fundamentals, diversification principles, and complex crypto-asset valuation mechanisms.
Formalised Supervision: Trainees or staff not yet meeting the complete requirements may only operate under the direct supervision of a qualified individual for a maximum period of four years. The supervisor assumes legal responsibility for the supervised individual's actions.
Evidentiary Burden: The onus is on the CASP to maintain comprehensive records of all staff qualifications, training, assessments, and CPD activities, which must be made available to NCAs upon request.

3. Peer Review of MFSA Authorisation: Signal for Rigorous Gatekeeping

A peer review report on the Malta Financial Services Authority (MFSA) served as a clear policy signal from ESMA regarding the expected rigour of the CASP authorisation process under Title V of MiCA. ESMA's critique of the MFSA for granting a license while "material issues" remained unresolved underscores that the authorisation phase is a critical gatekeeping function, not a procedural formality.

Implications:

Strict Enforcement from Inception: The report indicates a low tolerance for regulatory forbearance. NCAs are expected to ensure full compliance before granting a license that can be passported across the EU.
Focal Points for Scrutiny: CASPs undergoing authorisation must anticipate deep-dive assessments into specific high-risk areas: governance and intragroup dependencies (Art. 68), management of conflicts of interest, ICT risk management frameworks (in line with DORA), and the operational risks posed by reliance on Web3 and DeFi protocols.
Primacy of the Home Regulator: The review highlights the systemic importance of the home NCAs' due diligence, especially for CASPs operating a pan-EU model from a single hub. The integrity of the entire EU single market relies on the robustness of this initial assessment.

4. Guidelines on Market Abuse Detection and Prevention

ESMA's guidelines on market abuse translate the principles of the Market Abuse Regulation (MAR) into the crypto-asset context, significantly expanding the surveillance perimeter beyond traditional financial markets.

Implications:

Expansion of Surveillance to On-Chain Data: NCAs and CASPs are now required to monitor for crypto-native forms of market abuse. This includes complex on-chain activities such as abusive Maximal Extractable Value (MEV) extraction, miner/validator front-running, and token supply manipulation.
Inclusion of Unstructured Data: The guidelines mandate a "best effort" monitoring of social media, blogs, and other web platforms to detect the dissemination of false or misleading information intended to manipulate markets.
Enhanced Systemic Requirements for PPAETs: Persons Professionally Arranging or Executing Transactions (PPAETs), primarily trading platforms, will face intense scrutiny of their internal systems and controls. These systems must be calibrated to effectively detect and report crypto-specific Suspicious Transaction and Order Reports (STORs).

5. Prohibition of Shared Order Books with Non-EU Entities

In a clarifying Q&A, ESMA delivered a definitive prohibition on the practice of EU-licensed CASPs sharing order books with non-EU affiliates or third parties. ESMA's legal reasoning is that managing an order book is a core, licensed function of "operating a trading platform for crypto-assets" under Article 5(1)(e) of MiCA. Therefore, any entity contributing to that order book must be authorised within the EU.

Implications:

Mandatory Liquidity Fragmentation: This ruling effectively mandates the ring-fencing of EU liquidity pools from global ones. It prevents EU CASPs from tapping into the deeper liquidity of their international counterparts.
Significant Operational Restructuring: Global exchanges must now engineer and maintain entirely separate technical, operational, and compliance infrastructures for their EU operations. A single global order book model is no longer viable for serving EU clients.
Prioritisation of Regulatory Control over Market Efficiency: The decision signals that ESMA prioritises complete regulatory oversight and investor protection under the MiCA framework over the potential market efficiency benefits (e.g., tighter spreads, lower slippage) of globally integrated liquidity. It effectively closes a possible avenue for regulatory arbitrage.