1. Registration with an FIU in the MiCA era

For some years now, a few member states in the EU and the wider European Economic Area (EEA), were enabling crypto-asset services providers in offering their services as long as they registered with the local Financial Intelligence Unit (FIU). Such a registration would effectively mean those crypto businesses, adhere to the 5^th EU Anti-Money Laundering Directive (AMLD5). This was a good-enough step at the time, creating a field where those crypto businesses were supervised from an anti-money laundering (AML) point of view. This good-enough step at the time, has since long become inadequate in an industry where marketing, order execution, safekeeping of clients’ funds and others aspects have been heavily abused; this is where MiCA comes in.

In contrast, the MiCA framework has been developed by borrowing several concepts from the existing framework that regulates financial instruments, the Markets in Financial Instruments Directive (MiFID II). MiFID is the product of years of discussions, and reviews, and basing MiCA on MiFID was a sound move. With that in mind, MiCA now aims to regulate much further beyond the supervision from an AML perspective, including the issuance of crypto assets and the provision of the relevant services offered in the EU, forming a uniform single market, is a MiFID-way tailored for crypto-asset services providers.

The gap between the AML-focused FIU registration, and the MiFID-style requirements MiCA will introduce, including AML provisions, is significant. The difference between MiCA provisions, designed specifically to cover different business models of CASP that offer services such as the provision of investment advice or portfolio management or placement of crypto assets, to the FIU provisions are not comparable.

Thus, we deduce that in the upcoming MiCA era, jurisdictions that offer registrations under their FIU will not be compliant with MiCA. Therefore an alternative path is required for those seeking to avoid operational disruptions and compliance once the MiCA transitional period kicks in.

2. The transitional period

In recent times, and following the above-mentioned initial FIU registration period, additional European jurisdictions have been introducing regulatory frameworks for crypto-asset services providers. The later entrants in the crypto-asset service provision supervision are more often opting to require crypto-businesses to register with a national competent authority (NCA) that has a wider scope of supervision, including AML, yet going further than AML. In all cases though, all jurisdictions diverge from the provisions of MiCA, either to a lesser or a greater extent, especially when it comes to prudential requirements. Because of this recognised divergence, the MiCA regulation will force all responsible NCA to request additional, stricter CASP registration requirements, than the ones applicable under their regulatory framework. The more divergent a regulatory framework is from MiCA, the less from the 18 months of the transitional period they will have to become compliant or none at all.

It is therefore, our opinion that CASP currently operating in the EU and EEA, which are registered under FIU regulatory frameworks that ask for no or less strict prudential requirements than MiCA, will be excluded from the transitional period altogether.

3. MiCA-aligned regimes

Conversely, CASP regulated under a national regime which already coincides with MiCA regulatory standards is most likely to benefit from an 18-month transitional period after MiCA’s full application. This will enable them to transition from a national license or registration to a MiCA license requiring much less effort than applying from the beginning.

MiCA’s date of application is scheduled for at least 12 months after it comes into force. This ensures that CASP licensed or registered under a MiCA-aligned regime are granted a period of 30 to 36 months of uninterrupted operations while undergoing the process.

It is our estimation that CASP licensed or registered under MiCA-aligned regimes will significantly benefit from a less demanding procedure than those regulated only for AML purposes. Equally or maybe, most importantly, they will secure business continuity.

4. MiCA through CySEC

There are a few EEA jurisdictions, that currently supervise CASP under a regulatory regime aligned with MiCA. Of note, those are Cyprus, Malta, Liechtenstein and France. In these jurisdictions, the competent authority responsible for the licensing or registration of CASP is the respective securities and exchanges commission.

Cyprus appears to be the most suited jurisdiction. With considerable experience in the supervision of the investment services sector, the Cyprus Securities and Exchange Commission (CySEC) adopted its own national framework for the registration and supervision of CASP. The regime requires from CASP to ensure adequate levels of governance and organisational operations, as well as compliance with both prudential and AML regulatory standards. This has attracted the attention of well-known banking, financial and crypto-services groups such as Binance, Revolut and eToro which have already secured a CASP registration with CySEC.

To this end, we see a registration under CySEC for CASP as the path to MiCA, now. Acting proactively should allow for the full extent of the transitional period and avoid any operational disruption. Within this time, if secured, policies and procedures can be adjusted to adhere to the MiCA requirements and to smoothly transition into this new era.

We advise any CASP that is not licensed or registered under a MiCA-aligned regime to pursue any such license or registration before MiCA comes into a full application.

Furthermore, we draw the attention to CASP currently operating and not registered under any EU regulatory framework to proceed immediately with a MiCA-aligned framework, such as the CASP regime under CySEC. This is to avoid significant administrative fines for the provision of crypto asset services without registration, as was the case for Coinbase in the Netherlands.

5. How SALVUS can assist a CASP registration under CySEC

The SALVUS Crypto-Assets team carries extensive experience in the licensing and registration of crypto companies of varying business models. We employ our management project approach to understand the operational model and specify the required crypto-asset services that suit our client’s business strategy and objectives.

Our CASP registration service provides guidance from the initiation of each application until successful registration. We work in coordination with our client’s team to collect the necessary information and documentation and ensure the preparation and submission of a comprehensive and well-supported application.

After the successful registration of your CASP with CySEC, our Regulatory Compliance team works closely with you to activate your license and achieve compliance with your regulatory obligations. Our post-registration services further include the completion of reporting requirements and the establishment of adequate policies and procedures. This will help you transition from a CySEC registered to a MiCA-licensed CASP.

Please contact us at info@salvusfunds.com or call us at +357 7000 7898 if you have any questions or require additional information about your CASP registration or support with your regulatory obligations.

#StayAhead

Should you be interested to read more about MiCA, CySEC CASP and the AMLD5, please visit the selected articles below:

• MiCA and the CySEC CASP regime in Cyprus
• Submitting a Crypto-Exchange CASP application to CySEC
• The Next Regulatory Regime of Anti-Money Laundering (AMLD5)

The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.