The European Securities and Markets Authority recently released an opinion report regarding overseas firms and their compliance with the Markets in Crypto Assets rules (MiCA). The purpose of this report is to prevent unauthorized companies from exploiting loopholes to reach out to EU clients without prior authorization.
According to ESMA, unauthorized companies are not permitted to offer any services to clients in the European Union unless those clients initiate contact first. ESMA’s guidance aims to close any gaps that unauthorized companies may use to target EU clients.
The opinion report outlines specific actions that ESMA considers to be unlawful solicitation of clients. For example, it is deemed illegal for an EU-authorized broker to consistently direct orders to an execution venue located outside the EU without exploring other alternatives. Additionally, using the brand of an overseas exchange to attract EU clients in a way that confuses the services being offered is also considered unlawful.
ESMA also highlighted the importance of monitoring revenue streams from EU clients to ensure they align with typical expectations for independent brokers and execution venues. The report emphasizes that EU-authorized brokers are allowed to provide exchange services to EU clients, as well as engage in agreements with non-EU entities for liquidity management and risk hedging purposes.
However, ESMA cautions against situations where a hedging scheme is used to systematically route EU orders to a single non-EU execution venue, especially if that venue is part of the same group. This practice could be considered a violation of MiCA guidelines.
Overall, ESMA’s opinion report serves as a reminder to all crypto companies operating in the EU to adhere to the regulations set forth by MiCA. By following these guidelines, companies can ensure that they are not engaging in any unlawful solicitation of EU clients and are operating within the boundaries of the law.