The European Securities and Markets Authority’s (ESMA’s) latest opinion on conflict-of-interest requirements introduces a paradigm shift for Crypto-Asset Service Providers (CASPs). The regulatory body’s enhanced framework, unveiled in January 2025, not only suggests potential legal entity separation for conflicting services but also implements stringent personal transaction monitoring and broadens the definition of remuneration.
ESMA last week published a new opinion document, unveiling significant modifications to its regulatory technical standards (RTS) on conflicts of interest for CASPs under MiCA. These changes represent a crucial step toward stronger investor protection and market integrity.
“ESMA suggests a limited number of changes to the amendments proposed by the European Commission, as explained further below,” the regulatory body commented in the newest document. “ESMA acknowledges that an appropriate balance should be found between, on the one hand, the protection of investors and financial stability related objectives, and on the other hand, promoting safe and sustainable innovation.”
A notable addition appears in Recital 4, which introduces a more stringent approach to managing acute conflicts of interest. When standard policies and procedures prove insufficient, CASPs may need to segregate conflicting crypto-asset services into separate legal entities with independent management. This requirement particularly targets situations where conflicts cannot be adequately managed within a single entity or group structure.
Moreover, the new Recital 11 introduces comprehensive requirements for monitoring the personal transactions of connected persons. The framework now explicitly:
- Requires close scrutiny of transactions by connected persons
- Mandates documentation and approval processes
- Prohibits transactions that would violate MiCA regulation
“Recital 11 mandating the monitoring of personal transactions of connected persons (with the addition of article 6 on this very specific topic (Policies and procedures on conflicts of interest in the context of personal transactions) and that policies and procedures should include the prohibition of those transaction that infringes MiCA in particular title VI (prevention and prohibition of market abuse)” commented Delphine Forma, Policy Lead at Solidus Labs.
Crypto Firms Face Enhanced Oversight
Moving further, the expanded scope of Article 5 introduces a comprehensive definition of remuneration that covers all forms of payment, including both financial and non-financial benefits, whether provided directly or indirectly by CASPs in connection with crypto-asset services. This thorough approach aims to close potential loopholes that could be exploited through alternative compensation structures.
The modifications, according to ESMA, should create a more robust framework for CASPs to:
- Identify and manage conflicts of interest more effectively
- Implement stronger internal controls
- Maintain clearer separation between potentially conflicting activities
Under the new framework, CASPs must also implement comprehensive policies that integrate three key elements. First, they need to establish detailed procedures for monitoring and identifying personal transactions. Second, they must maintain transparent remuneration disclosure frameworks that capture all forms of compensation.
🪙 #ESMA and @EBA_News analysed recent developments in crypto-assets, decentralised finance (DeFi), #crypto lending, borrowing and staking → https://t.co/k2wSsoEHwa.
This publication contributes to the @EU_Commission report under Article 142 of #MiCA. pic.twitter.com/LEd9aEmxdz
— ESMA – EU Securities Markets Regulator 🇪🇺 (@ESMAComms) January 17, 2025
Finally, they are required to develop organizational structures specifically designed to prevent and manage potential conflicts of interest, with clear separation of duties and responsibilities where necessary.
Proposed changes are one thing, but reality is another. During an interview with Finance Magnates at FMLS:24, Forma candidly admitted that “the crypto industry is not ready for MiCA.”
“I don’t think the regulators are even ready,” she added. “Some countries haven’t even implemented an enforcement law. Furthermore, Belgium hasn’t even decided yet who will be the regulator in charge of MiCA in the country.”
