EU watchdog backs MiCA amendments; Ireland drafts AML rules

In another busy week for digital asset regulation in the European Union, the bloc’s top financial markets watchdog has recommended amending the EU’s landmark digital asset regulatory framework, the Markets in Crypto-Assets (MiCA) regulation.

Meanwhile, Ireland looks set to draft “urgent” new digital asset rules ahead of the EU’s new package of laws aimed at cracking down on money laundering and terrorist financing.

ESMA backs additional external audit requirements

On October 16, the European Securities and Markets Authority (ESMA) released an official opinion on MiCA, encouraging the European Commission (EC)—the primary executive arm of the EU—to proceed with its proposal to update several aspects of the framework.

Specifically, the Commission proposed to update the Regulatory Technical Standards (RTS) of MiCA to require applicant crypto-asset service providers (CASPs) and notify entities to provide the results of an external cybersecurity audit.

This audit would include an assessment of “the good repute” of the CASP’s management body and checks regarding the absence of penalties in areas other than commercial law, insolvency law, financial services law, anti-money laundering and counter terrorist financing, fraud or professional liability—the standard areas checked for penalties. 

ESMA was keen to emphasize that the goal of the RTS is to ensure a “thorough entry point assessment” for applicant CASPs and financial entities intending to offer digital asset services in the EU.

“This will increase the resilience of the crypto assets market and enhance investor protection in the crypto-assets space,” said the financial markets watchdog.

According to the statement, ESMA has already communicated its opinion to the EC, the European Parliament and the European Council, and it’s now up to those bodies to decide whether to go ahead with the amendments to MiCA.

“The EC may adopt the two RTS with the amendments it considers relevant or reject it. The European Parliament and the Council may object to an RTS adopted by the EC within a period of three months,” noted ESMA.

The recommended MiCA amendments come as the bloc and market prepare for the full framework for CASPs, which will come into force on December 30. The provisions related to stablecoins will come into effect on June 30, the same date that the new EU anti-money laundering (AML) legislation will go live.

Ireland eyes new digital asset rules ahead of EU money laundering crackdown

The EU’s Anti-Money Laundering and Countering the Financing of Terrorism (AML) Act comes into play on December 30, 2024.

The bill is not part of the MiCA regulation—which was passed last June and brings a host of bespoke rules to the digital asset space—but rather a broader effort to curb money laundering and terrorist financing in the bloc.

The new legislation will impact “crypto asset managers,” including CASPs, such as centralized digital asset exchanges registered under MiCA, and various other entities, including gambling services.

The package will require CASPs to apply the same rules as banks to verify their customers’ identities and data , as well as add “measures to mitigate risks in relation to transactions with self-hosted wallets.”

Self-hosted wallets are not banned, but CASPs will have to conduct enhanced due diligence on customers using a self-hosted wallet for transactions over €1,000 ($1,072), including verifying identity, monitoring transactions and requesting more information about senders and receivers.

The AML bill also ushers in a new EU supervisory authority—the Anti-Money Laundering Authority (AMLA)—to oversee the digital asset sector. It will be established in Frankfurt and tasked with directly supervising the riskiest financial entities, intervening in case of supervisory failures, and acting as a central hub and mediator for supervisors.

Ahead of these new measures coming into force, Ireland is moving to draft new digital asset-related rules to get itself in line with the impending AML bill.

This week, Ireland’s Cabinet heard that Finance Minister Jack Chambers was set to draft “urgent” legislation to ensure digital asset firms are covered by the new EU money laundering and financing of terrorism laws by the time the regulations come into force on December 30, according to a Wednesday report by local outlet The Irish Examiner.

The report did not clearly indicate what these rules would consist of or when they might be implemented.

As with many countries around the globe, digital asset money laundering and terrorist financing have been increasing on Ireland’s radar. In August, Gardaí—the country’s national police and security service—seized around €6.5 million ($7.04 million) worth of digital asset, including bitcoin and monero, following a long-running investigation.

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