The European Securities and Markets Authority (ESMA) released a consultation paper comprising draft guidelines for assessing knowledge and competence, based on the Markets in Crypto Assets Regulation (MiCA). The European securities regulator has suggested these guidelines as part of the European Union’s panoramic crypto regulations.
ESMA has Unveiled Comprehensive Guidelines for Crypto-asset Service Providers!
In a consultation paper dated 17 February 2025, the European Securities and Markets Authority (ESMA) proposed strict and comprehensive knowledge standards for crypto service providers. The guidelines and instructions suggested in the consultation paper would be adhered to by the Markets in Crypto Assets Regulation (MiCA). These guidelines aim to introduce well-balanced standards for staff providing crypto-related advice and information to clients, encourage trust in crypto markets, enable and enhance investor protection, etc. The consultation paper starts by stating that all interested stakeholders were invited to respond to it. In particular, ESMA invited crypto-asset service providers, investors and their associations, financial entities dealing with crypto-assets, and any other stakeholders with an interest in the market for crypto-assets.
According to the newly introduced guidelines, staff involved in the crypto sphere must understand the major features, and potential risks of crypto assets, the functioning of the market, asset pricing, and basics of blockchain technology. The service providers need to know the regulatory frameworks and tax implications associated with the crypto sphere. The consultation paper stated that it aimed to consult interested parties to produce guidelines for the assessment of knowledge and competence of natural persons advising on crypto assets or information about crypto-assets or crypto-asset services, on behalf of crypto-asset service providers. It also stated that particular care should be taken when giving information regarding the risks associated with crypto-assets characterized by higher levels of complexity and volatility.
“Know Your Stuff,” Says The European Securities and Markets Authority!
According to the newly launched consultation paper from The European Securities and Markets Authority, Crypto service providers are obliged to assess and evaluate staff competency annually and maintain a comprehensive record for regulatory review. ESMA stated that it had launched a consultation on the criteria for assessing the knowledge and competence of the staff of crypto-asset service providers (CASPs) who give information or advice on crypto-assets or crypto-asset services.
Under the ESMA guidelines, the staff providing advice associated with crypto must complete a minimum of 20 hours of annual professional development. ESMA suggests some mandate qualifications and experience requirements that crypto asset service providers should possess. According to the consultation paper, advisors need either a three-year tertiary degree along with one year of supervised experience or a combination of theoretical education and practical experience. ESMA also proposes guidelines to differentiate between staff providing general information and high-standard advisors.
As per the guidelines, the service providers need to ensure that their staff has access to the knowledge of key aspects of crypto assets. The suggested fundamentals are as follows,
- Crypto market functioning and pricing mechanism behind it
- Fundamentals or basics of blockchain technology
- Potential cybersecurity risks and applicable protection measures
- Regulatory frameworks associated with the crypto landscape
- Investor protection provisions
- Tax implications and cost structures associated with crypto assets
- Ability to ask appropriate questions to the client to understand her/his investment objectives, financial situation, and knowledge and experience
- Ability to explain the risks and rewards of a particular crypto-asset or strategy to the client
- Ability to compare selected crypto-assets with regards to key features and risks, to be able to select the crypto-asset best suited to the client profile.
- The consensus mechanism applicable to the protocol and its consequences
- The rules for the validation of transactions on this protocol
- The scalability of the protocol, its decentralization level and governance structure, the measures in place to protect the network from attacks or frauds
These are glimpses of and short version of the fundamentals put forward by ESMA, you can access the comprehensive details by analyzing the official press release of the ESMA consultation paper which will be available on the official website of The European Securities and Markets Authority.
MiCA Updates on the Consultation Paper
The period of consultation paper will be active until April 22, 2025. ESMA is expected to release final guidelines in the third quarter of 2025. The guidelines and rules proposed in the final draft are likely to become effective 60 days after its publication in all European Union languages.
The advanced requirements and shifts in the crypto service provider’s system will significantly impact the smaller crypto service providers, they might face hardships to maintain this high standard of training and supervision requirements. Large-scale service providers might not see this as a major challenge, they would rather consider these initiatives as part of market maturity and one step closer to the advancements of the crypto sphere.
