The European Securities and Markets Authority (ESMA) has recently introduced significant updates to its regulatory framework aimed at managing conflicts of interest for Crypto-Asset Service Providers (CASPs). These modifications, released in January 2025, mark a notable shift in approach, reinforcing the need for enhanced investor protection and market confidence in the rapidly growing crypto sector.
One of the critical aspects of these updates is the proposed requirement for CASPs to potentially separate conflicting services into distinct legal entities. This change targets situations where internal procedures are inadequate to manage conflicts of interest effectively. The aim is to ensure better governance and independence of services, thus mitigating risks associated with overlapping activities.
In addition, the new regulations emphasize comprehensive monitoring of personal transactions conducted by connected persons within CASPs. This includes implementing stringent documentation and approval processes for these transactions. The overarching goal is to prohibit actions that would violate existing regulations, particularly those linked to market abuse and integrity.
Furthermore, the revisions expand the definition of remuneration to encompass all forms of payments, whether financial or non-financial, provided by CASPs in relation to crypto-asset services. This thorough definition intends to close loopholes that could allow entities to circumvent compliance through alternative payment structures, thus fostering transparency.
The established framework mandates CASPs to instate robust policies to better identify and manage conflicts of interest, while also necessitating stronger internal controls. Clarity in the delineation between potentially conflicting activities is crucial to ensure a stable operational environment.
To facilitate this, CASPs are expected to craft policies that address three critical areas: procedures for monitoring personal transactions, transparency in remuneration practices, and the creation of organizational structures designed to prevent and manage potential conflicts of interest. This includes clearly defined roles and responsibilities within organizational hierarchies.
Despite the well-intended nature of these regulatory updates, concerns persist regarding the industry’s readiness for such changes. Industry experts have highlighted that a considerable gap exists between proposed regulations and the current operational state of many crypto firms. It has been suggested that both the crypto industry and regulators lack sufficient preparation for the implications of the new regulatory landscape.
In conclusion, the changes introduced by ESMA represent a significant step toward enhancing the regulatory framework governing CASPs, aiming to foster a more reliable and secure environment for market participants. As the industry grapples with these new requirements, it remains crucial for companies to adapt their operations to comply with these evolving standards while also promoting ethical practices and market integrity.