ESMA Introduces New Rules To Address Conflicts Of Interest For CASPs

The European Securities and Markets Authority (ESMA) has shared its Final Report on how to handle conflicts of interest for crypto-asset service providers. In the report, ESMA said that problems do not come from an overlap of interests alone.

Instead, the risk comes from how that overlap is kept in check and shared with clients. The report warned that many situations, close ties, and links can lead to an overlap of interests, and if these overlaps stay hidden, they may cause harm.

ESMA Aims To Ensure Clear Steps To Tame Overlap Risks In Crypto Markets

The report explained that Article 72 of the MiCA law sets rules for providers of crypto assets. It tells them to find overlaps, stop them, take care of them, and tell clients about them. The report revealed that a special part of this law, Article 72(5), gives ESMA the task to design clear rules for conflicts of interest.

ESMA said these rules should help explain two main points. First, they must list what steps and plans providers should set in their own policies and procedures to keep overlaps in check. Second, they must show how providers share details on their websites so that everyone can see what risks may be present.

The report noted that while the way of handling overlaps in MiCA is much like the system in the MiFID II rules, the two sets of rules are not exactly the same.

ESMA said that it chose to use some ideas from the MiFID II system when they fit, and then added new rules to suit the world of crypto assets. This new approach helps cover the special ways in which the crypto market works and ensures that providers follow clear steps to keep overlaps under control.

ESMA Wants To Build Trust and Fairness In Crypto Markets Through Clear Rules

ESMA explained that the new clear guidelines are found in Annex II of the report. These guidelines give advice on how to work with methods, fairness, and openness when dealing with overlaps. They tell crypto-asset service providers to set aside enough effort and resources to handle overlaps well.

ESMA said that by following these guidelines, providers can keep their work clear and honest, which is very important for clients.

Finally, ESMA said that it has sent these clear guidelines to the European Commission. The report noted that the Commission now has three months to decide if it wishes to use these rules. The report told everyone that this process helps build trust in the crypto market.

ESMA stressed that by using clear steps and sharing details openly, crypto-asset service providers can help protect everyone who uses their services. In this way, ESMA hopes to keep the crypto market safe, fair, and open for all.