MiCA response addresses critical elements of the regulatory technical standards (RTS) for detecting and preventing market abuse, as well as investor protection and operational resilience.

Zug, Switzerland — 2 July, 2024 — Auditchain Labs AG, a pioneer in crypto asset disclosure automation, has officially submitted its detailed responses to the European Securities and Markets Authority (ESMA) regarding the third consultation paper on the Markets in Crypto-Assets Regulation (MiCA). This response addresses critical elements of the regulatory technical standards (RTS) for detecting and preventing market abuse, as well as investor protection and operational resilience.

The crypto asset space is going through its “coming of age” period. We applaud the EU Parliament for introducing such a comprehensive and forward looking regulatory framework for crypto assets. We also applaud the work of ESMA and EBA in response to such a short timeline. In addition, we believe that the technical disclosure specifications introduced by ESMA are not only forward looking, but are also compatible with the technical specifications for existing disclosure frameworks for other asset classes in over 60 jurisdictions which also include the 27 EU Member States.

Key Highlights of Our Response:

Proposed STOR Template

We advocate for the Suspicious Transaction and Order Report (STOR) form to be provided in a machine-readable format using the XBRL taxonomy. This would align the reporting format with existing models required for white papers, facilitating automated analysis, alerting, and the detection of patterns and trends both for individual entities and across the market. This recommendation ensures more efficient and accurate data handling and enhances the capability to identify market abuse effectively.

We proposed several enhancements to the template:

  • Inclusion of privacy assurances for sensitive information such as National Insurance Numbers (NIN) to comply with GDPR, with appropriate masking or the use of privacy-enhancing technologies (PETs).
  • Clear distinction of the reporter’s role, encouraging any party, including whistleblowers, to report suspicious activities.
  • Use of ISO 20575 for the legal form of entities and specifying whether the address provided is the headquarters, registered legal address, or the reporter’s actual office, which is also distinguishable in the reporting taxonomy for white papers.
  • Clarification on various fields, including the type of trading activity and the specific nature of distributed ledger technology used.

Additional Comments on Clients’ Rights and Definitions of Systems

We emphasized the importance of further defining “systems” and to include various procedural mechanisms within order management systems that protect clients’ rights. The response provides a detailed example: if a person [system] professionally arranging transactions on behalf of clients buys 100 crypto-assets at €10 on its own behalf while holding client limit orders at the same price totaling 1000 crypto-assets, it should fulfill 100 crypto-assets of the client orders first. This ensures fair treatment and prioritization of client orders.

The benefits of these mechanisms include:

  • Enhanced Client Protections: Procedural safeguards and systemic definitions ensure that client orders are prioritized, protecting their interests in trading activities.
  • Efficient Compliance: Machine-readable formats like XBRL reduce the compliance burden by automating reporting processes and ensuring interoperability with external disclosure systems.
  • Increased Transparency: Regular exception reports provide clear metrics for measuring fiduciary performance, promoting transparency and accountability in market practices.

Our response to ESMA’s MiCA consultation paper underscores its commitment to enhancing market integrity, protecting investor rights, and leveraging technology for efficient regulatory compliance. By advocating for XBRL interoperability and robust procedural safeguards, Auditchain Labs AG aims to foster a safer, more transparent, and efficient crypto-asset market.