Malta's Crypto Licensing Under MiCA Regulations Faces Scrutiny

By: Eliza Bennet

The European Securities and Markets Authority (ESMA) has expressed concerns about Malta's recent crypto licensing processes, handling license approvals under the EU's Markets in Crypto-Assets (MiCA) regulation. In a comprehensive review published recently, ESMA highlighted critical deficiencies in how the Malta Financial Services Authority (MFSA) authorized its latest crypto asset service provider (CASP). The findings raise questions on Malta's diligence and commitment to adhering to the standards set under the MiCA regulations.

The ESMA report criticized the MFSA for overlooking certain unresolved material issues and conducting an inadequate risk assessment before granting the license. The Peer Review Committee pointed out that such regulatory lapses could undermine the robustness of the MiCA framework, significantly impacting the European Union's overarching crypto regulation objectives. Despite possessing adequate resources and expertise, the Malta regulator's recent approval process has been flagged for improvement, especially in rigorous compliance with MiCA obligations prior to licensing.

Malta has issued five CASP licenses since MiCA's implementation, positioning it as a leading MiCA license issuer in the EU, behind only Germany and the Netherlands. As of now, 53 firms have secured licenses, facilitating their ability to operate seamlessly across all 30 European Economic Area (EEA) countries without additional regulatory approvals. Notable companies like Circle and Kraken have been able to expand under this framework, marking significant progress for the crypto industry within the region.

In response to the findings, the MFSA reassured stakeholders that no MiCA licenses in Malta are at risk of revocation or reassessment. Furthermore, they have initiated steps to address issues highlighted by the review. ESMA's report urged further vigilance from European regulators on specific high-risk areas during the CASP licensing process, including business model sustainability, governance structures, and promotion of unregulated services. Additionally, emerging sectors such as DeFi and Web3 warrant careful evaluation to ensure full MiCA compliance. By fostering enhanced oversight, national European regulators can strengthen their approach towards fostering a secure and compliant crypto industry.