Breaking news December 17th at 8pm
The Rock Trading, a cryptocurrency exchange platform based in Malta but operating in the Italian market, in 2023, following boasted “difficulties in managing liquidity”, was declared failed with a financial collapse of approximately 66 million euros and involved over 18,000 investors. Orrick, with Partner Jean-Paul Castagno and Special Counsel Andrea Alfonso Stigliano, assists more than 200 investors, for a total value of over 6 million euros. The affair has returned to the headlines with the recent arrest, on 12 December 2024, of the two directors, Andrea Medri e Davide Barbieriaccused of fraudulent bankruptcy and false corporate communications.
The story of The Rock Trading and, even before that, that of the American woman FTXhave highlighted the need for more stringent regulation to ensure investor protection and market stability. At a European level, to date crypto-asset service providers (CASP) are subject only to anti-money laundering regulations and were only subject to the obligation to register with theOAMbut there are no specific obligations in terms of transparency, asset segregation or governance requirements.
MiCAR comes into force
With the entry into force of MiCAR regulation (Markets in Crypto-Assets Regulation), scheduled for December 30th, the regulatory framework has evolved significantly. The regulation introduces a harmonized body of legislation at European level with the aim of guaranteeing transparency, stability and investor protection. Among the main innovations, we highlight the introduction of the obligation of asset segregation, which imposes the separation between user funds and the platform’s assets. This principle, already known in the traditional financial sector under the MiFID IIaims to prevent client assets from being involved in the platform’s liabilities in the event of a crisis or bankruptcy. The absence of such segregation showed its consequences precisely in The Rock Trading case, where investors risk being considered unsecured creditors in bankruptcy proceedings, with very limited possibilities of recovering their funds.
MiCAR also includes new requirements transparency. Exchange platforms will have to provide a white paper with clear and detailed information on the risks associated with traded crypto-assets. Communications with users must be transparent and updated, especially in the event of extraordinary events, such as liquidity crises or insolvency. This tool aims to ensure full investor awareness about risks associated with the assets traded and to prevent opaque behavior by operators.
Another important element introduced by MiCAR is the strengthening of governance. Crypto service providers will have to comply with requirements of good repute and competence for directors and managers, as well as equipping themselves with internal control systems aimed at monitoring operational and capital risks. Again, the comparison with MiFID II regulation is clear, as traditional financial intermediaries are already subject to similar governance standards. The objective is to ensure more prudent management of the platforms, reducing the risk of sudden crises and strengthening investor confidence.
A further aspect of great importance concerns the synergy between MiCAR and the anti-money laundering legislation: the obligations of KYC (Know Your Customer) and monitoring of suspicious transactions remain unchanged, but with MiCAR crypto service providers will be subjected to more incisive controls. This synergy between the two regulations will have the aim of guaranteeing not only the transparency of operations, but also the financial stability of the platforms, increasing the ability to prevent illicit phenomena.
What changes for CASPs
The introduction of the MiCAR Regulation therefore marks a radical change for i CASPwho will be subject to much more rigorous discipline. For CASPs, the process of adapting to MiCAR will not be without challenges.
Successful implementation of MiCAR will require CASPs to strengthen their organizational structures and systems internal controlensuring adequate monitoring of market, operational and reputational risks. Compliance with transparency and asset segregation obligations will become a key element in obtaining and maintaining operational authorization, and dialogue with the supervisory authorities will be essential to resolve any critical issues. The supervisory authoritiesfor their part, will have the task of constantly monitoring the compliance of CASPs with the new rules, with more incisive intervention powers than in the past. This regulatory evolution represents a significant challenge, but also an opportunity for the cryptocurrency market, which will finally be able to enjoy a stable and predictable regulatory framework, capable of attracting new investors and consolidating trust in the sector.
Compliance with MiCAR not only represents a regulatory necessity, but also constitutes aopportunity to strengthen investor confidence and improve the reputation of the crypto sector. (reproduction reserved)
*Partner Orrick
*Special Counsel Orrick
