The European Securities and Markets Authority (ESMA) is calling for changes to the European Union’s Markets in Crypto-Asset (MiCA) Regulation, expressing concerns over the current structure of the framework.

ESMA published an official notice on October 16 urging the European Commission to pursue amendments that would strengthen regulatory oversight in the crypto space.

“ESMA acknowledges the legal limitations raised by the Commission but highlights the importance of the policy objectives behind the initial proposal,” the regulator wrote, emphasizing the need for stricter standards in crypto markets.

ESMA’s recommendations focus on refining two key regulatory technical standards (RTS) within MiCA.

These RTS cover essential elements such as information regarding the intention to offer crypto services and the process of obtaining authorization as a crypto asset service provider (CASP).

One of the important changes advocated by ESMA is the requirement of external cybersecurity audits for CASP applicants.

According to the regulator, applicants must provide an external assessment of the integrity of their management, as well as confirmation that the organization has no history of sanctions beyond areas such as commercial law, insolvency or anti-money laundering (AML).

The regulator also highlighted the need to check for any involvement in fraud, professional liability or other misconduct related to financial services.

“This will increase the resilience of the crypto asset market and strengthen investor protection in the crypto asset space,” ESMA noted, highlighting the importance of these stricter entry requirements for service providers.

ESMA believes that these adjustments will ensure a more robust review process for applicants wishing to offer crypto-related services in the EU.

By improving oversight, the regulator hopes to strengthen market resilience and boost investor confidence in the crypto ecosystem.

The final decision on whether or not to incorporate the amendments proposed by ESMA now rests with the European Parliament and the European Council.

The council has the power to either adopt the RTS with modifications or reject it outright.

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In the meantime, the European Parliament retains the power to oppose the revised RTS proposed by the Commission within three months.

These regulatory efforts come as the EU prepares for the final implementation of MiCA, which is expected to come into force on December 30, marking a pivotal moment in the region’s efforts to comprehensively regulate digital assets.

In a statement shared with Benzinga, Anthony Yeungglobal head of strategic development at a blockchain protection company Currency cover said that the Web3 industry can only continue to grow and attract the next wave of users by having stricter cyber protection rules and that beyond the immediate financial impact, the reputation of companies is unnecessarily ruined by cases of theft and hacking which also undermine wider confidence in the market.

“Centralized exchanges in particular are increasingly becoming prime targets for hackers who are becoming more and more innovative in their approaches. While regular external security audits will certainly help improve the industry, they will not completely eliminate this threat. Crypto companies must continue to invest in user-focused threat prevention and recovery technologies to fully strengthen their security infrastructure,” he said.

The evolving landscape of crypto regulation will take center stage at Benzinga’s Future of Digital Assets event on November 19.

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