Building the Three Lines for MiCA Compliance

As organisations navigate this transformation, the Three Lines Model has emerged as a vital framework for establishing clear responsibilities, strengthening risk management, and ensuring continuous compliance. While many firms are familiar with the concept, MiCA gives it fresh relevance by embedding it at the heart of operational governance for crypto-asset service providers (CASPs).
 

Understanding the Three Lines Model in the Context of MiCA

The Three Lines Model promotes collaboration across governance functions while maintaining clear accountability. It ensures that everyone in the organisation — from product developers to the board — plays a defined role in managing risk and achieving compliance.

Under MiCA, this model can be viewed as follows:

· First Line – Business and Operations The first line comprises management and operational teams that own and manage risks in day-to-day activities. For crypto firms, this includes areas such as onboarding clients, safeguarding private keys, processing transactions, and managing customer communications. Controls implemented at this level should ensure that business operations meet MiCA’s requirements for transparency, consumer protection, and security.

· Second Line – Risk, Compliance, and AML Functions The second line provides independent oversight, ensuring that the first line operates within defined risk and compliance parameters. Under MiCA, this includes both the risk management and compliance functions, as well as the Anti-Money Laundering (AML) function — each playing a critical role in protecting the integrity of operations.

• The Risk Function monitors strategic and operational risks, from market volatility to ICT and cyber resilience.
• The Compliance Function ensures adherence to MiCA and related EU regulations, continuously monitoring obligations and emerging risks.
• The AML Function maintains vigilance over client onboarding, transaction monitoring, and suspicious activity reporting — crucial areas where regulators will expect strong control and documentation. Together, these functions form a strong oversight layer that supports informed decision-making and accountability.

· Third Line – Internal Audit The third line provides independent and objective assurance to the board and senior management. Internal audit evaluates the effectiveness of governance, risk management, and internal controls — including the independence and efficiency of the first and second lines. Under MiCA, this role becomes increasingly strategic. Internal audit not only confirms compliance readiness but also helps organisations anticipate control weaknesses before they result in regulatory findings.

The Challenge for Malta’s Crypto and FinTech Startups

For Malta’s emerging FinTech and crypto firms, adopting the Three Lines Model can be challenging. Many startups operate with lean teams, where individuals wear multiple hats. Building formal lines of oversight may feel like a burden when innovation and speed are seen as competitive advantages.

However, MiCA expects clear role segregation and documented accountability. This does not require startups to over-engineer their structures. Instead, the emphasis should be on proportionate governance — establishing controls and reporting mechanisms that are appropriate for the firm’s size, complexity, and risk exposure.

In practice, this could mean having a single individual oversee both risk and compliance in the early stages, provided independence is preserved through appropriate reporting lines and periodic internal audit review. What matters most is that each line of the model is visibly functioning and that the board maintains oversight of its effectiveness.

Building the Three Lines: A Practical Roadmap

Creating an effective Three Lines structure for MiCA compliance is a gradual process. CASPs and FinTechs can take the following practical steps:

1. Define clear accountability – Document who owns which risks, controls, and monitoring activities, ensuring that there are no overlaps or blind spots.

2. Integrate compliance into the business – Embed MiCA and AML requirements into daily processes rather than treating them as separate functions.

3. Establish proportionate oversight – Develop a compliance monitoring plan and a risk framework suited to the organisation’s maturity and scale.

4. Strengthen AML collaboration – Ensure AML monitoring and reporting are fully integrated with compliance and risk management efforts.

5. Engage internal audit early – Involve internal audit at the planning stage to assess governance and control readiness before licensing applications or regulatory reviews.

This structured approach not only meets regulatory expectations but also builds investor confidence and operational resilience.
 

BDO Malta’s Role in Supporting MiCA Compliance

At BDO Malta, we collaborate closely with FinTechs, crypto-asset service providers, and financial institutions that are preparing for MiCA licensing. Our experience shows that many firms are eager to comply but unsure how to structure their Three Lines in a way that fits their business model.

We assist by helping organisations understand their current maturity, assess control environments, and develop tailored frameworks that align with MiCA’s expectations. This includes designing risk management and AML structures, defining compliance monitoring processes, and establishing proportionate internal audit programs that provide independent assurance to boards and regulators.

Our focus is on enabling sustainable growth — ensuring that firms build the right foundations to scale confidently while maintaining trust with clients, investors, and supervisory authorities.
 

Embedding Trust Through Strong Governance

The Three Lines Model is more than a governance framework; it is a mindset that defines how organisations manage risk and deliver assurance. Under MiCA, this model becomes essential for demonstrating not just compliance, but competence and accountability.

For Malta’s growing community of crypto and FinTech innovators, building these three lines early will not only support licensing success but will also shape stronger, more resilient businesses capable of leading Europe’s digital finance future.

At BDO Malta, our goal is to stand beside these innovators — helping them translate MiCA’s requirements into practical governance solutions that protect value, enhance trust, and position Malta as a beacon of responsible financial innovation.

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