Obligations Imposed on Firms

To prevent and detect market abuse as per article 92 of MiCA, PPAETs must adapt their technology, expertise and internal controls accordingly with the RTS. 

• Surveillance and Reporting: Such technologies and expertise have a surveillance function and hence must efficiently:

1.  Monitor all orders, transactions, and relevant DLT functions (including consensus mechanisms) to detect potential market abuse.
2. Report any suspicious behavior to the competent authority, that being the MFSA in Malta.

Such systems and procedures are to be updated and documented in writing. Additionally, regular assessment of these procedures is obligatory and may be done at least through an annual audit and internal review.
The RTS leaves firms free to establish procedures and invest in technologies which best suit their facilities. However, the RTS does set the principal of proportionality and so, the surveillance procedures must be capable of identifying market abuse, including insider dealing and market manipulation within the nature and size of the firm’s business activity.
To ensure effective procedure in line with the RTS, it is highly advised to undertake adequate risk assessments even though they are not explicitly mandated.

• Reporting Market Abuse: Firms must submit, without delay, a Suspicious Transaction or Order Report (“STOR”) upon forming suspicion of market abuse activity. A template STOR is found annexed to the RTS and must be submitted electronically.
• Record Keeping and DLT Monitoring: Stringent record keeping requirements are set through the RTS. This means that firms are to keep adequate records of the way the orders and transactions are monitored as well as the monitoring of aspects of the functioning of the DLT, including the consensus mechanism for a period of 5 years. 
• Human Analysis and Expertise: The RTS emphasizes an appropriate level of human analysis within the monitoring process and promotes the review of automated work. To ensure this, effective and comprehensive training regarding the identification and comprehension of market abuse for staff is mandated.

Changes from the Draft in the Final Report

It is to note that the RTS is different from the earlier draft the ESMA had published in its Final Report. Hence, PPAETs which have started preparing for the RTS under the draft in the Final Report should now review and compare their preparations with the current procedure and update accordingly.

Notable Grey Areas

• What are PPAETs?a.    The term “persons professionally arranging or executing transactions” is broad creating ambiguity. On interpretation many categories of people and entities may fall within this term such as crypto-assets services providers (CASPs) as well as individuals with personal accounts.
• What type of market abuse is monitored?
• a.    All types of market abuse should be monitored under the RTS, saving the specification to market manipulation surveillance. Under MiCA, market abuse consists of three different acts: insider dealing, unlawful disclosure of inside information and market manipulation. Hence, confusion arises as to whether PPAETs are to only monitor market abuse in terms of market manipulation or as per the three acts under MAR.

The adoption of the RTS under MiCA marks a significant milestone in the regulatory treatment of crypto-asset markets, aligning them more closely with traditional finance. Although practical uncertainties remain, the RTS provides robust framework to ensure efficient and effective market abuse prevention and identification.  The Legal Team at BDO is here to help you navigate the new obligations set under the MiCA RTS. Should you require any further information or assistance, the team may be contacted here.