Crypto asset service providers (CASPs) in the European Union may be unaware of the deadline to submit sustainability disclosures reflecting their environmental footprint, despite clarification from the European Securities and Markets Authority (ESMA), the EU's securities regulator. According to Tim Zölitz, Chief Risk Officer at Crypto Risk Metrics, more than 80% of CASPs are not yet aware they need to report environmental, social, and governance-related data from January 1, 2025.

The EU's crypto asset regulation, known as Markets in Crypto Assets (MiCA), became a law in 2023. MiCA established licensing requirements for crypto issuers and service providers, including exchange platforms. Stablecoin rules came into effect in June. Issuers of asset-referenced tokens (ARTs) and electronic money tokens (EMTs) must make sustainability disclosures by June 30, 2024, while CASPs must start making disclosures by the end of the year.

The adopted MiCA law requires the identification and disclosure of adverse environmental impacts. However, it also states that this information may be obtained from crypto-asset white papers, which could be interpreted as requiring disclosures only when the white paper is published, with a timeline of end-2027. This interpretation may have caused confusion among CASPs.

Crypto's environmental impact, particularly through mining operations, has been a significant concern in the industry. The EU's new legal framework aims to support market integrity and financial stability by regulating public offers of crypto-assets and ensuring consumers are better informed about associated risks.

The Markets in Crypto-Assets Regulation (MiCA) institutes uniform EU market rules for crypto-assets, covering transparency, disclosure, authorization, and supervision of transactions. The regulation includes a substantial number of Level 2 and Level 3 measures that must be developed before the entry into application of the new regime, with deadlines ranging from 12 to 18 months.

During the implementation phase, ESMA is consulting with the public on technical standards that will be published sequentially in three packages. The aim is to deliver draft Level 2 and 3 measures incorporating feedback from the public as soon as possible. The date for the entry into application of the measures is subject to their adoption by the European Commission and approval by the European Parliament and the Council of the EU.

ESMA is releasing the MiCA consultation packages in sequence, starting with the Level 2 and Level 3 measures with the shortest deadlines. The first package was launched in July 2023, with the second package published by October 2023. The third and final consultation package, including the MiCA mandates with an 18-month deadline, was published in Q1 2024. A sequential approach allows for better use of available resources.

The first consultation package included technical standards for notification from selected entities to NCAs, forms and templates for notification, content of the application for authorization for CASPs, forms and templates for CASP authorization application, complaint handling procedure, management and prevention of conflict of interest, and intended acquisition information requirements.

The second consultation package covered sustainability indicators, business continuity requirements, trade transparency data and order book record-keeping, record-keeping requirements for CASPs, classification and templates, and format of crypto-asset white papers, and public disclosure of inside information.

The third and final consultation package will cover the remaining mandates with an 18-month deadline, including qualification of crypto-assets as financial instruments, monitoring, detection, and notification of market abuse, investor protection, system resilience, and security access protocols.

In parallel to the drafting of technical standards, ESMA is working with national competent authorities (NCAs) on a convergent approach to authorizations of CASPs during the transitional phase. The purpose of this supervisory convergence work is to ensure alignment on supervisory expectations related to entities offering crypto-asset services across EEA jurisdictions in the transitional period of MiCA and to promote consistent practices after the entry into application of MiCA, starting with the authorization regime.