EU MiCA Regulation strengthens the use of the LEI to ensure trust and transparency in the crypto market
17 July 2023
The European Union took a significant step towards regulating cryptoassets by adopting the Markets in Crypto-Assets (MiCA) Regulation in May 2023. This regulation, which puts the market for crypto-assets on a uniform legal footing throughout the EU, mainly emphasizes the central role of the Legal Entity Identifier (LEI). The LEI, a globally recognized identifier for legal entities, is becoming increasingly crucial in crypto-asset regulation.
MiCA and the LEI: an indispensable duo in crypto regulation
The MiCA Regulation requires all legal entities wishing to offer crypto-asset services to apply for an LEI. With this LEI number, operating as a crypto asset service provider (CASP) in the EU is possible. This is a significant milestone that underlines the relevance of the LEI in the emerging crypto industry.
The MiCA Regulation strengthens trust and transparency in the crypto-asset market by using the LEI. Of particular note is that the LEI is used as part of the FATF Travel Rule (Recommendation 16) to combat money laundering and terrorist financing. This rule requires crypto-asset service providers to accurately identify transaction participants to ensure the security and integrity of the market.
The LEI as a global standard in the crypto industry
With MiCA, the EU is going a decisive step further by using the LEI not only for consumer protection but also to meet international compliance standards such as the FATF Travel Rule. These regulations require CASPs to use the LEI or an equivalent identifier in every transaction, establishing the LEI as an indispensable tool in global crypto regulation.
In addition, the LEI is also used in other regulatory frameworks, such as the EU Directive on Administrative Cooperation (DAC8), to standardize the exchange of tax information on crypto assets. This comprehensive integration of the LEI into various regulatory initiatives demonstrates that the LEI is invaluable not only for identification but also for harmonization and increased efficiency in the crypto sector.
Promoting LEI adoption: an opportunity for RegTech providers and crypto platforms
In light of increasing regulatory requirements, the broader adoption of the LEI offers numerous benefits for crypto-asset platforms and RegTech solution providers. Using the LEI, these companies can optimize their compliance processes and minimize risk while improving the customer experience. An example is VerifyVASP, a Singapore-based RegTech provider that is the first validation agent in the crypto and digital asset trading space to actively utilize the LEI’s benefits.
The MiCA regulation and the increased use of the LEI mark a significant step forward in crypto regulation. For companies in the crypto sector, this opens up the opportunity not only to meet regulatory requirements by implementing the LEI but also to benefit from greater trust and transparency in the market in the long term.
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