As the European Union establishes a comprehensive regulatory framework for crypto-assets, MiCAR emerges as a key pillar. The full impact of MiCAR, along with the Transfer of Funds Regulation (TRF) and the Digital Operational Resilience Act (DORA), will unfold by 2025. Mihhail Sherle, Head of Legal Practice at fintech law firm Gofaizen & Sherle, provides essential insights into the future of the EU crypto market under these regulations.
Understanding MiCAR
MiCAR aims to establish a harmonized regulatory environment for crypto-assets across the EU. While companies have generally adapted to MiCAR’s primary frameworks, its application will vary significantly across member states starting in 2025. Each country will integrate MiCAR into its local legislative acts, resulting in distinct legislative landscapes despite the overarching standardization.
The Transfer of Funds Regulation (TRF)
The revised Transfer of Funds Regulation (TRF), published on June 9, 2023, mandates that crypto-asset transfers include comprehensive information about originators and beneficiaries. This aligns with the Financial Action Task Force (FATF)’s recommendations to combat money laundering and terrorist financing.
For crypto companies, this entails implementing additional compliance frameworks to manage the inherently anonymous nature of crypto transactions. The required information includes the originator’s name, distributed ledger address, account number, address, official personal document number, customer identification number, or other equivalent identifiers. This data must be securely transmitted in advance or concurrently with the transfer to the recipient’s financial institution or virtual asset service provider (VASP).
TRF also mandates procedures to detect and address missing or incomplete information, necessitating robust internal policies, procedures, and controls. Compliance will demand specialized software solutions, blockchain analytics tools, and dedicated compliance teams. TRF, in conjunction with MiCAR, will be fully implemented by the end of 2024.
The Digital Operational Resilience Act (DORA)
DORA applies to a broad spectrum of financial entities, including banks, payment institutions, and crypto companies, particularly crypto-asset service providers (CASPs). The act aims to ensure these entities are equipped to handle ICT-related risks and incidents, thereby enhancing the overall stability and resilience of the financial system. By adopting robust ICT risk management practices, conducting regular testing, and collaborating with regulators and industry peers, crypto companies can better safeguard themselves and their clients from cyber threats and other ICT disruptions. DORA is slated for enforcement beginning January 2025.
Hypersign's Role in Compliance and Security
Hypersign plays a crucial role in helping crypto companies navigate the complex landscape of these new regulations. As a provider of decentralized identity and access management solutions, Hypersign ensures that companies can comply with the stringent requirements of MiCAR, TRF, and DORA.
MiCAR Compliance
Hypersign's Self-Sovereign Identity (SSI) infrastructure, recognized by the World Wide Web Consortium (W3C), enables crypto companies to manage customer identities securely and efficiently. This aligns perfectly with MiCAR's goal of establishing a unified regulatory framework while accommodating the distinct legislative nuances of each EU member state.
TRF Compliance
To meet the demands of TRF, Hypersign offers robust privacy-centric KYC solutions that ensure the collection and secure transmission of required customer information. By leveraging blockchain technology, Hypersign provides verifiable and tamper-proof data, facilitating compliance with TRF’s mandates to prevent money laundering and terrorist financing.
DORA Compliance
Hypersign's advanced security features, including its Encrypted Data Vault (EDV), help crypto companies fortify their ICT risk management practices. EDV’s multi-tenant architecture ensures data segregation and security, enabling firms to meet DORA's requirements for enhanced operational resilience. By integrating Hypersign's solutions, companies can conduct regular testing and maintain robust ICT frameworks, protecting against cyber threats and disruptions.
Challenges Ahead and Future Prospects
The practical implementation of these regulations will present several challenges, particularly due to local variations across member states. Currently, the Travel Rule is interpreted differently across jurisdictions, resulting in legal ambiguities that companies must navigate.
Addressing Local Variations
Hypersign’s decentralized identity solutions can help companies manage these variations by providing a flexible and adaptable framework for identity verification and compliance. By utilizing Self-Sovereign Identity (SSI) technology, Hypersign allows companies to maintain compliance with local regulations while adhering to the overarching principles of MiCAR.
Ensuring Technological Neutrality
Maintaining technological neutrality is crucial for MiCAR's success. Hypersign’s solutions are designed to be adaptable and interoperable with various technologies, ensuring that companies can meet regulatory requirements without being restricted by specific technological mandates. This flexibility helps companies navigate the potential restrictions at the code and technology levels, fostering innovation and compliance simultaneously.
Enhancing Risk Management Practices
Hypersign’s Encrypted Data Vault (EDV) and other security features provide robust ICT risk management solutions. By offering secure, privacy-centric data storage and transmission capabilities, Hypersign ensures that companies can comply with DORA’s stringent requirements. Regular testing and continuous monitoring, facilitated by Hypersign’s advanced tools, enable companies to stay ahead of potential threats and maintain operational resilience.
Conclusion
The comprehensive regulatory framework set to take effect for crypto companies in the EU by 2025 marks their full integration into the EU financial system. It underscores the increasing importance of crypto infrastructure within traditional finance, accompanied by stringent regulations and enhanced transparency in crypto-related processes. This new regulatory era is poised to shape the future of the crypto market in the EU, fostering innovation and establishing a robust framework for sustainable growth.
Hypersign, with its cutting-edge solutions for decentralized identity management and data security, is well-positioned to support crypto companies in navigating this new regulatory landscape. By ensuring compliance with MiCAR, TRF, and DORA, Hypersign not only helps companies meet regulatory requirements but also enhances their overall security and operational resilience, paving the way for sustainable growth in the evolving crypto market.
About Hypersign
Hypersign is an innovative, privacy-preserving KYC system designed to manage digital identities and access rights. Leveraging the principles of Self-Sovereign Identity (SSI), it empowers users to securely control their personal data and access the internet seamlessly. By utilizing Hypersign's KYC system and Encrypted Data Vault (EDV), user data remains secure and safeguarded against any threats. Hypersign provides a scalable, interoperable, and secure Verifiable Data Registry (VDR) that supports various use cases based on SSI. Built using the Cosmos-SDK, the Hypersign Identity Network is recognized by the World Wide Web Consortium (W3C), promoting a seamless and secure identity management experience online.
Hypersign offers a robust cross-chain DID infrastructure that ensures compliance with regulations such as GDPR, DPDP, and LEA, without compromising user privacy. The platform is significantly 5x faster and 50% cheaper than its competitors, supporting on-chain compliance, reusable KYC/KYT/KYB, Proof of Personhood, and secure architectures through SSI, non-custodial data vaults, and multi-level encryption.
Currently live across multiple chains, including Nibiru, Dojima, Babylon, and Comdex, Hypersign is backed by prominent organizations like the Interchain Foundation and the Data Security Council of India. The platform enables efficient onboarding, risk mitigation, and seamless transaction management across various use cases in RWA, launchpads, onboarding tools, DeFi, gaming, and more. Check the demo.
Contact us today at contact@hypersign.id to explore how we can tailor our solutions to your security needs. Together, we can build a safer digital ecosystem for your customers.
