The European Securities and Markets Authority (ESMA) urged lawmakers in Brussels to tighten crypto regulation, pushing for external audits of cyber defenses among crypto companies.
ESMA stated that such measures were critical to safeguarding consumer interests, as cyberattacks on the crypto industry have risen dramatically in recent years.
ESMA Seeks EU Crypto Regulation And Call for Cybersecurity Audits
According to an exclusive Wednesday report from the Financial Times, ESMA’s proposal seeks to amend the Markets in Crypto-Assets Regulation (MiCA), the European Union’s (EU) comprehensive crypto regulatory framework, which is set to fully take effect in December 2024.
MiCA intends to bring clarity and protection to the largely unregulated crypto sector. The sector has been plagued by several scandals, most notably the infamous collapse of the FTX exchange.
As part of its recommendations, ESMA has proposed that crypto companies be required to conduct third-party audits of their systems to identify potential vulnerabilities.
These heightened concerns arise as the proposal comes at a time when regulators are increasingly worried about the sector’s growing susceptibility to cyberattacks.
In the first half of 2024, over $1.5 billion was stolen from crypto platforms. This represents an 84% increase over the same period in 2023, highlighting the urgency for cybersecurity reforms.
However, the European Commission has pushed back against ESMA’s proposal, suggesting that it oversteps the scope of MiCA.
While ESMA declined to comment, critics argue that stricter rules are necessary given the escalating threat of cyberattacks targeting crypto companies.
In recent years, several high-profile crypto hacks have occurred. In September, $45 million was stolen from the Singapore-based exchange BingX, while $230 million was drained from Indian exchange WazirX in July.
Such incidents further highlight the ongoing demand for stronger security protocols across the crypto industry.
“Security is not something you can take lightly,” commented Charles Kerrigan, a partner at CMS law firm.
He emphasized the need for crypto ventures to invest in robust cybersecurity measures to prevent such breaches.
Global Regulatory Pressure Builds Amid Regulation Concerns
The EU’s MiCA regulation already requires crypto companies to obtain a license by complying with new rules, including anti-money laundering controls and ensuring senior executives meet “fit and proper” standards.
But as crypto exchanges continue to fall victim to sophisticated cyberattacks, regulators are now calling for more proactive measures.
In addition to ESMA’s push for stricter cybersecurity oversight, the European Parliamentary Research Service (EPRS) recently called for greater regulation beyond EU borders.
The EPRS report emphasized the risks posed by lax cybersecurity measures in non-EU jurisdictions, particularly in the U.S., where crypto regulation is highly fragmented.
As MiCA moves closer to full implementation, it is still unclear whether the EU will adopt ESMA’s recommendations for mandatory external audits.
The call for enhanced security standards aligns with ongoing efforts worldwide to increase regulation of the cryptocurrency industry.
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