MiCA Masters: Best Execution

In the latest episode of the DACOM Digital - MiCA Masters podcast, host Delphine Forma from Solidus Labs sat down with Josh Peschko, Global Head of Compliance Strategy at Talos, to discuss the intricacies of MiCA’s best execution requirements for crypto asset service providers (CASPs). Below is a recap of the insightful conversation and the main takeaways.

1. What is best execution?

Josh explained that best execution is a foundational principle in finance, requiring service providers to act in their clients’ best interests when executing trades. MiCA’s best execution framework emphasizes achieving the best possible result by considering factors such as price, costs, speed, execution likelihood, and settlement reliability. Crucially, best execution is not limited to securing the best price—it entails a holistic approach to optimizing client outcomes.

2. Challenges in implementing best execution

Proving compliance with best execution requirements can be as complex as achieving it. CASPs need robust infrastructure to record, store, and analyze data points such as quotes from liquidity providers, order routing decisions, and algorithmic logic. Without these systems, it becomes difficult to demonstrate compliance to regulators.

3. The single-venue challenge

A key highlight of the discussion was MiCA's stance on single-venue trading. Regulatory clarifications suggest that relying on a single trading venue is unlikely to meet best execution requirements. CASPs must evaluate alternative execution venues and justify why they may not onboard additional options. Josh pointed out that tools like Talos's trading infrastructure simplify this process by connecting CASPs to multiple liquidity sources, enabling seamless data aggregation and order management.

4. Execution policies under MiCA

CASPs must maintain comprehensive execution policies that detail how they evaluate and prioritize factors like price, speed, and cost. These policies must be accessible to clients and updated regularly. Josh emphasized that these policies should align with real-world practices, as discrepancies can attract regulatory scrutiny.

5. Cost and complexity of compliance

Compliance with MiCA’s requirements involves significant costs, including data acquisition, engineering resources, and the staffing of compliance teams. Josh highlighted the importance of leveraging external technology providers to manage connectivity to trading venues and reduce operational burdens.

6. Broader implications for crypto regulation

The conversation touched on the evolving landscape of global crypto regulation. Josh expressed optimism about future harmonization between jurisdictions like the EU, US, and UK but acknowledged the current fragmentation as a significant compliance challenge.

Key takeaways for CASPs:

• Build or partner for robust trading and compliance infrastructure to capture required data points and streamline reporting.
• Regularly review and update execution policies to align with MiCA’s evolving requirements.
• Engage in industry networks and forums to stay informed about regulatory developments and best practices.
• Proactively address operational and engineering challenges to ensure scalable compliance solutions.

MiCA’s implementation marks a pivotal moment for the crypto industry. As Josh noted, while the road ahead is complex, it’s also an exciting opportunity to shape a transparent, compliant, and resilient digital asset market.

For more insights, tune in to the full episode of DACOM Digital: MiCA Masters.