The promulgation of MiCA has brought these innovative businesses under a unified regulatory framework for the first time.

Compliance Implications in the MiCA Era

As traditional financial capital continues to flow into the crypto market, an increasing number of investors are seeking stable and reliable crypto asset investment management services. This is particularly true for investors who have grown weary of monitoring daily market trends and experimenting with various new strategies,as they increasingly desire to plan their crypto asset portfolios within a more traditional investment management context.

The EU Markets in Crypto-Assets Regulation (Regulation (EU) 2023/1114, hereinafter referred to as "MiCA"), as the world's first unified regulatory framework for crypto assets, not only imposes comprehensive requirements on exchanges and wallet service providers but also brings innovative businesses such as portfolio management, copy trading, and staking into the regulatory system for the first time.

Under the MiCA framework, several crypto-asset service providers (CASPs) have obtained regulatory licenses and begun offering services such as portfolio management to clients.To date, ten licensed institutions in the EU assist clients in managing crypto asset investment portfolios, including major platforms such as eToro and Kraken. eToro attracts a large number of users seeking automated and low-threshold investment opportunities by providing asset allocation recommendations through its Smart Portfolios feature and enabling strategy replication via social trading models. Meanwhile, Kraken has expanded its staking services on top of crypto asset trading and is exploring compliant cross-border asset management models.

The promulgation of MiCA has brought these innovative businesses under a unified regulatory framework for the first time.This change not only affects the European market but also serves as a compliance "barometer" for global crypto asset enterprises: in the future, all service providers involved in portfolio management, staking, or copy trading must directly address regulatory challenges. For crypto asset platforms, fund managers, and even individual investors, this raises two practical questions:

1. How to continue innovating while remaining compliant?

2. How to address differences in cross-border regulations to ensure the sustainability of global business expansion?

 

Copy Trading and Quantitative Strategies

MiCA provides clear compliance definitions and requirements for Portfolio Management: any CASP providing crypto asset portfolio management must, prior to providing services to clients,conduct a suitability assessment of the client’s experience, knowledge, investment objectives, and capacity to bear losses.If the client fails to provide relevant information, or if the assessment indicates that the investment is unsuitable for the client, the service provider shall not provide portfolio management or related advice.

Furthermore, when providing investment advice, CASPs must issue a report containing the suitability assessment, explaining how the recommended crypto assets or services align with the client’s preferences and objectives; when providing portfolio management, CASPs must also regularly issue reports to clients summarizing portfolio performance and updating the suitability assessment. This provision directly raises the compliance threshold for Portfolio Management and strengthens investor protection.

In the field of crypto asset investment,copy trading and quantitative strategies are gradually becoming common methods of Portfolio Management among MiCA-licensed CASPs.These two strategies enhance investment efficiency and potential returns through technical means, attracting a large number of investors seeking to leverage technological advantages for asset appreciation.

Copy Trading, as the name suggests, allows investors to follow the investment strategies of experienced traders. By providing transparent trading signals and historical performance data, platforms enable users to select and replicate the strategies of professional traders.Its core feature is the direct connection between investors and experienced traders, allowing investors to automatically replicate every operation of the trader via the platform, thereby lowering the barrier to entry for investment.Such services are particularly suitable for investors who lack professional knowledge but wish to benefit from the experience of others.

Quantitative Strategies (Algorithmic Trading)involve the use of mathematical models and statistical methods for data analysis, with trading decisions executed automatically through algorithms. In the crypto asset market, quantitative strategies often combine big data, machine learning, and artificial intelligence technologies to achieve high-frequency, automated investment operations.Compared to manual trading, quantitative strategies offer faster execution and stronger discipline,enabling rapid, objective responses that may counter human instinct in rapidly changing market environments, thereby reducing biases in human judgment. Consequently, they are gradually becoming an important product type offered by MiCA-licensed CASPs to investors.

It is worth noting thatMiCA does not explicitly require that the underlying assets for portfolio management must be crypto asset spot or derivatives.Although in practice many platforms may choose crypto spot assets as the underlying asset, particularly due to their transparency and relatively manageable risks, MiCA regulatory requirements do not clearly distinguish whether derivatives (such as futures, options, etc.) are used as underlying assets. When the underlying assets involve crypto derivatives, issues of regulatory overlap or conflict between crypto regulations (such as MiCA) and traditional financial regulations (such as MiFID) may arise.

MiCA stipulates compliance requirements for Portfolio Management and, in certain aspects, references MiFID standards, particularly regarding suitability assessments and investor protection. However, the scope of MiFID regulation is not explicitly limited to fiat currency derivatives; some crypto derivatives may also meet the definition of financial instruments under MiFID, thus requiring simultaneous compliance with both MiCA and MiFID requirements. This dual regulation may pose compliance challenges, particularly where there may be overlaps or differences in product compliance assessments, capital requirements, and derivatives trading rules.

Although there are differences in the methods used to achieve investment objectives, both face challenges and opportunities regarding compliance. The following will explore the regulatory requirements for copy trading and quantitative strategies, using two representative jurisdictions with strict compliance regimes as examples.

1. European Union (MiCA)

In the EU, MiCA, as a unified regulatory framework, imposes detailed requirements on CASPs, with a particular emphasis on investor protection. For service providers offering Portfolio Management, the core requirements include:

  • Suitability Assessment Obligation:Prior to providing advice or portfolio management, a suitability assessment must be conducted for each client, covering knowledge and experience, investment objectives/risk tolerance, financial situation, and basic understanding of crypto asset risks. Portfolio management may only commence if the client is deemed "suitable." If the client does not provide information or is assessed as unsuitable, portfolio management must not be initiated. Furthermore, clients must be reassessed at least every two years.

  • Periodic Reporting Obligation:Regular portfolio management statements must be issued to clients at least quarterly (in electronic form; if the client has an "online system" and access records exist for the quarter, compliance may be achieved through an "online continuous availability + reminder" mechanism). The content must"fairly and balancedly"review portfolio activities and performance, and update suitability information.

  • Transparent Disclosure of Costs and Charges:Within the suitability framework, an assessment of"the costs and complexity of equivalent products"must be conducted, and all fees involved and third-party benefits must be clearly disclosed.

  • Market Fairness:MiCA requires that platforms must not use algorithms or replication mechanisms to manipulate market prices and must maintain fairness and transparency.

2. United States (SEC and CFTC)

In the United States, the regulation of copy trading and quantitative strategies is jointly undertaken by the SEC and CFTC, primarily reflected in:

  • Registration and Compliance:Copy/mirror or model-driven strategies, if they constitute providing advice on securities to clients or discretionary authority on behalf of clients, typically fall within the scope of investment advisers under the Investment Advisers Act of 1940, requiring compliance obligations such as registration, fiduciary duties, and disclosures. Quantitative/algorithmic trading involving commodity derivatives is subject to the CEA and CFTC regulatory framework, with whether it triggers CTA/CTP/FCM status depending on the specific business.

  • Risk and Suitability Disclosures:The SEC emphasizes full and non-misleading disclosures for "algorithmic/robo-advisors" (including model assumptions, data and limitations, backtesting and performance presentation, risks of deviation from client objectives, etc.) and the fulfillment of fiduciary duties, which are key focus areas during examinations.

  • Anti-Market Manipulation:Both the SEC and CFTC prohibit the use of copy or algorithmic trading to manipulate markets or engage in insider trading. The CFTC prohibits manipulation and fraudulent devices under CEA §6(c)(1) and 17 CFR 180.1/180.2; the SEC relies on anti-manipulation/anti-insider trading frameworks such as Exchange Act §10(b)/Rule 10b-5 and §9(a)(2).

 

Legal Risks Amidst Technological Innovation

As the crypto asset market continues to mature, staking, as a crucial component of blockchain network validation mechanisms, has become one of the core services offered by mainstream crypto asset platforms. Staking essentially involves crypto currency holders locking their assets on the blockchain to support network operations and receiving rewards through this process.

Many mainstream crypto asset service platforms, such as Kraken, Binance, and Coinbase, offer staking services, allowing users to commit crypto assets to the network to earn staking rewards. Due to its significant financial characteristics, staking has become a key focus of compliance construction in various jurisdictions. For example, after being ordered by the US SEC to cease staking services in 2023, Kraken underwent extensive restructuring of its staking business, adding user authorization processes, independently custoding user assets, and standardizing reward disclosure methods to ensure its staking services met regulatory requirements. The regulatory status of staking varies significantly across different jurisdictions:

1. Differences in Legal Characterization of Staking

There are significant differences in the characterization of staking businesses across different jurisdictions:

  • European Union:MiCA characterizes staking services as ancillary services to custody services. Crypto asset staking service providers must be authorized to provide custody and management services for crypto assets on behalf of clients and are liable for losses of crypto assets arising from providing staking services to clients or from the staking activities themselves.

  • United States:The SEC uses the Howey Test as a standard for case-by-case assessment of staking businesses. It focuses on whether the staking business involves pooling by intermediaries, promises of returns, expectations of consideration, and other factors, tending to view staking as an "investment contract," thus requiring registration of related services.

  • Singapore:Providing staking services to the public generally falls under the Digital Payment Token (DPT) service provider framework (PSA/FSMA). Regardless of whether clients are located overseas, service providers must be licensed and comply with strict AML/CFT, customer asset custody, and disclosure requirements. There is no transition period; unlicensed entities must cease operations.

  • Hong Kong:Staking business is explicitly included in the regulatory system. Licensed Virtual Asset Trading Platforms (VATPs) are permitted to provide staking services to clients subject to prior approval, but must comply with a comprehensive set of terms and conditions (Staking T&Cs), covering custody and control, client authorization and disclosure, risk management and operational requirements, etc.

These differences mean that cross-border staking business designs must adhere to the "strictest standard first" principle; otherwise, they may be deemed non-compliant in certain countries.

2. Core Elements of Staking Compliance

To reduce compliance risks, staking platforms should focus on the following three aspects:

  • Independent Custody of Client Assets:Prevent the commingling of client staked assets with the platform's own funds; ensure that client assets can be fully returned in the event of bankruptcy or liquidation.

  • Transparent Reward Distribution Mechanism:Disclose reward calculation methods, distribution frequency, and potential yield volatility, and establish on-chain verifiable data records.

  • Risk Warnings and User Education:Clearly identify risks such as cyberattacks, contract vulnerabilities, and policy changes that may occur during the staking process, and provide risk questionnaires and educational materials for retail users.

However,due to the strict attitude of regulatory authorities towards staking services, licensed crypto asset platforms are currently generally cautious in providing such services.Many platforms choose to avoid or strictly limit the scope of staking services to comply with regulatory requirements in different markets.

Case Study Insight: Kraken's Staking Restructuring

Following enforcement action by the SEC in 2023, Kraken restructured its staking business: it added user authorization processes to ensure users understand staking rules; transferred staked assets into independent trust accounts; and standardized reward disclosures by providing real-time yield calculation models. In January 2025, Kraken announced the relaunch of its staking business in 37 US states and 2 territories. This case demonstrates that staking compliance is not merely a matter of filing, but involves restructuring business models, upgrading risk management systems, and maintaining ongoing regulatory communication.

 

Core Principles of the Compliance Pathway

Facing an ever-changing global regulatory environment, crypto asset enterprises need to find a balance across different markets when formulating compliance pathways. The following three principles help enterprises find the right direction within complex compliance systems.

1. Prioritize the Strictest Jurisdictions: Starting with the US and EU

Enterprises should first refer to the strictest global regulatory standards, such as those in the United States and the European Union. This approach is particularly evident in Kraken's strategy. As a globally renowned digital asset exchange, Kraken adopted compliance measures based on EU and US regulatory requirements, expanding gradually into other markets. This not only helped Kraken avoid potential legal risks associated with "regulatory arbitrage" but also ensured lawful operations in multiple markets.

Through strict compliance measures,Kraken is able to provide investors with a transparent and secure trading environment, while avoiding the regulatory penalties or market bans faced by other platforms that ignored regulatory requirements (such as Binance).This strategy has enabled Kraken to conduct business smoothly in multiple jurisdictions and gradually expand its global market share.

2. Modular Compliance Architecture: Designing Compliance Measures by Business Line

Modularizing business operations is an important method for crypto asset enterprises to address complex regulatory requirements.For example, Kraken separates businesses such as staking, trading, and lending, designing independent compliance measures for each. For instance, when providing staking services, Kraken established interest rate disclosure and risk warning mechanisms compliant with EU and US regulations, ensuring that clients understand the associated risks while enjoying returns.

Additionally, platforms such as OKX have similarly decomposed compliance requirements for various business lines, ensuring that each module has an independent regulatory framework. Through this approach, crypto asset enterprises can not only improve compliance efficiency but also respond flexibly in complex regulatory environments.

3. Continuous Compliance and Dynamic Adjustment: Real-Time Updates to Compliance Manuals

Compliance management is not a one-time effort. As the global regulatory environment changes, enterprises need to regularly update their compliance manuals to ensure that all operations comply with the latest regulations. Kraken's practice in this area is worthy of reference; the platform has established a compliance committee to regularly review global regulations, ensuring that every aspect of the company's operations remains consistent with local laws.

In contrast, cases such as FTX remind us that a lack of dynamic compliance updates can leave companies caught off guard by regulatory changes, leading to severe legal and financial consequences.

 

How to Forge a Path to Compliance?

As traditional financial capital gradually flows into the crypto market, many investors are no longer satisfied with merely following market trends but are seeking more stable and secure investment methods. Especially against the backdrop of strengthening regulation, compliance pathways have become increasingly important. For enterprises to establish a foothold in this emerging market, they must first ensure compliance with local regulatory requirements and select suitable investment management models based on these requirements.

For enterprises, the next key step is toidentify suitable service providers and partners to ensure compliance while maximizing investment returns.If your enterprise intends to enter the crypto asset sector, understanding different regulatory frameworks and compliance requirements will help achieve sustainable development in a complex market environment.