Key Areas of Improvement for MICA applicants Identified Through Supervisory Engagement Rounds

Applications for MICA licenses across Europe are already underway, as many countries have a relatively short grandfathering period of up to 6 months.

Through multiple rounds of engagement with regulators and supervisory authorities, a number of recurrent issues and areas for improvement have been identified.

These reflect critical weaknesses in applicant readiness, governance structures, regulatory understanding, and operational substance.

Here are the Key Areas of Improvement for MICA applicants :

1. Inadequate Response Times and Lack of Meaningful Engagement

Firms frequently demonstrated slow response times to regulatory queries and failed to provide clear, substantive answers. This suggests a lack of preparedness, insufficient internal communication flows, or an under-resourced compliance function. In regulatory engagements, timely and well-considered responses are a strong indicator of a firm’s operational maturity and its commitment to regulatory compliance. Delays or evasive communication often raise concerns about a firm’s ability to meet ongoing supervisory obligations.

2. Unclear or Incomplete Business Model Descriptions

Many firms failed to present a clearly articulated and coherent business model. Descriptions were often overly generic, lacking detail on key services, client types, value propositions, and revenue drivers. Regulators expect a well-defined, jurisdiction-specific business model that aligns with the services for which authorisation is sought. Ambiguity in this area raises red flags around strategic direction and operational focus.

3. Lack of Demonstrated Substance and Local Resourcing

A significant number of applicants failed to demonstrate sufficient substance within the state of intended operation. This includes minimal or no local employees, lack of physical premises, or the absence of senior decision-makers within the jurisdiction. Regulatory expectations typically require a level of local presence and staffing proportionate to the nature, scale, and complexity of the business. Firms relying on “brass plate” operations or virtual presences are unlikely to meet substance requirements.

4. Excessive Reliance on Outsourcing Without Evident Oversight or Strategic Control

While outsourcing is permissible, regulators have repeatedly observed heavy reliance on third-party providers for core operational or compliance functions without demonstrable oversight, strategic control, or clear contractual arrangements. A firm must retain ultimate responsibility for outsourced functions and be able to evidence governance, performance monitoring, and risk management of outsourced arrangements.

5. Mismatch Between Authorisation Scope and Business Activities

Several applications sought authorisation for services that were not reflected in the actual business model or operational plans. This misalignment suggests either a poor understanding of regulatory categories or a “catch-all” approach to licensing. Such practices dilute the credibility of the application and create concerns around the firm’s regulatory literacy and intentions.

6. Missing, Incomplete, or Non-Localised Key Documents and Policies

Essential compliance documents — including AML/CFT policies, risk frameworks, internal control procedures, and business continuity plans — were either not provided, were incomplete, or had not been localised to reflect national legal and regulatory frameworks. Generic templates, particularly those not adapted for local regulatory nuances, undermine the credibility of the firm’s compliance posture.

7. Inappropriate or Unidentified Board and PCF Roles

Board compositions often lacked the necessary diversity of skills and independence, and in some cases, key Pre-Approval Controlled Functions (PCFs) or equivalent roles were either missing or filled by individuals with inadequate experience. Governance structures must reflect a high standard of integrity, competence, and independence, especially for regulated entities. The absence of fit-for-purpose leadership is a major barrier to authorisation.

8. Insufficient Management of Conflicts of Interest

A recurring issue was the failure to identify, disclose, and mitigate conflicts of interest, particularly in CASP environments where intergroup transactions, related-party arrangements, or dual roles are common. Regulators expect robust conflict of interest frameworks, including formal registers, independent oversight, and effective segregation of duties.

9. Lack of Effective Control Over Client Assets, Including Private Keys

Firms often struggled to demonstrate sufficient safeguards over client assets, particularly in areas such as private key generation, storage, and access controls. Regulatory standards increasingly require detailed custody frameworks that are secure, auditable, and compliant with best practices. Weak controls in this area can present systemic risks and lead to application rejections.

10. Business Model Conflicts with Regulatory Frameworks (e.g., ESMA Broker Model Opinion)

In some cases, business models proposed by firms were fundamentally misaligned with regulatory expectations or outright contravened established regulatory opinions. A key example includes non-compliant broker models that fail to meet ESMA’s guidance on MiFID-related activities. Firms must ensure their business model is not only compliant but also anticipates forthcoming regulatory interpretations and positions.

Conclusion

The recurring issues highlighted through supervisory engagement underscore the importance of regulatory readiness, operational substance, and a well-aligned business model.

These areas of improvement identified by different regulators are essential for any MICA applicant who wants to successfully apply for the MICA or maybe some other financial service licence.

Firms seeking authorisation must move beyond templated approaches and demonstrate a genuine commitment to compliance, local governance, and risk management. Addressing these key areas proactively not only strengthens the application process but also builds a solid foundation for long-term, sustainable operations in a regulated environment.