The European Union’s markets watchdog is reportedly set to call for mandatory external audits of crypto companies’ cyber defenses to enhance consumer protection amid rising security breaches.

The European Securities and Markets Authority (ESMA) is said to be gearing up to advocate for mandatory external audits of cyber defenses for crypto businesses as part of its broader effort to enhance consumer protection in the crypto space.

According to a recent report from the Financial Times, ESMA is considering stricter cyber protection rules and urging European Union lawmakers to amend upcoming regulations to mandate third-party audits assessing the resilience of crypto firms against cyber attacks. However, the European Commission has pushed back against the move, suggesting that ESMA’s proposals may exceed the intended scope of the legislation.

Cybersecurity has become a pressing issue for the crypto industry, with hackers stealing almost $1.4 billion, nearly doubling last year’s figures, according to data from TRM Labs. Another blockchain forensic firm, Chainalysis, reported that the number of hacking incidents in 2024 has seen a modest increase of 2.8% compared to 2023. However, the average value lost per hack has surged by 79.5%, escalating from $5.9 million per incident in 2023 to $10.6 million in 2024, highlighting a growing concern as cybercriminals increasingly focus on centralized exchanges.

Upcoming Regulatory Changes

Under the upcoming Markets in Crypto-Assets (MiCA) framework, crypto firms will be required to secure licenses from European Union member states starting December 31 and demonstrate robust controls against money laundering and other financial crimes. Some aspects of this regulatory framework have already begun to reshape the industry.

For instance, Coinbase plans to remove non-compliant stablecoins from its European exchange by year-end. Concerns about the regulations persist among industry leaders. Paolo Ardoino, CEO of Tether, the largest stablecoin issuer, cautioned that strict cash reserve requirements could create systemic risks for banks.

Industry Reactions

The trend of delisting is not limited to stablecoins. Kraken recently announced plans to suspend trading for privacy-focused Monero in the European Economic Area, following similar moves by Binance and OKX.

“Strict regulations could create systemic risks for banks,” cautioned Paolo Ardoino, CEO of Tether.

As the industry continues to evolve, the balance between stringent regulatory measures and operational flexibility remains a critical issue for crypto businesses and their stakeholders.

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