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January 17, 2025

DORA and EU Cryptocurrency Startups: Compliance Challenges and Opportunities

DORA and EU Cryptocurrency Startups: Compliance Challenges and Opportunities

DORA, the Digital Operational Resilience Act, is about to shake things up for cryptocurrency businesses in Europe. Starting January 17, 2025, it’ll enforce tough cybersecurity and operational resilience standards across the board. But what does this mean for startups, and how will it affect the crypto currency exchange trading landscape?

What is DORA and Why It Matters

What is DORA? Simply put, it’s a regulation aimed at making financial institutions, including crypto businesses, more resilient against cyberattacks and operational failures. This is part of a larger framework to stabilize the EU financial system, sitting alongside regulations like MiCA.

Compliance Costs and Operational Resilience

For smaller startups, the most immediate impact of DORA is going to be the costs associated with compliance. It’s not cheap to bump up your security measures or manage risk better.

Compliance Costs

A lot of the online crypto trading platforms might find it hard to scrape together the cash needed to meet DORA’s requirements. And the costs won’t just affect them. Startups that sell services to these platforms will also feel it in their pockets. But, hey, maybe some of this will help the startups that are able to meet the standards?

Operational Resilience

That said, DORA does focus on operational resilience, which could actually help crypto startups. If they can weather disruptions better, they might gain some credibility and investor trust. DORA might be seen as a necessary move to keep the industry afloat, but it could also stymie innovation.

Regulatory Scrutiny and Third-Party Risk Management

DORA adds another layer of regulatory oversight, especially around how companies manage their third-party service providers. If you’re a small startup that depends on external firms for things like IT or cybersecurity, good luck.

Third-Party Risk Management

DORA will require platforms to ensure that their third-party partners also comply with its standards. That could mean needing more cash to keep an eye on these services. But maybe it also ensures that people are doing things right?

Increased Accountability

On the bright side, by making sure everyone’s playing by the same rules, DORA could help create a safer investment climate. If service providers must meet high cybersecurity and operational resilience standards, the result might be a less risky market. More institutional investors could come knocking.

Pros and Cons for Investors

Now, what about investors? DORA has its ups and downs. While it aims to improve security and offer some safeguard for investors, the compliance burdens are no joke.

Benefits for Investors

  1. Increased Security and Protection: DORA’s strict cybersecurity standards aim to better protect investor assets and personal data from cyberattacks.
  2. Lower Systemic Risk: By ensuring the financial sector is resilient, DORA should reduce the impact of cyberattacks and operational failures on the EU economy.
  3. Greater Investor Confidence: Compliance with DORA signals that companies are invested in security, which may bolster investor trust.
  4. Clear Regulatory Framework: DORA provides a common regulatory framework across the EU, eliminating sub-standard providers and leading to a more secure market.

Drawbacks for Investors

  1. Higher Compliance Costs: The heavy compliance costs may lead to fewer options for investors.
  2. Increased Fees: Companies may pass those extra compliance costs down to investors.
  3. Short-Term Service Disruptions: The transition to DORA compliance could temporarily disrupt services.
  4. Market Consolidation: The regulatory burden could lead to fewer choices in the market.

Global Perception of EU-Based Crypto Exchanges

DORA’s influence isn’t limited to just EU-based firms. It’s also likely to affect how global investors see EU exchanges. By setting high cybersecurity and operational standards, EU-based exchanges could come to be viewed as leaders in regulatory compliance.

Increased Trust and Stability

DORA requires that EU cryptocurrency exchanges meet high standards for managing risks and conducting resilience tests, which could enhance their perceived reliability.

Market Maturation

The combination of DORA and MiCA signifies a more mature crypto market, which could make EU exchanges more appealing to institutional investors and users who want stability.

Global Standards

By impacting global tech providers for the EU financial sector, DORA could set a new standard for digital operational resilience, influencing how other markets regulate their crypto sectors.

Risk Management and Third-Party Oversight

With a focus on third-party risk management, DORA aims to reduce systemic risks within the crypto ecosystem. This added layer of oversight could reassure global stakeholders about the stability of EU-based crypto exchanges, making them more attractive for international investment.

Summary

DORA is coming, and it’s going to impact the cryptocurrency landscape in the EU. For startups, it means increased compliance costs and operational challenges. For investors, it offers both security and potential drawbacks. As the regulatory environment evolves, so too will the crypto market’s perception and dynamics.

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Egor Romanov
About Author

Egor Romanov is an experienced crypto analyst, professional trader, and author of trading strategies and the Cryptorobotics blog, where he shares his knowledge about cryptocurrencies and financial markets.

Alina Tukaeva
About Proofreader

Alina Tukaeva is a leading expert in the field of cryptocurrencies and FinTech, with extensive experience in business development and project management. Alina is created a training course for beginners in cryptocurrency.

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