ESMA Issues Guidelines for Crypto Regulation: Open for Public Comment Until April 2024
Summary:
The European Securities and Markets Authority (ESMA) has launched two consultation papers to establish standards and guidelines for implementing the Markets in Crypto-Assets (MiCA) regulations. The papers discuss reverse solicitation, which allows non-European Union crypto firms to provide services when sought by customers, and the criteria for classifying crypto assets as financial instruments. Input on these discussions is sought with comments due by April 24 and April 19, 2024, respectively. These guidelines are seen as steps towards national regulatory alignment and safeguarding EU-based customers from non-compliant entities.
On January 29, The European Securities and Markets Authority (ESMA) launched two discussion papers regarding the adoption of standards and guidelines required for the enforcement of the Markets in Crypto-Assets (MiCA) regulations. One paper deliberated on the subject of reverse solicitation and classification of crypto assets as financial instruments. The term reverse solicitation refers to the situation wherein a prospective customer contacts a company for availing crypto asset services. According to the MiCA regulations, this mechanism allows crypto asset companies from third countries to cater to clients within the European Union (EU). The mandate prescribes that, "Third-country firms cannot solicit clientele within the EU as they lack the requisite authorization for offering CASP (presumed to stand for crypto-asset service provider) services within the Union". However, if the customer on their sole initiative, approaches the firm seeking service, then the third-country firm can cater to them. ESMA's perspective on reverse solicitation is confined to this narrow exemption for third-country companies. ESMA and the authorized national bodies will undertake essential steps to safeguard EU-based customers and MiCA compliant crypto-asset service providers from unwarranted intrusions by non-EU and non-MiCA compliant institutions. ESMA proposed these guidelines for national regulators based on the MiFID II mandate, which contains similar regulations.
Advertisement banners online, sponsorship deals, along with celebrity and influencer endorsements are included among the direct solicitation methods addressed in the guidelines. Services offered by third-country CASPs are also liable under these guidelines. The stipulated deadline for feedback is April 24, 2024.
Additionally, ESMA is encouraging commentary on the determination of criteria and conditions that classify crypto-assets as financial instruments. A financial instrument is referred to as a monetary contract and a crypto asset meeting the required criteria, would be regulated under the MiFID II regulation rather than MiCA. ESMA is required by MiCA to establish clear distinctions between MiCA and MiFID requirements for financial instruments to establish a standardized approach on the national level by the year-end.
Under the MiFID II, no sweeping definition for financial instruments was provided. Examples of financial instruments are cited in an annex given for guidance, resulting in a lack of harmonization nation-wide. The report indicated that the lack of common definition and shared criteria across all financial instruments hinder a comprehensive approach in these draft guidelines. However, the guidelines intended to encourage convergence practices in the situation. To be accepted as a financial instrument, a crypto asset must be defined as transferable security, a money-market instrument, a collective investment undertaking unit, a derivative contract, or an emission allowance. The timeline for comments is extended till April 19, 2024. In October 2022, the European Parliament ratified MiCA with overwhelming support.
Published At
1/29/2024 11:35:00 PM
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