ESMA Solicits Feedback on Crypto-Asset Guidelines and Financial Instruments Classification
Summary:
The European Securities and Markets Authority (ESMA) has published two consultation papers focusing on guidelines for reverse solicitation and the classification of crypto-assets as financial instruments under the Regulation on Markets in Crypto-Assets (MiCA). The papers emphasize the exceptions, restrictions and requirements for non-EU firms seeking to offer crypto-asset services to EU clients. They also invite feedback on the criteria necessary for crypto-assets to be considered as financial instruments, as per MiFID II regulations. Deadlines for input are April 24 and April 19, 2024 respectively.
On January 29, two consultation papers were issued by the European Securities and Markets Authority (ESMA) regarding its responsibility to establish standards for the execution of the Regulation on Markets in Crypto-Assets (MiCA). The subjects of the papers were reverse solicitation and the classification of crypto assets as financial instruments.
Reverse solicitation refers to the event where a potential customer takes the initiative to approach a company for services involving crypto assets. An exception to the MiCA regulations permits crypto asset companies outside the European Union (EU) to offer services to clients within the EU using this approach exclusively. According to the report, "firms outside the EU are prohibited from soliciting clients within the EU as they are not licensed to offer such services, unless the client initiates contact and specifically requests the service, in which case the firm outside the EU may render it". ESMA perceives reverse solicitation as a limited exception for non-EU firms.
In a bid to shield EU-based investors and MiCA-compliant crypto-asset service providers from undesirable invasions by entities outside the EU and those not in compliance with MiCA, ESMA and national competent authorities are prepared to take necessary measures. These guidelines for national regulators have been suggested by ESMA based on the 2014 Markets in Financial Instruments Directive (MiFID II), which also contains comparable provisions. The direct solicitation methods addressed include online banner ads, sponsorship deals and endorsements from celebrities or influencers. Subsequent services offered by non-EU crypto-asset service providers also fall within the guidelines. Comments are welcomed until April 24, 2024.
ESMA is furthermore inviting feedback on the criteria and conditions necessary for crypto-assets to qualify as financial instruments. A financial instrument is essentially a monetary agreement. If a crypto asset meets the conditions to be considered a financial instrument, it will be subjected to MiFID II regulations rather than MiCA. ESMA, as per the requirements of MiCA, must separate MiCA and MiFID requirements for financial instruments in order to implement a consistent approach at the national level by year-end.
MiFID II has not provided a comprehensive definition of a financial instrument. It offers guidance in the form of examples of financial instruments in an annex, and this has led to inconsistencies at the national level. ESMA’s report states that, due to the lack of a universal definition and applicable criteria, establishing a comprehensive approach is more challenging. The report adds that the guidelines are intended to encourage uniform practices, even though the decision to categorize a crypto asset as a financial instrument should be made on a case-by-case basis.
To qualify as a financial instrument, a crypto asset would need to be identified as a transferable security, a money-market instrument, a collective investment undertaking unit, a derivative contract, or an emissions allowance. Feedback is encouraged until April 19, 2024. The European Parliament gave their substantial approval to MiCA in October 2022.
Published At
1/29/2024 11:35:00 PM
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