The European Securities and Markets Authority (ESMA) has published advice recommending a union-wide approach to EU cryptocurrency regulation.
ESMA has been working with National Competent Authorities (NCAs) to analyse the different business models, potential risks and benefits of crypto-assets in order to identify how they can fit into existing regulatory frameworks. In the course of their analysis ESMA discovered a number of issues pertaining to gaps in EU cryptocurrency regulation, comprising two main categories:
- For existing financial regulation to be applied effectively and comprehensively, certain areas of current EU cryptocurrency regulation could need to be reinterpreted or reconsidered in order to qualify crypto-assets as financial instruments under the Markets in Financial Instruments Directive; and
- Where crypto-assets are not categorised as financial instruments, they do not fall under applicable financial rules, which exposes investors to significant risks. According to ESMA’s recommendations, cryptocurrency should at minimum be included in anti-money laundering regulation.
ESMA Chair Steven Maijoor said: “Our survey of NCAs highlighted that some crypto-assets may qualify as MiFID financial instruments, in which case the full set of EU financial rules would apply. However, because the existing rules were not designed with these instruments in mind, NCAs face challenges in interpreting the existing requirements and certain requirements are not adapted to the specific characteristics of crypto-assets. Meanwhile, a number of crypto-assets fall outside the current financial regulatory framework. This poses substantial risks to investors who have limited or no protection when investing in those crypto-assets. In order to have a level playing field and to ensure adequate investor protection across the EU, we consider that the gaps and issues identified in EU cryptocurrency regulation would best be addressed at the European level.”
ESMA’s advice on EU cryptocurrency regulation was issued to the EU Institutions – comprising the European Council, Commission and Parliament – in order to enable them to consider the best ways to adjust regulation to include crypto-assets. ESMA intends to continue monitoring the development of cryptocurrency to identify any new risks or issues.