The January 9th 2019 advice outlines ESMA’s (European Securities and Markets Authority) position on the gaps and issues that exist with regard to crypto-assets and their qualification as financial instruments and the risks associated with this qualification or non-qualification.

Crypto-assets are diverse and many of them have hybrid features: some have attached profit or governance rights while others provide consumption value or are used as a means of exchange. There is a lack of clarity as to how regulatory framework applies to crypto-assets.

ESMA considers a technology-neutral approach as appropriate to ensure that similar activities are dealt with in a similar way. The most significant risks exist with regard to (1) investor protection and (2) market integrity.

Key consideration in fighting those risks is the question on the legal status of crypto-assets.  Due to the range of different crypto-assets, ESMA believes that there is not a ‘one size fits all’ solution.

In order to better understand under which circumstances crypto-assets can qualify as financial instruments, in summer of 2018, ESMA conducted a survey of National Competent Authorities (NCAs) within Member States using a sample set of crypto assets. This sample set reflected the differing characteristics of crypto-assets i.e. (1) investment-type, (2) utility-type, and (3) hybrids of investment-type, utility-type and payment-type crypto assets. (Pure payment-type crypto-assets were not included).

Outcome of this survey:

  • The majority view of NCAs is that some crypto-assets may qualify as transferable securities or other types of MiFID financial instruments
  • Classification of crypto-assets as financial instruments is the responsibility of individual Member States
  • Member States, in the course of transposing MiFID into their national laws, have defined the term ‘financial instrument’ differently to one another, applying restrictive or broad interpretations
  • ESMA has identified a number of gaps and issues in the existing regulatory framework for crypto-assets, which leaves consumers exposed to substantial risks; EU policymakers should address those risks in a proportionate manner
  • ESMA urges an EU-wide approach: concern that regulations at the national level will not provide for a level playing field across the EU, especially owing to the cross-border nature of crypto-assets
  • ESMA makes clear that follow-up work will be required:
    - on how the existing regulatory framework applies to crypto assets, and
    - on what requirements could be considered for types of crypto-assets which are currently not subject to any EU rules and how to define the scope of such measures