ESMA Chair Steven Maijoor in favour of supporting new crypto-asset regulation
In his keynote speech at the 3rd Annual FinTech Conference (Brussels, 26 February 2019), the Chair of the European Securities and Markets Authority (ESMA), Steven Maijoor, addressed issues of existing regulation and spoke in favour of supporting new regulation of crypto assets.
Referring to the recent ESMA Advice on Initial Coin Offerings and Crypto-Assets published in January 2019, Maijoor placed particular emphasis on protecting investors from the risks associated with crypto-assets
Insufficiency of existing regulations
Decisive in determining the applicability of existing rules and regulations is the legal qualification of crypto-assets. However, according to Maijoor, there is no ‘one size fits all’ approach due to the sheer variety of features that different crypto-assets entail.
Nonetheless, most of the national authorities of those Member States where MiFID has been transposed into national law agree that certain crypto-assets, particularly those where profits are attached, should be considered and regulated as financial instruments.
Notwithstanding this, Maijoor emphasised that “a significant share of existing crypto-assets are likely to fall outside the rules, as things stand”.
Addressing unsolved problems
Highlighting the regulatory difficulties arising from the technical characteristics of crypto assets, Maijoor identified that “there may be areas where the nature of crypto-assets - where they qualify as financial instruments - requires potential interpretation, or specific requirements need to be reconsidered, to allow an effective application of regulations.”
In particular, this concerns the applicability of custody and safe-keeping rules, the handling of specific risks caused by the fundamental role of ‘miners’, and possible risks caused by coding errors in the underlying protocol or in smart contracts.
Filling in the gaps
Maijoor expressed concern that “where crypto-assets do not qualify as financial instruments … the absence of applicable financial rules leaves consumers exposed to substantial risks.” The resulting problem is further aggravated by the difficulties investors have in distinguishing between those crypto-assets which are regulated as financial instruments and those that are not.
On the one hand, Maijoor recommends expanding the scope of AML/CFT regulation, thereby agreeing with the standpoint of the European Banking Authority (EBA) that providers of exchange services between one crypto-asset and another crypto-asset, as well as providers of financial services for ICOs (Initial Coin Offerings) should also be subject to these rules.
In addition, disclosure requirements should be established to ensure that investors are notified in advance about the possible risks. This should particularly serve to counteract the emphasis, within the ‘whitepapers’ of many ICOs, on the possibility of financial returns.
However, Maijoor also accepts that it is still too early for more far-reaching regulation of crypto-assets that do not qualify as financial instruments. In particular, an unintended legitimization of such crypto-assets and the resulting investment incentives should be avoided.
Steven Maijoor has represented the European Securities and Markets Authority (ESMA) as its Chair since 1 April 2011 and is currently serving his second five-year term. One of ESMA‘s tasks is to contribute to the improvement and quality of the EU‘s single financial regulatory framework by developing technical standards and advising EU institutions on legislative projects.
Markets in Financial Instruments Directive
Anti-Money Laundering/Countering the Financing of Terrorism