ESMA proposed that cryptoassets should be classified as financial instruments if they meet the criteria outlined in MiFID II’s definition of financial instruments.
On Monday, March 25, 2024, the European Securities and Markets Authority (ESMA) announced that it had completed the first set of reports on the rules for crypto asset service providers (CASPs) under the region’s landmark regulation, Market in Crypto Regulators (MiCA).
MiCA regulates Crypto issuers and service providers that wish to operate in the EU and allows for a single license that allows companies to offer services in all member states.
According to the announcement, the report hopes to improve transparency, provide a safe environment for cryptocurrency traders, and foster clarity and predictability for investors across the European Union.
ESMA Reveals Requirements for CASP
The report includes proposed requirements that the EU financial markets regulator and supervisor will place on crypto companies wishing to operate in the EU region under the MiCA law. Under the proposed law, the regulator outlined the information that CASPs must submit to obtain approval to operate in the region.
Other requirements include the intent to provide cryptoasset services and how CASPs must address customer complaints. The EU financial markets regulator and supervisor said it had submitted the final report to the European Commission (EC) and would provide further advice and technical guidance on the proposals if the EC requested it.
The report follows the completion of a consultation document. In July 2023, the EU financial markets regulator and supervisor published a consultation document seeking input from stakeholders on proposed rules for CASPs. The consultation concluded in September with responses from 36 interested parties, 10 of which ESMA said were confidential.
ESMA Launches the Third Consultation Package under MiCA
With the report submitted to the EC, ESMA published its third consultation package under MiCA. The regulator is seeking further public opinion on proposed legislation covering the detection and reporting of suspected market abuse in crypto assets, policies and procedures, including customer rights, for crypto asset transfer services.
The proposed rules will also cover suitability requirements for certain cryptoasset services, the format of the periodic statement for portfolio management and ICT operational resilience for certain entities under MiCA. The consultation will remain open to the public until June 25, 2024.
ESMA Requests Information on the Proposed Classification of Crypto Assets
Since its implementation in 2023, ESMA has been consulting with other regulatory bodies, including the European Banking Authority (EBA), on measures under the MiCA regulatory framework. In January this year, authorities opened another consultation on the classification of cryptocurrencies as financial instruments.
ESMA proposed that cryptoassets should be classified as financial instruments if they meet the criteria outlined in MiFID II’s definition of financial instruments. According to ESMA, before determining whether a token qualifies as a cryptoasset, it must be evaluated against each type of financial instrument specified in Annex I, Section C of MiFID II. These include transferable securities, money market instruments, units in collective investment undertakings, derivatives and emission rights.
Only after excluding these categories can a definitive conclusion be reached regarding the classification of a token as a cryptoasset. The public has until April 29, 2024 to submit comments on the proposal.
The European Banking Authority (EBA) has been consulting alongside ESMA on measures under MiCA since the package ends in 2023. MiCA rules for stablecoins will come into force in July, with all member states implementing the full package in December.
By Audy Castaneda
