The EU financial regulator has attempted to clarify where crypto-assets fall in with European financial regulation.
Institutions in the EU have received advice from the European Securities and Markets Authority (Esma) on initial coin offerings and crypto-assets. The advice defines how current EU rules apply to crypto-assets that would qualify as financial instruments – though not all would.
A survey by the pan-European financial regulator and the National Competent Authorities (NCAs) revealed issues in the financial regulatory framework regarding crypto-assets. Esma said that for crypto-assets that qualify as financial instruments under the MiFID II capital markets rules, some parts “require potential interpretation or re-consideration of specific requirements to allow for an effective application of existing regulations”.
Assets that do not qualify as financial instruments leave investors open to “substantial risks”.
“At a minimum, Esma believes that anti-money laundering (AML) requirements should apply to all crypto-assets and activities involving crypto-assets,” Esma said in a statement.
Steven Maijoor, the chairman of Esma, 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.”
He added: “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.”
Crypto-assets include virtual currencies, such as bitcoin, as well as digital coins or tokens offered through international coin offerings.
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