The European Securities Markets Authority (“ESMA“) recently released two consultation papers under the Markets in Crypto Asset Regulation (“MiCA”). They provide preliminary guidelines on (i) crypto-asset classification and (ii) reverse solicitation.

Key points from the papers:

– ESMA proposes a ‘substance over form’ approach, emphasizing the importance of technology neutrality in the legal classification of crypto-assets. The various approaches used result in a lack of a universally accepted application for the definition of ‘financial instrument’ under MiFID in the EU. This situation complicates the classification of crypto-assets, necessitating an individualized, case-by-case approach.

– ESMA’s approach aims to ensure a level playing field for non-EU crypto firms. These firms are to face more stringent conditions as services or activities by such firms in the EU must be initiated exclusively by the client. A non-EU crypto company should refrain from providing additional crypto-assets or crypto-asset services to a client, even if these services align with the ones initially requested by the client (examples are outlined in the paper), unless they are part of the original transaction.

– ESMA acknowledges the lack of a universal definition and standardized criteria for financial instruments concerning crypto-assets. The papers delve into the categorization of crypto-assets and services, critical for understanding their regulatory treatment under MiCA.

For professionals and firms in the crypto space, these guidelines underscore the need for careful consideration of how crypto-assets are classified and offered within the EU. As the regulatory landscape continues to evolve, staying informed and adaptable is key. Connect with us at Response Legal for tailored solutions for fintech industry.

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