ESMA: Risk cryptocurrencies for investors. Regulations needed at European level

Pan European financial markets supervision, ESMA, published a communication to the European Commission, the European Council and the European Parliament regarding assets related to cryptocurrencies, including ICO. It is a collection of advice relating to regulations covering cryptocurrencies understood as financial instruments. In the communication, ESMA presents its position by highlighting the legal gaps and signaling the need for some amendments.

MiFID should include cryptocurrencies

The analysis carried out by ESMA in cooperation with the national authorities dealing with the regulation of local financial markets brought a number of conclusions. On the basis of research carried out in the year 2018, the European regulator has been able to identify a number of problems in currently operating financial regulations, which include the so-called cryptographic assets.

Diagnosed legal gaps were divided into two categories:

• For cryptographic assets that qualify as financial instruments based on the provisions of the MiFID, there are areas requiring potential interpretation or reconsideration of specific requirements in order to allow effective application of existing regulations; and
• Where crypto assets do not qualify as financial instruments, the lack of appropriate financial regulation exposes investors to significant risk. ESMA believes that the anti-money laundering requirements should as a minimum apply to all crypto assets and activities involving crypto assets. Appropriate risk disclosure requirements should also be put in place so that consumers can be aware of the potential risks before investing in crypto assets.

Steven Maijoor, chairman of ESMA:

'Our study of national competition authorities has shown that some cryptographic assets may qualify as MiFID financial instruments, in which case a full set of EU financial rules would apply. However, as the existing legislation has not been developed for these instruments, national competition authorities face challenges in interpreting existing requirements. '

In addition, the report reads:

"Meanwhile, a number of cryptographic assets go beyond the current regulatory framework in the field of finance. This is a significant risk for investors who have limited or no protection when investing in cryptographic assets. "

There is a clear message from the communication: ESMA has limited room for maneuver, and according to the regulator it is a threat primarily to investors. The monitoring of the cryptographic market will be continued and the EU institutions will undertake the subject of elaboration of ways to remove the identified gaps and problems.

Maijoor shows a specific solution - regulations at the level of the whole Europe:

"To ensure equal opportunities and adequate investor protection across the EU, we believe that the identified gaps and problems would be best addressed at European level."

The desire to regulate the dynamically developing crypto market and ICO is not new. In October we informed about the considerable budget ESMA plans to devote to a closer look at virtual coins (read: ESMA will issue 1,1 EUR million to monitor the cryptocurrency market).

Cryptocurrencies in the US as commodities

In the United States in September, 2018 issued a verdict in the Supreme Court that cryptocurrencies meet the definition of a good (ang. commodities). As a result, they are subject to the regulations of the institution supervising the derivatives market - CFTC (Commodity Futures Trading Commission). This actually closed the subject of disputes and regulatory uncertainties.

Everything indicates that the European regulator currently wants to achieve a similar effect - assigning cryptocurrencies to the group of financial instruments, although the current report suggests that we will have to wait a while for this.