ESMA and EBA advise European Commission on regulation crypto-assets
Both the European Securities and Markets Authority (ESMA) and European Banking Authority (EBA) recently published their reports assessing the suitability of the existing EU regulatory framework in relation to crypto-assets.
Crypto-assets are defined as a type of private asset that depend primarily on cryptography and Distributed Ledger Technology as part of their value.
The authorities discuss the current activities of financial institutions relating to crypto-assets, the legal status thereof and advise the EU policymakers on the identified gaps and issues within the EU regulatory framework. Although both the ESMA and EBA confirm that the sector of crypto-assets is still limited in size and is not raising any financial stability concerns, they express their concern with the risks the assets pose to investor protection, market integrity and level playing field. The identified risks include fraud, money laundering and market manipulation.
- The ESMA highlights that the lack of a consensus on whether crypto-assets can be considered financial instruments, has a major role in the apparent gaps with the application of EU frameworks. The ESMA sees the legal status of crypto-assets as a key consideration for regulators (click here).
- The EBA concludes that crypto-assets are not recognised as fiat money (value designated as legal tender), deposits or other repayable funds in any of the EU Member States or by the European Central Bank, nor is there a uniform classification possible, despite some crypto-assets being qualified as ‘electronic money’ within the scope of EMD2 (click here).
ESMA believes that a EU-wide approach on crypto-assets is critical, as Member States’ regulations and ‘bespoke rules’ are threatening the level playing field. The EBA advises the European Commission to carry out a cost/benefit analysis whether or not EU level action is appropriate and feasible to address the issues identified.
Martijn Schoonewille and Marije Louisse of Loyens & Loeff’s FinTech team shared their thoughts on the recommendations by ESMA and EBA, and the probability of EU rules on crypto-assets. The interview is available here.
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