ESMA’s Consultation on MiCA Regulation Implementation
The European Securities and Markets Authority (ESMA) has issued two critical consultation papers to establish standards and guidelines for implementing the Markets in Crypto-Assets (MiCA) regulation. The consultation, which began on January 29, focuses on two key areas: reverse solicitation and the classification of crypto assets as financial instruments. Reverse solicitation, where a potential customer contacts a firm for crypto asset services, is an exemption within the MiCA framework, allowing third-country crypto asset firms to service European Union clients under specific conditions. ESMA’s report delineates that these firms may not solicit clients in the Union unless approached by the client at their own initiative.
Guidelines for Financial Instruments and Direct Solicitation
ESMA has proposed guidelines for national regulators based on the Markets in Financial Instruments Directive 2014 (MiFID II). These guidelines aim to address methods of direct solicitation, including online advertisements, sponsorships, and endorsements by influencers and celebrities. Additionally, follow-up services by third-country crypto-asset service providers (CASPs) are also included in these guidelines. ESMA emphasizes the importance of safeguarding EU-based investors and MiCA-compliant crypto-asset service providers from non-EU entities not compliant with MiCA. Comments on these guidelines are invited until April 24, 2024.
ESMA also seeks feedback on the criteria for qualifying crypto assets as financial instruments. A crypto asset that qualifies as a financial instrument will fall under MiFID II regulation, while those that do not will be subject to MiCA. The absence of a common definition and criteria for all financial instruments in MiFID II has led to inconsistencies at the national level. ESMA acknowledges that assessing whether a crypto-asset should be considered a financial instrument is a case-by-case exercise and aims to promote convergent practices in this context. Comments on this aspect are due by April 19, 2024.
MiCA’s Role in Shaping Crypto Asset Regulation in the EU
The European Parliament overwhelmingly passed MiCA in October 2022, marking a significant step in regulating the crypto asset market within the EU. MiCA’s implementation, guided by ESMA’s consultations and guidelines, is expected to create a consistent approach to crypto asset regulation at the national level, aiming for harmonization and clarity in the fast-evolving digital asset landscape.