The European Securities and Markets Authority (ESMA) has published guidelines related to cryptographic assets and ICO-s. Publishing these guidelines was largely motivated by the fact that the financial rules in effect within the EU were established and implemented before crypto assets were widely available, which is why these rules do not take into account the specifics of crypto assets.
The new rules should help the member states to more uniformly interpret crypto assets, while also protecting the interests of investors.
Crypto assets have many different qualities that divide them into specific types and terminology. As some crypto assets may be similar to multiple types of crypto assets, it is difficult to apply a single set of rules to govern them.
For this reason, the EU member states have very different approaches as to which crypto assets are included under existing financial rules and to what extent. This divergence does not support the principles of the level playing field and the single market which are cornerstones of the EU.
To protect both the investors and the financial markets as a whole, financial services and products are governed by strict special requirements. However, as the qualities of a particular crypto asset may be very different from typical financial services, applying EU law for these types of crypto assets may not be possible, thereby giving rise to different approaches between member states and inducing risks for investors.
The above is further illustrated by the fact that EU law in force does not define „crypto assets“ which is why there are no specific supranational guidelines on how a specific crypto asset could fit into the legal framework.
For example, the financial supervision authorities of EU member states have noted that Filecoin (FIL), that allows its users to earn filecoins in return for allowing their unused storage capacity to be used as cloud storage, should be qualified as a utility token due to having little to no resemblance to security which renders said crypto asset outside of EU securities regulations.
We need a set of rules!
The message of ESMA is clear: increasingly popular crypto assets are widely unregulated, and the issue has to be resolved. If crypto assets the functions of which and/or the rights granted to its buyers resemble securities are publicly offered, then the buyers of such crypto assets should be given at least the same level of protection that would apply for the purchase of a share, a bond or any other type of security.
For example, ESMA has referred to the crypto asset PLBT issued by Polybius Bank that grants investors the right to receive the dividend, which is why said crypto asset resembles security. However, the service provider has not registered the ICO with the EFSA or adhered to the regulations applicable to the public issuing of securities.
ESMA recommends adopting a unified regulation for crypto assets that do not fit into the existing legal framework concerning financial products to increase both clarities as well as investor protection. The national financial conduct authorities agree that a technology-neutral approach should be taken to develop and implement these rules to assert that the rules would apply to all similar business models and assets irrespective of their legal form.
When developing the new legal approach, the aspects concerning trading, security, and the life cycle of crypto assets should also be taken into account, in addition to the selling and distribution of such assets.
This means that the EU must set goals to create a comprehensive legal framework that would set clear rules for the creator of the crypto asset, the platform which allows the trading of crypto assets, and for the service providers that enable to store the crypto assets.
Read the article in Estonian HERE.
