The European Security and Markets Authority (ESMA) undertook a survey of National Competent Authorities (NCAs) in the summer of 2018 in order to better understand the circumstances under which crypto-assets may qualify as financial instruments in the EU, ESMA .
The survey questions were designed to determine the way in which a given Member State had transposed MiFID II into its national law and based on that transposition whether a sample set of six ICO crypto-assets qualified as ‘financial instruments’ under their respective national laws. The questions referred to the types of financial instruments under MiFID II and took into account each element of the MiFID II definitions of such financial instruments. Also, there were questions on other national rules likely to apply to crypto-assets and the possible future regulatory treatment of crypto-assets and ICOs.
NCAs provided answers to the survey, including the 27 EU Member States (all except Poland), Liechtenstein and Norway. Some NCAs did not provide responses to all questions. In particular, some NCAs considered that the information available was not sufficient to qualify the six crypto-assets. Others have seemingly not formed a view on certain questions yet, because the crypto-asset phenomenon is still nascent and evolving.
There is currently no legal definition of ‘crypto-assets’ in the EU financial securities laws. A key consideration of the legal qualification of crypto-assets is whether they may qualify as MiFID II financial instrument. The existing EU financial regulation establishes a comprehensive regulatory regime governing the execution of transactions in financial instruments.
In an effort to determine the legal status of crypto-assets and determine possible applicability of EU financial regulation ESMA undertook a survey of NCAs in the summer of 2018 with the aim to collect detailed feedback on the possible legal qualification of crypto-assets as financial instruments. The survey questions were designed to determine the way in which a given Member State had transposed MiFID II into its national law and, based on that transposition, whether a sample set of six crypto-assets issued in an ICO qualified as ‘financial instruments’ under their respective national laws.
The sample crypto-assets reflected differing characteristics that ranged from investment-type (crypto-asset cases 1 and 2), to utility-type (case 5), and hybrids of investment-type, utility-type and payment-type crypto-assets (cases 3, 4 and 6). Pure payment-type crypto-assets were not included in the sample set on purpose.
Noteworthy, the vast majority of respondents considered that the qualification of all crypto-assets as financial instruments would have unwanted collateral effects, meaning that there may be a need to distinguish between the different types of crypto-assets. This is understandable considering the variety of crypto-assets being issued. Among the reasons given were
- the existing regulation was not drafted having these instruments in mind;
- acknowledging them as financial instruments would grant them potentially unwanted legitimacy;
- the needed supervisory tools and resources may not be in place.
The vast majority of NCAs agreed that all crypto-assets should be subject to some form of regulation. There was little consensus as to whether a bespoke regulatory regime for those crypto-assets that do not qualify as financial instruments should be designed within the scope of MiFID or outside of it. There were as well diverging views regarding the extent of that regulatory regime, although with a broad consensus on that at minimum all crypto-assets should be subject to anti-money laundering laws.