ESMA Calls for Opinions on Crypto Regulation Game Changer

The European Securities and Markets Authority (ESMA) published two consultation papers today (Monday) seeking input from stakeholders on guidelines regarding reverse solicitation and the classification of crypto-assets as financial instruments under the Markets in Crypto Assets Regulation (MiCA).

ESMA Seeks Input on Regulations under MiCA

The first consultation paper covers proposed guidance on the conditions and supervision of the reverse solicitation exemption under MiCA. Reverse solicitation refers to situations where a client independently seeks out and initiates services from a third-country crypto-asset service provider that is not authorized under MiCA.

“This exemption should be understood as very narrowly framed and must be regarded as the exception. A firm cannot use it to bypass MiCA,” ESMA ESMA European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t Read this Term explained.

Reverse solicitation refers to situations where a client independently seeks out and initiates services from a third-country crypto-asset service provider that is not authorized under the EU's MiCA regulation.

🔴 #ESMA publishes 2⃣ Consultations Papers on guidelines under Markets in Crypto Assets Regulation #MiCA:
📣 on reverse solicitation
📣 on the classification of crypto-assets as financial instruments

🗓️ Send your comments by 29 April 2024https://t.co/PEosx4t3UO pic.twitter.com/v31nWMUEcu

— ESMA - EU Securities Markets Regulator 🇪🇺 (@ESMAComms) January 29, 2024

The second consultation focuses on formulating clear criteria for determining when a crypto-asset should be classified as a financial instrument under existing European financial regulations. Creating consistency between MiCA and other financial services directives like MiFID II MiFID II MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s fina MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s fina Read this Term is intended to support the development of the EU crypto asset market.

“The proposed guidelines aim at providing NCAs and market participants with structured but flexible conditions and criteria to determine whether a crypto-asset can be classified as a financial instrument,” ESMA added.

Interested groups have until 29 April 2024 to provide feedback on the draft guidelines. ESMA expects to review responses in Q2 2024 and issue final reports in Q4. The consultations are part of ESMA's broader work in establishing regulatory clarity and standards around crypto-assets in line with MiCA and other EU financial services legislation.

MiCA Slashes Crypto Fraud, but It Is “No Safe Haven”

The MiCA regulation was published in the Official Journal of the European Union on June 2023, establishing a harmonized EU framework to regulate crypto-assets and related services. The goals of MiCA are to protect investors, prevent misuse of crypto-assets, preserve financial stability, and support innovation in the sector.

Since the implementation of MiCA, fraudulent activities have shifted away from cryptocurrencies, with attacks declining 51%. Fraudsters are finding it increasingly difficult to operate due to tightening regulations, so they have turned their focus to exploiting vulnerabilities in payments instead.

However, ESMA has warned that MiCA does not completely safeguard investors. The regulation is being introduced in phases, with the first packages covering critical areas like transparency and consumer protection. As the consultation process continues, market participants anticipate the clarity and certainty that MiCA will provide, though full implementation is between 12 and 18 months away.

Markets in Crypto-Assets Regulation 🙊 Why should you #BeCryptoAware? What's ESMA's role?

Consumers face risks when investing in #CryptoAssets or consuming crypto services.#MiCA is no safe harbour. Crypto assets remain highly volatile and speculative.https://t.co/CYVPFJgIZx pic.twitter.com/vWGKR3vaQV

— ESMA - EU Securities Markets Regulator 🇪🇺 (@ESMAComms) January 16, 2024

At the recent Finance Magnates London Summit, crypto experts discussed the challenges of industry regulation. The panel, moderated by Erwin Voloder of the European Blockchain Association, emphasized how regulations like MiCA aim to protect consumers while allowing ethical crypto innovation.

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