The European Securities and Markets Authorities (ESMA), a European regulator, released its final report on guidelines regarding the Markets in Financial Instruments Directive II (MiFID II) suitability requirements this Tuesday. The release of the report comes after a consultation paper on the subject was released last July.

ESMA noted that the objectives of the suitability requirements remained unchanged since their implementation under MiFID II. Instead, today’s guidelines served to update existing guidelines to reflect technological change and provide greater depth into firms’ responsibilities regarding the suitability requirements.

Most significant were pointed regarding electronic interaction with clients and the risk appetite segments of the suitability requirement assessments. With regard to the former, ESMA noted that firms would still be held responsible for any actions performed by automated systems - whether it be providing investment advice or a questionnaire undertaking the suitability requirement assessment.

Inadvertent approval

The risk appetite parts of today’s release could be of real note to the crypto industry. Although investors are free to invest in crypto, whether it be in a cryptocurrency or an Initial Coin Offering (ICO) Initial Coin Offering (ICO) An Initial Coin Offering (ICO) is a kind of crypto token sale that is used as a method of fundraising, similar to an Initial Public Offering (IPO), in which stocks are sold to raise money for a company.In order to launch an ICO, a company simply needs to create a website, issue a token, and set a time and date for the sale. Investors buy ICO tokens in exchange for another cryptocurrency, like Bitcoin or Ethereum; after a set amount of time, they receive the tokens they purchased in the sale.Acco An Initial Coin Offering (ICO) is a kind of crypto token sale that is used as a method of fundraising, similar to an Initial Public Offering (IPO), in which stocks are sold to raise money for a company.In order to launch an ICO, a company simply needs to create a website, issue a token, and set a time and date for the sale. Investors buy ICO tokens in exchange for another cryptocurrency, like Bitcoin or Ethereum; after a set amount of time, they receive the tokens they purchased in the sale.Acco Read this Term), today’s final report could lend greater support to the industry by putting investors on a solid regulatory footing.

Ron Finberg, Business Development Manager with RegTech firm Cappitech, told Finance Magnates: "These standards could help legitimize investment in riskier products such as Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term and ICOs. On the one hand investment firms will end up pushing away clients eligible for investment in a crypto fund due to the suitability standards. On the other hand, once client consent is given to participate in riskier investments, the higher standards will give portfolio managers greater comfort to trade.”

Although the guidelines do not explicitly address crypto, investment advisors and portfolio managers will have to thoroughly assess the level of risk their clients can be exposed to. At the same time, they will have to get their clients’ approval before investing their cash.

As such, firms will not be stuck in a no-man’s land that leaves them subject to the whims of a regulator. They will be able to show both that their client was able to withstand the risk of a crypto investment and that their client wanted to invest.