ESMA, together with EU Member State national competent authorities, has analysed various business models of crypto-assets as well as the risks and potential benefits that they may introduce, and how they fit within the existing regulatory framework.
In this context, ESMA has identified a number of concerns with respect to the current financial regulatory framework within EU Member States regarding crypto-assets. These crypto-assets fall mainly within two categories:
ESMA advice aims at clarifying existing EU rules applicable to crypto-assets that qualify as financial instruments, and provides ESMA’s position on any gaps and issues in the current EU financial regulatory framework for consideration by EU policymakers.
- Those qualifying as financial instruments under MiFID for which there are areas requiring potential interpretation or re-consideration of specific requirements to allow for an effective application of existing regulations;
- Those not qualifying as financial instruments thus leaving investors exposed to substantial risks due to absence of applicable financial rules. Therefore, ESMA believes that Anti Money Laundering requirements should apply ad minima to all crypto-assets and activities involving crypto-assets. Additionally, there should be appropriate risk disclosure in place, so that investors can be made aware of the potential risks prior to committing funds to crypto-assets.
EBA has assessed the applicability and suitability of EU laws to crypto-assets and concludes that typically, crypto-asset activities do not constitute regulated services within the scope of EU banking, payments and electronic money law, thus leading to potential risks for consumers that are not yet addressed. Crypto-asset activities may also give rise to other risks, including money laundering.
In this context, EBA recommends that the European Commission carry out further analysis to determine the appropriate EU-level response. The EBA also identifies a number of actions that it will take in 2019 to enhance the monitoring of financial institutions' crypto-asset activities and consumer-facing disclosure practices.
EBA believes that the relatively low level of crypto-asset activity currently observed in the EU shall not give rise to implications for financial stability; nevertheless, activities involving crypto-assets fall outside the scope of EU banking, payments and electronic money regulation therefore triggering potential risks, not addressed at EU level, for consumers.
Considering the absence of any common rules and having regard to the current development of national regulatory responses, divergences between the Member States are starting to emerge thus presenting risks to the level playing field.
As a consequence, EBA (i) emphasizes the need for a comprehensive cost/benefit analysis, taking account of issues inside and outside the financial sector, to determine what, if any, action is required at the EU level at this stage; (ii) advises the European Commission to take account of the October 2018 recommendations of the Financial Action Task Force and to take steps where possible to promote consistency in the accounting treatment of crypto-assets.
- As a conclusion, having regard to the situation and the current development of national individual regulatory responses to crypto-assets and related activities, both ESMA and EBA consider that supplementary analysis and assessment are required to be performed urgently at EU level by the EU Commission with the view to achieve the creation of a common set of rules at EU level. Both authorities are convinced that the gaps and issues identified would best be addressed at the European level for the sake of maintaining a level playing.