Speaking at a Fintech conference in Brussels this past week, Chair of the European Securities and Markets Authority (ESMA) Chair Steven Maijoor, told the audience it was “time to deliver” when it comes to regulating crypto-assets and affiliated distributed ledger technology (DLT).
Why aptly noting the crypto-assets capture plenty of media attention, Maijoor noted the popular cacophony should not obfuscate the potential of the technology.
“Despite the hype, we have to remain objective, with an open mind but a critical eye,” said Maijoor.
Maijoor said that where crypt-assets fall outside the realm of MiFID financial instruments, and thus regulated as securities and beyond the ESMA’s current remit, clarification as to where the line is drawn, and which rules apply are needed:
“we are concerned that the absence of applicable financial rules leaves consumers exposed to substantial risks. EU policymakers should, therefore, consider ways to address the risks in a proportionate manner. As a priority, we advise them to extend the scope of AML rules to all these activities that involve crypto-assets. In particular, we agree with EBA [European Banking Authority] that providers of exchange services between crypto-assets and crypto-assets (and not only between crypto-assets and fiat currencies) and providers of financial services for ICOs should be within the scope of AML/CFT obligations. In addition, appropriate disclosure requirements should be set up to ensure that consumers understand the risks of crypto-assets prior to investment. This would include requirements to provide relevant information on the issuer, the rights attached to the crypto-assets and the risks. Too often, we see so-called ICO ‘whitepapers’ emphasizing the likelihood of financial returns to the detriment of risks to incentivize consumers to buy.”
Maijoor, is of the opinion, that bespoke rules are necessary for digital assets or crypto assets that do not qualify as financial instruments.
“The phenomenon is still novel and business models continue to evolve. A more elaborate regime may risk legitimizing crypto-assets and encouraging greater participation. Any novel framework should also protect the integrity of existing capital markets and be flexible enough to capture the variety of risk factors that the different types of crypto-assets introduce.”
Maijoor assured the audience that he and the rest of the ESMA will work closely with national authorities to “support a convergent approach” to the regulation of crypto-assets, while they continue to monitor the emerging crypto ecosystem.
The ESMA will also coordinate with multinational entities, such as IOSCO, to hopefully coordinate beyond the borders of continental Europe.