European regulators EBA and ESMA call for EU-level response on crypto-assets

Two European regulatory authorities – the European Banking Authority and the European Securities and Markets Authority (ESMA) – have called for an EU-level response to the risks posed by cryptocurrencies and initial coin offerings (ICOs).

Both ESMA and the EBA said that the crypto-related activity is currently relatively limited in the common currency area and does not raise financial stability issues.

ESMA on Wednesday published its “Advice to the European Union (EU) Institutions” on ICOs and crypto assets. It said that it undertook a survey of National Competent Authorities (NCAs) of Member States last year to better understand the circumstances under which crypto-assets may qualify as financial instruments in the EU.

The survey revealed that some crypto-assets may qualify as transferable securities or other types of MiFID financial instruments. ESMA said that for those crypto-assets which qualify as transferable securities or other types of MiFID financial instruments, a full set of EU financial rules are likely to apply to their issuer and/or firms providing investment services/activities to those instruments.

To that end, it said that it has identified a number of gaps and issues in the existing regulatory framework when applied to crypto-assets.

“Where crypto-assets do not qualify as financial instruments…, ESMA believes that the absence of applicable financial rules leaves consumers exposed to substantial risks,” it added.

ESMA said that it believes that an EU-wide approach is relevant, also considering the cross-border nature of crypto-assets.

Separately, the EBA has published the results of its assessment of the applicability and suitability of EU law to crypto-assets. It noted that divergent approaches to crypto regulation are emerging across the EU.

Accordingly, it has called upon the European Commission (EC) to carry out further analysis to determine the appropriate EU-level response. The EBA has also recommended the EC to consider the October 2018 recommendations of the Financial Action Task Force (FATF).

“The EBA's warnings to consumers and institutions on virtual currencies remain valid. The EBA calls on the European Commission to assess whether regulatory action is needed to achieve a common EU approach to crypto-assets. The EBA continues to monitor market developments from a prudential and consumer perspective,” the EBA's Executive Director, Adam Farkas, said.