The European Securities and Markets Authority (ESMA) has released its Securities and Markets Stakeholder Group (SMSG) own initiative report on initial coin offerings (ICOs) and crypto-assets.
The Stakeholders produced this report to advice ESMA on steps it can take to contain the risks of ICO’s and crypto assets, on top of existing regulation. Also, the report builds up to advice to ESMA on the question whether and how ICOs and crypto assets should be regulated.
The SMSG provide ESMA the advice following a fact-finding exercise on ICOs and crypto-assets, and a cost-benefit analysis of potential routes of regulation.
First, the SMSG advice ESMA to provide level 3 guidelines or to aim at supervisory convergence on:
- i. interpretation of the MIFID definition of “transferable securities” and clarify whether transferable asset tokens which have features typical of transferable securities are subject to MiFID II and the Prospectus Regulation;
- ii. interpretation of the MiFID definition of “commodities”, since that concept is crucial to determine whether an asset token with features typical of a derivative is a MiFID financial instrument;
- iii. interpretation of the Multilateral Trading Facilities (MTF) and Organised Trading Facilities (OTF) concepts, clarifying whether the organisation of a secondary market in asset tokens which qualify as MiFID financial instruments is indeed an MTF or an OTF;
- iv. the fact that when issuers of asset tokens are to be considered to organize an MTF or an OTF in accordance with the above, the Market Abuse Regulation (MAR) applies to such MTFs and OTFs;
- v. the fact that in all situations where an asset token is to be considered a MiFID financial instrument, persons giving investment advice on those asset tokens or executing orders in those asset tokens, are to be considered investment firms, which should have a licence as such, unless they qualify for an exemption under MiFID II.
Second, the SMSG recognises that ESMA is not competent to change the level 1 MiFID II text listing the MiFID II financial instruments and urges ESMA to send a communication to the European Commission requesting that asset tokens (as mentioned in chapter IV.2.c of the report) be added to the MiFID II list of financial instruments. If such tokens were added to the MiFID II list of financial instruments, advisors in respect of such tokens would consequently become subject to MiFID II.
Finally, given the use of sandboxes and innovation hubs in the development of the ICO / crypto-asset sphere, the SMSG urge ESMA to provide guidelines with minimum criteria for national authorities which operate or want to operate a sandbox or innovation hub.
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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.