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European Securities and Markets Authority Prioritizes Crypto-Related Regulation

The European Securities and Markets Authority (ESMA) announced its key priorities list for 2020-2022. In its published document “Strategic Orientation for 2020-22,” the ESMA reflected its focus on supervisory convergence and its role in building the Capital Markets Union.

The organization aims for market participants to acknowledge and prepare for the new risks faced by digitization. The document reads, “The dangers of cyberthreats to the financial system as a whole and a sound legal framework for crypto-assets are increasingly becoming areas of focus for ESMA together with the other ESAs, the ESRB, the ECB, and the European Commission.”

Steven Maijoor, the ESMA Chair said that one of their key priorities is to ensure the consistent and coherent implementation of the Single Rulebook, “with our new powers in this area, we will adopt a risk-based approach, in cooperation with national authorities, to supervisory convergence across the EU.”

The ESMA has been consistently facing challenges in uncertainty towards the regulation of cryptocurrencies and securities for years. In May 2018, the ESMA agreed to temporarily adjust the leverage limit for crypto-related contracts for difference (CFD) products to 2:1, which requires retail investors to initially pay 50 percent of the total CFD value.

EU's ESMA Wants Public Input on Proposed DLT Regulation

The European Union’s Securities and Markets Authority (ESMA) has called on concerned market stakeholders to comment on its proposed regulation bordering on the use of Distributed Ledger Technology (DLT) for use in securities trading and settlement.

Dubbed the “call for evidence,” the ESMA said it seeks feedback from stakeholders on the need to amend the RTS on pre-and post-trade transparency and data reporting requirements in the context of the DLT Pilot.

According to the notification published by the ESMA, the DLT pilot is not completely finalized; however, there is a political agreement between the EP and the Council to establish the framework. On this ground, the regulator wants public input prior to finalizing the regulations for the European Commission to approve.

The Call for Evidence is targeted at trading venues, securities settlement systems, and entities that are considering operating under the DLT Pilot and for market participants that plan to use DLT market infrastructures. The deadline for submission of comments was slated for March 4. The ESMA hopes by its timeline. The DLT Pilot will be implemented across each EU member state by early 2023.

The European Union is very upfront about regulating the digital currency ecosystem and the unique technologies that are affiliated with the industry. While The ECB issued a report regarding stablecoins and describes these assets as “digital units of value that are not a form of any specific currency (or basket thereof) but rather, by relying on a set of stabilization tools,” which try to minimize the volatility of their prices, the EU’s apex bank is concerned with the lack of sweeping regulations governing the use of these assets.

Other countries, including the United States, share this sentiment. While many watchdogs do not dispute the innovative nature of these crypto-assets and their underlying technologies, surveillance and advocacy to regulate the space have grown in recent times.

EU Market Watchdog Speaks Against Renewable Energy Mining for PoW

The Vice-Chair of the European Securities and Markets Authority (ESMA), Erik Thedéen, has taken an unpopular stance against the use of renewable energy for all Proof-of-Work (PoW) mining operations.

In an interview with the Financial Times, Thedéen said the use of renewable energy can derail member nations from focusing on the climate change goals set out by the bloc.

From Thedéen’s standpoint, cryptocurrencies are not bad in themselves, a position that was gleaned from his advocacy for a switch to Proof-of-Stake (PoS) mining. With the market watchdog calling Bitcoin mining a “National Issue,” he pointed out that member states must place a special exception to the activities, adding that;

“We need to have a discussion about shifting the industry to a more efficient technology.”

While the energy utilization of Bitcoin mining is very obvious, debating a way forward remained at the forefront of major industry stakeholders in the past few years. Last year, the ban of Bitcoin and all cryptocurrency-related activities further placed the subject as a matter of urgency, with industry players devising modalities to shift their energy options to a renewable one.

Despite industry stakeholders being unable to agree on whether Bitcoin mining is good for the environment or not, as many proponents have presented arguments in favour of mining, many have agreed that a switch to renewable energy sources is a better bet moving forward.

American electric motor manufacturer, Tesla Inc, announced its plans to reintroduce Bitcoin payments when the bulk of energy powering Bitcoin mining comes from renewable or clean energy sources. Many Bitcoin mining companies are also exploring avenues to tap energy from clean sources, a move that many believe will be economical and environmentally friendly in the long run.

Thedéen’s call against the use of renewable energy for Bitcoin mining is concerning and might sway policymakers in a direction that places additional strain on BTC and other PoW coins in the near future.

Hungarian Central Bank Governor Advocates EU Wide Crypto Ban

The Governor of the Hungarian Central Bank, György Matolcsy, recommended that all cryptocurrency-focused activities including trading and mining should be banned across the European Union.

In a release published on the Magyar Nemzeti Bank’s (MNB) website, Governor Matolcy said his new stance aligns with those of the Russian Central Bank, as well as that of Erik Thedéen, the Vice-Chair of the European Securities and Markets Authority (ESMA) who said Proof-of-Work (PoW) should be banned in the EU.

“I perfectly agree with the proposal and also support the senior EU financial regulator’s point that the EU should ban the mining method used to produce most new bitcoin,” Governor Matolcy wrote adding that he believes it is “clear-cut that cryptocurrencies could service illegal activities and tend to build up financial pyramids.”

The Hungarian Central Bank boss said the Russian central bank was right when it said “the breakneck growth and market value of cryptocurrencies is defined primarily by speculative demand for future growth, which creates bubbles.”

Authorities around the world have often frowned at the chances of digital currencies being used for fraudulent activities, and many have moved against their proliferation through stringent regulations. While the ESMA executive cited by Governor Matolcy does not want an outright ban of cryptocurrencies as the Hungarian boss was suggesting, there is a broad agreement on tapering down the adoption of PoW mining which is generally known to be energy-intensive.

“The EU should act together in order to preempt the building up of new financial pyramids and financial bubbles,” Governor Matolcy said, adding that “EU citizens and companies would be allowed to own cryptocurrencies abroad and regulators will track their holdings.”

While the Hungarian Central Bank has its own jurisdictional powers, its influence on the entire E.U might not be so strong as those of the regional powers in the bloc. However, with two prominent leaders sharing similar thoughts on banning crypto mining, the recommendations may lead to a new consideration that could make the EU move against PoW mining amongst other regulatory crackdowns.

European Securities and Markets Authority Calls for Input on New EU Crypto Rules

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator, has initiated its first consultation package under the Markets in Crypto-Assets Regulation (MiCA). The authority is seeking stakeholder comments until September 20, 2023, marking a significant step towards establishing concrete rules for crypto markets in the EU.

In this initial consultation package, ESMA is soliciting input on proposed rules for crypto-asset service providers (CASPs). The focus areas include CASP authorisation, identification, conflict of interest management, and complaint handling procedures.

The consultation also aims to collect insights on stakeholders’ current and future activities. This fact-finding exercise will help ESMA better comprehend the EU crypto-asset markets and their potential evolution. The data collected will remain confidential and will be used to fine-tune proposals in the upcoming second and third consultation packages.

Verena Ross, Chair of ESMA, emphasized the importance of this consultation package in implementing the MiCA framework. Ross stated that the initiative translates ESMA’s ambition to establish high regulatory standards for crypto-asset related activities in the EU into tangible requirements.

Ross also highlighted that ESMA is determined to ensure that entities involved in crypto-asset related activities understand that the EU is not a place for forum-shopping. She further reminded consumers that even with the implementation of MiCA, no crypto-asset can be deemed entirely safe.

ESMA will continue working on its remaining mandates alongside this consultation, with plans to publish a second consultation package in October 2023. The feedback received from this consultation will be considered for a final report, and the draft technical standards will be submitted to the European Commission for endorsement by June 30, 2024, at the latest.

ESMA Launches Key Consultations on Crypto-Asset Regulations under MiCA

The European Securities and Markets Authority (ESMA) recently published two significant consultation papers under the Markets in Crypto-Assets Regulation (MiCA), focusing on the reverse solicitation and the classification of crypto-assets as financial instruments.

One of the consultation papers addresses the guidelines on reverse solicitation, where ESMA is seeking insights on the conditions for the application of the reverse solicitation exemption and supervision practices to prevent its misuse. This exemption, as outlined by ESMA, is designed to be narrowly framed, limiting the provision of crypto-asset services by third-country firms to instances where the client is the exclusive initiator of the service. This move is an effort to prevent circumvention of the MiCA regulation by third-country firms.

The other consultation paper delves into the classification of crypto-assets as financial instruments. ESMA aims to establish clear conditions and criteria for this classification, bridging MiCA regulation with the Markets in Financial Instruments Directive II (MiFID II). The proposed guidelines are meant to provide National Competent Authorities (NCAs) and market participants with structured yet flexible criteria to determine whether a crypto-asset falls under the category of a financial instrument.

This initiative highlights ESMA’s commitment to developing a consistent regulatory approach across the EU for crypto-assets and ensuring they align with global standards in crypto-asset regulation. The consultation period for these papers is set to close on April 29, 2024, with ESMA planning to consider the feedback in the second quarter of 2024 and expecting to publish a final report in the fourth quarter of the same year.

These consultations are a crucial step in clarifying the regulatory framework for crypto-assets within the EU, ensuring a harmonized approach and providing much-needed clarity to stakeholders in the rapidly evolving crypto market.