The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have called for an EU-wide approach to cryptocurrency and initial coin offerings (ICO) regulation in order to protect investor.
The EBA published the results of its assessment of EU laws and how they relate to cryptocurrencies earlier this week. The report found that cryptoassets typically fall outside the scope of EU financial laws since specific services relating to crypto custodian wallet provision and crypto trading platforms do not constitute regulated activities. According to the EBA, these factors give rise to potential issues, including regarding consumer protection, operational resilience, market integrity and the level playing field.
The EBA calls on the European Commission (EC) to carry out a comprehensive cost/benefit analysis to determine what, if any, action is required at the EU level at this stage to address these issues, specifically with regard to the opportunities and risks presented by crypto activities and new technologies that may entail the use of cryptoassets.
“The EBA also advises the European Commission to have regard to the latest recommendations and any further standards or guidance issued by the Financial Action Task Force (FATF) and to take steps where possible to promote consistency in the accounting treatment of crypto-assets.” the EBA said.
Separately, ESMA published its “Advice to the European Union (EU) Institutions” on ICOs and cryptocurrencies. ESMA said that while it does not believe that cryptocurrency currently raises financial stability issues, it is concerned about the risks it poses to investor protection and market integrity. ESMA identifies the most significant risks as fraud, cyber-attacks, money laundering, and market manipulation.
“A key consideration for regulators is the legal status of crypto-assets, as this determines whether financial services rules are likely to apply, and if so which, and hence the level of protection to investors,” ESMA said. “Because the range of crypto-assets are diverse and many have hybrid features, ESMA believes that there is not a ‘one size fits all’ solution when it comes to legal qualification.”
The regulator noted that some EU member states have or are considering some bespoke rules at the national level for all or a subset of those cryptoassets that do not qualify as MiFID financial instruments. While ESMA understands the intention to bring to the topic both a protective and supportive approach, ESMA is concerned that this does not provide for a level playing field across the EU. ESMA believes that an EU-wide approach is relevant, also considering the cross-border nature of cryptocurrencies.