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ESMA and EBA Publish Advice on Cryptoassets

On January 9, the European Securities and Markets Authority (ESMA) published advice addressed to the European Commission, the European Parliament and the Council of the EU on initial coin offerings (ICOs) and cryptoassets. On the same day, the European Banking Authority (EBA) also published advice on cryptoassets addressed to the European Commission.

ESMA Advice

The ESMA advice clarifies the existing EU rules applicable to cryptoassets that qualify as financial instruments under the revised Markets in Financial Instruments Directive (MiFID II), and sets out its position on gaps and issues in the current regulatory framework.

ESMA notes that it has been working with national competent authorities on analyzing the different cryptoasset business models, risks and potential benefits they may introduce, and how they fit within the existing framework. Based on such work, ESMA has identified a number of concerns with the existing framework regarding cryptoassets. The gaps and issues identified by ESMA fall into two categories:

  • for cryptoassets that qualify as financial instruments, as the existing rules were not designed with cryptoassets in mind, there are areas that require potential interpretation or reconsideration of specific requirements to allow for an effective application of existing regulations; and

  • where assets do not qualify as financial instruments, the absence of applicable financial requirements leaves investors exposed to substantial risks. At a minimum, ESMA believes that anti-money laundering requirements should apply to all cryptoassets and activities involving cryptoassets and that there should also be appropriate risk disclosures in place so that consumers can be made aware of the potential risks prior to committing funds to cryptoassets.

As a number of the issues identified are beyond ESMA’s scope, it believes that its advice allows the law-making EU institutions to consider possible ways in which the gaps and issues may be addressed and subjected to further analysis.

EBA Advice

In its report, the EBA sets out the results of its assessment of the applicability and suitability of EU law to cryptoassets.

The EBA notes that the relatively low level of cryptoasset activity currently observed in the EU does not appear to give rise to implications for financial stability. However, activities involving cryptoassets typically fall outside the scope of EU banking, payments and electronic money regulation, and risks exist for consumers that are not addressed at the EU level. As a result of the development of national regulatory responses, divergences between Member States are starting to emerge, which presents risks to a level playing field between legal regimes. The EBA also believes that market developments point to the need for a further review of EU anti-money laundering legislation.

For these reasons, the EBA advises the Commission to carry out a comprehensive cost-benefit analysis, taking account of issues inside and outside the financial sector, to determine what, if any, action is required at the EU level. The EBA also advises the Commission to take account of the October 2018 recommendations of the Financial Action Task Force (FATF) regarding what the FATF calls “virtual asset” activities.

ESMA’s advice is available here and the EBA’s advice is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IX, Number 11



About this Author

John Ahern, Financial Attorney, London, Katten Law Firm

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

+44 (0) 20 7770 5253
Carolyn H. Jackson, International Attorney, Katten Muchin law firm

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws...

+44 0 20 7776 7625
Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

+44 0 20 7776 7629
Neil Robson, private equity fund managers counselor, Katten Law Firm, London

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...