Innovation and Products

The European Securities and Markets Authority (ESMA) today publishes its Advice to the European Union (EU) Institutions – Commission, Council and Parliament – on initial coin offerings and crypto-assets. The Advice clarifies the existing EU rules applicable to crypto-assets that qualify as financial instruments, and provides ESMA’s position on any gaps and issues in the current EU financial regulatory framework for consideration by EU policymakers

ESMA has been working with National Competent Authorities (NCAs) on analysing the different business models of crypto-assets, the risks and potential benefits that they may introduce, and how they fit within the existing regulatory framework. Based on this work, including a survey of National Competent Authorities (NCAs) during 2018, ESMA has identified a number of concerns in the current financial regulatory framework regarding crypto-assets. These gaps and issues fall into two categories:

·       For crypto-assets that qualify as financial instruments under MiFID, there are areas that require potential interpretation or re-consideration of specific requirements to allow for an effective application of existing regulations; and

·       Where these assets do not qualify as financial instruments, the absence of applicable financial rules leaves investors exposed to substantial risks. At a minimum, ESMA believes that Anti Money Laundering (AML) requirements should apply to all crypto-assets and activities involving crypto-assets. There should also be appropriate risk disclosure in place, so that consumers can be made aware of the potential risks prior to committing funds to crypto-assets.

Steven Maijoor, Chair, said:

“Our survey of NCAs highlighted that some crypto-assets may qualify as MiFID financial instruments, in which case the full set of EU financial rules would apply. However, because the existing rules were not designed with these instruments in mind, NCAs face challenges in interpreting the existing requirements and certain requirements are not adapted to the specific characteristics of crypto-assets.

“Meanwhile, a number of crypto-assets fall outside the current financial regulatory framework. This poses substantial risks to investors who have limited or no protection when investing in those crypto-assets.

“In order to have a level playing field and to ensure adequate investor protection across the EU, we consider that the gaps and issues identified would best be addressed at the European level.”

Next steps

ESMA’s work on crypto-assets has highlighted a number of issues that are beyond ESMA’s remit. The Advice allows the EU Institutions to consider possible ways in which the noted gaps and issues may be addressed and subjected to further analysis. ESMA will continue to actively monitor market developments around crypto-assets while cooperating with NCAs and global regulators.

The European Supervisory Authorities (ESAs) published today a joint report on innovation facilitators (regulatory sandboxes and innovation hubs). The report sets out a comparative analysis of the innovation facilitators established to date within the EU. The ESAs also set out best practices for the design and operation of innovation facilitators.

​The number of innovation facilitators in the EU has grown rapidly in recent years. As at the date of the report, 21 EU Member States and 3 EEA States have established innovation hubs and 5 EU Member States have regulatory sandboxes in operation. A comparative analysis of these national innovation facilitators is set out in the report and, based on this analysis, a set of best practices has been prepared. The best practices are intended to: (i) promote consistency across the single market in the design and operation of innovation facilitators; (ii) promote transparency of regulatory and supervisory policy outcomes from arising from interactions in the context of innovation facilitators; and (iii) facilitate cooperation between national authorities, including consumer and data protection authorities.

The ESAs also set out options, to be considered in the context of future EU-level work on innovation facilitators, to promote coordination and cooperation between innovation facilitators which would support the scaling-up of FinTech across the single market.

Legal basis and background

The European Commission’s March 2018 FinTech Action Plan mandates the ESAs to carry out an analysis of innovation facilitators and to identify best practices.

The ESAs have prepared the report pursuant to this mandate and to Article 9(4) of the founding regulation for each of the ESAs which requires each to establish a committee on financial innovation ‘which brings together all relevant competent national supervisory authorities with a view to achieving a coordinated approach the regulatory and supervisory treatment of new or innovative financial activities and providing advice … to present to the European Parliament, the Council and the Commission’.

ESMA is today launching the process to renew the Consultative Working Group (CWG) of the Financial Innovation Standing Committee (FISC). ESMA is calling for expressions of interest from stakeholders to become a member of the CWG by 15 January 2019. 

ESMA has established the CWG to benefit from the expertise of stakeholders who are involved in the topics related to financial innovation under ESMA’s remit (securities markets, market infrastructures, institutional and retail investors) and with a view to support ESMA’s objectives of investor protection, market integrity and financial stability. FISC looks to this group to provide expert advice regarding ESMA’s work on Financial Innovation.

​Interested stakeholders can apply by 15 January, by submitting the application form and their CV.