The European Securities and Markets Authority (ESMA) has proposed that crypto assets should be classified as financial instruments if they meet specific criteria outlined in the Markets in Crypto Assets Regulation (MiCA) and the Markets in Financial Instruments Directive (MiFID II).

In a significant announcement made on Monday, March 25, 2024, ESMA revealed that it had completed the first set of reports on rules for crypto asset service providers (CASPs) under MiCA. This move aims to enhance transparency, ensure a safe environment for crypto traders, and provide clarity and predictability for investors across the European Union (EU).

The report outlines the requirements that CASPs must meet to operate in the EU region under MiCA's regulations. These requirements include submitting necessary information to gain approval, demonstrating the intent to provide crypto asset services, and addressing customer complaints effectively.

ESMA has submitted the final report to the European Commission (EC) and stands ready to offer further advice and technical guidance on the proposals if requested.

This development follows a consultation paper published by ESMA in July 2023, seeking input from stakeholders on proposed rules for CASPs. The consultation, which concluded in September, garnered responses from 36 stakeholders, with ESMA noting that ten responses were confidential.

In addition to the report, ESMA has launched its third consultation package under MiCA, soliciting public input on various aspects, including the detection and reporting of suspected market abuse in crypto assets, client rights for crypto asset transfer services, suitability requirements for certain crypto asset services, and ICT operational resilience for specific entities under MiCA. The consultation period will remain open until June 25, 2024.

ESMA's efforts to regulate crypto assets have also involved collaboration with other regulatory bodies, including the European Banking Authority (EBA). In January of the same year, ESMA opened another consultation on the classification of cryptocurrencies as financial instruments.

According to ESMA's proposal, crypto assets should be classified as financial instruments if they meet the criteria outlined in MiFID II's definition. This includes assessing each token against categories such as transferable securities, money-market instruments, units of collective investment undertakings, derivatives, and emission allowances, before concluding its classification as a crypto asset.

The ongoing initiatives by ESMA underscore the EU's commitment to regulating the crypto asset market effectively while ensuring investor protection and market integrity. As regulatory frameworks continue to evolve, stakeholders within the crypto industry will closely monitor developments to navigate the regulatory landscape effectively.