Crypto

On 10 December 2024, ESAs published its final guidelines on templates for explanations and opinions, and the standardised test for the classification of crypto-assets, under Article 97(1) of Regulation (EU) 2023/1114 (the “Guidelines”).

As a reminder, MiCAR regulates the offering to the public and admission to trading of asset-referenced tokens (“ARTs”), e-money tokens (“EMTs”) and other crypto-assets as well as the provision of crypto-asset services in the EU aiming to safeguard market integrity and financial stability in the EU and ensure consumer protection.

MiCAR applies as from 30 December 2024 and establishes three different regimes for the issuance and offering to the public of crypto-assets and for crypto-asset services provision. The applicable regime and subsequent regulatory requirements depend on the classification of the crypto-assets as EMTs, ARTs, or as crypto-assets that are neither EMTs nor ARTs.

To ensure consistent classification of the crypto-assets, the Guidelines introduce a standardised test to classify crypto-assets by applying a step-by-step approach and using a flowchart provided for in Annex C aiming to assess whether a crypto-asset is in scope of MiCAR or falls into excluded categories, such as financial instruments or insurance products. Feedback from public consultations may lead to re-evaluation of the templates.

The Guidelines also provide templates specifying the content and form of the explanations and legal opinion required to provide a comprehensive statement and justification of the classification chosen.

ESAs considers that these measures will improve the overall regulatory oversight and support the broader goals of MiCAR to harmonise crypto-assets market in the EU.

On 1 October 2024, ESMA released its opinion on the amended RTS concerning authorisations and notifications for Crypto-Asset Service Providers (“CASPs”) under MiCA proposed by the European Commission. Indeed, the European Commission suggested amendments to the draft RTS particularly concerning management body assessment of good repute and ICT security requirements. The RTS have been designed to ensure a streamlined, consistent approach to CASP registrations across member states, with detailed guidelines on information requirements, timelines, and procedures.

ESMA emphasised the importance of regulatory harmonisation to avoid fragmentation within the crypto-asset market and reduce regulatory inefficiencies. ESMA has concerns that the Commission’s stance could undermine efforts to establish a harmonised framework, thereby increasing compliance complexity for CASPs and supervisory challenges for national authorities. Further, these inconsistencies could potentially increase the compliance burden put on firms and would hinder the supervisory process, whilst creating barriers to achieving the objectives of MiCA.

The opinion of ESMA concludes with a call for constructive dialogue between ESMA and the European Commission to resolve divergences and ensure effective implementation of MiCA’s objectives. Further updates on this dialogue and its impact on CASP regulatory requirements will be communicated in future publications.

On 17 December 2024, ESMA published its Final Report on Guidelines for the qualification of crypto-assets as financial instruments under MiCA and MiFID II. These guidelines aim to ensure a common, uniform, and consistent application of MiCA provisions across the EU. It outlines the assessment process, focusing on the rights attached to the asset, its economic purpose, and functional characteristics with the aim to clarify the criteria and conditions under which crypto-assets can be classified as financial instruments. They also clarify specific cases for utility tokens, non-fungible tokens and hybrid tokens, emphasising the principle of technological neutrality and substance over form.

It is worth noting that the technological format of a crypto-asset does not determine its classification. For instance, tokenised financial instruments remain financial instruments regardless of the technology used (guideline 1).

Crypto-assets qualify as transferable securities if they meet the criteria under Article 4(1)(44) of MiFID II (i.e. they are not payment instruments, they represent "classes of securities" granting equivalent rights (such as ownership or dividends), and they are negotiable on capital markets) (guideline 2). Crypto-assets can also qualify as money-market instruments if they resemble short-term debt obligations such as treasury bills or certificates of deposit, are negotiable, and exhibit predefined short maturity periods (guideline 3).

Crypto-assets may be units in collective investment undertakings (“CIUs”) if they pool capital from multiple investors, operate under a defined investment policy, and aim to deliver collective returns. Tokens where investors retain day-to-day discretion over asset management are not CIUs (guideline 4). Crypto-assets may be classified as derivatives if their value derives from an underlying asset or index and they follow the criteria outlined in Annex I Section C of MiFID II, including obligations to buy or sell at predetermined conditions (guideline 5).

Further, hybrid tokens combining features of financial instruments, payment tokens or utility tokens are classified based on their dominant characteristics. For instance, a hybrid token with significant financial instrument features takes precedence in classification.

Furthermore, ESMA published its final set of policy documents to prepare the financial sector for the implementation of the MiCA regime, which entered into force on 30 December 2024. These documents include RTS and Implementing Technical Standards (“ITS”) designed to provide clarity and consistency in applying MiCA across the EU.

They also address critical areas such as authorisation requirements for CASPs, operational resilience measures, transparency obligations, and disclosure standards. ESMA emphasises the importance of aligning national regulatory practices with MiCA’s objectives to ensure a harmonised approach across member states.

In addition to the technical standards, ESMA outlines supervisory expectations, focusing on risks management frameworks, governance structures, and investor protection measures tailored to the evolving crypto-asset market. The policy documents aim to equip market participants and national competent authorities with the tools needed for a smooth transition to the MiCA regulatory framework.

Lastly, ESMA issued a statement providing clarity on the transitional measures under MiCA. The statement aims to guide CASPs and NCAs during the interim period leading up to MiCA’s full application.

The transitional measures address key areas, including the authorisation process for existing CASPs, the handling of ongoing applications, and the expectations for compliance with MiCA requirements during the transition phase.

ESMA highlights the need for proactive engagement between CASPs and NCAs to resolve uncertainties and align with regulatory expectations early in the process. The statement serves as a foundation for building operational readiness among CASPs and enhancing supervisory convergence among national regulators. ESMA encourages continued engagement between regulators and industry stakeholders to address any implementation challenges and ensure compliance as readiness ahead of MiCA’s full application this year.

On 13 December 2024, ESMA published a warning to investors and market participants concerning the risks associated with crypto-assets and related products.

Indeed, ESMA reminds that crypto-assets remain highly volatile, speculative and complex financial products, often lacking transparency and investor safeguards, and are not covered by existing investor compensation schemes.

The warning further states that marketing practices and promotional content for crypto-assets usually downplay the associated risks and exaggerate the potential returns. Thus, retail investors are urged to be more cautious and assess their risk exposure before engaging in crypto-assets investments. ESMA also highlights that there are operational risks, including platform outages, cyber security breaches and weak governance among certain crypto-asset service providers.