The EU watchdog recommends regulation despite the "risk of legitimacy of crypto-activity"


EU Blockchain

The European Securities and Markets Authority has published advice to the various institutions of the European Union (Commission, Council and Parliament) on initial coin offerings and cryptocurrency activities.

While stating that the sector has remained modest and does not present any current risk in terms of financial stability, ESMA has expressed concern about the perceived risks related to investor protection and market integrity.

In addition to this, the report has indeed advised against legitimizing cryptocurrencies and cited a survey that states that all crypto-assets should be subject to anti-money laundering legislation.

& # 39; Do not Legitimize Crypto & # 39;

ESMA has declared:

"More regulation of crypto-activities and related activities could have compromises, such as the risk of legitimizing crypto-activities and encouraging broader adoption".

The watchdog warned that capital markets must be protected and that the policy for any scrambled resource that is not a financial instrument should simply be to warn investors against buying, for fear that any over-regulation can "bring them into a similar regulatory mandate such as that of the crypto-assets that are financial instruments."

"There is a wide range of crypto-activity in circulation and only a small part of it is destined to qualify as MiFID financial instruments".

Legislation against money laundering

While complaining that the regulation encouraged the adoption and cryptocurrencies legitimated in the eyes of the law, ESMA nevertheless indicated a recent survey by national crime agencies that advised that all crypto-assets should fall back. under the AML laws, citing:

"A broad consensus on this, at a minimum, on all activities involving crypto-assets should be subject to anti-money laundering laws (on which see further the EBA report and advice on crypto-assets".

ESMA itself has identified "the most significant risks such as fraud, cyber attacks, money laundering and market manipulation".

Concerns of individual regulatory policies among EU Member States

The report mentions that some member states are creating their own regulations for ICOs and clearly recommend the EU's intervention.

"Considering the novelty of the phenomenon, the evolving business models and the fact that the existing regulatory framework was not designed taking into account these innovations, we consider it appropriate that ESMA examines and advises policy makers about risks and issues. raised by ICOs and crypto-assets and the extent to which these are addressed by the existing regulatory regime. "

While acknowledging that some of the emerging cryptographic resources do not fall under any regulatory jurisdiction, ESMA claims that doing nothing undermines investors and markets alike.

A scheme tailored to specific activities

The organization recommends that EU policymakers implement a "regime tailored to specific types of crypto-assets" and advises the EU to examine the scope of AML requirements taking into account the evolution of the market with regard to exchanges and financial services providers of ICO, among others, as well as to legislate for proper disclosure of risk in ICOs, emphasizing that in the past white papers were often scanty.

Cryptographic hub in Europe in danger?

The report generally indicates what is being observed in other regions – the strengthening of cryptocurrency rules with the declared objective of protecting investors and local economies.

However, the ESMA report could prove particularly significant if implemented. To date, the EU has had some of the most welcoming cryptocurrency and blockchain policies in the world, allowing hubs like the Netherlands, Luxembourg and Liechtenstein to thrive and contribute to the sector.

Many smaller EU countries have taken the opportunity to create their own tailor-made legislation to attract investors and companies, forming more blockchain hubs: it remains to be seen to what extent the EU can take action on regulation of local member states after the ESMA report.

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