European Securities and Markets Authority Consults on Guidelines on Reverse Solicitation and Cryptoassets as Financial Instruments under the EU Markets in Crypto Assets Regulation

The European Securities and Markets Authority has published two consultation papers on proposed guidelines under the EU Markets in Crypto Assets Regulation, one on reverse solicitation and the other on the classification of crypto-assets as financial instruments. Responses to the consultation papers should be submitted by April 29, 2024. ESMA plans to publish final reports on each of the guidelines by the end of 2024 at the latest.

MiCA requires crypto-asset service providers wishing to offer services within the EU to have their place of effective management in the EU. However, MiCA will not apply to services provided by third-country CASPs to EU customers via reverse solicitation, provided that the third-country firm does not solicit or advertise its products or services in the EU. ESMA's proposed guidelines note that permitted reverse solicitation under MiCA will apply in very limited and narrow circumstances. The exemption will not apply, for example, if a third-country firm solicits clients through another party based in the EU (whether the relationship between the two is explicit or implicit). Using social media influencers for solicitation may be caught by MiCA, for example. Firms cannot rely on the reverse solicitation exemption to market further crypto-assets or services of the same type as that sought by the client unless they are offered in the context of the original transaction. The timeframe of the original transaction is likely to be very short, limited to a month or even a couple of weeks. The following are examples of groups of crypto-assets that will not be deemed to be of the same type: (i) utility tokens, asset-referenced tokens and e-money tokens; (ii) crypto-assets not stored or transferred using the same technology; (iii) e-money tokens not referencing the same official currency; (iv) liquid and illiquid crypto-assets.

MiCA does not apply to crypto-assets that qualify as financial instruments under the EU Markets in Financial Instruments Directive. However, Member States have implemented the Markets in Financial Instruments Directive differently, meaning different definitions of "financial instrument" apply under MiFID II across the EU. ESMA's proposed guidelines assist national regulators and markets participants in determining whether a particular crypto-asset is within scope of MiCA. The guidelines note that the technological structure of a given asset is not crucial in determining whether MiCA applies—issuance via distributed ledger technology does not alter the fundamental nature of an asset. Financial instruments that have been tokenized should still be recognized as financial instruments. Examples are given for when a crypto-asset might fall within a particular category of financial instrument, as well as the inherent characteristics of crypto-assets under MiCA.

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