EU's Stricter Rules for Non-EU Crypto Firms

Overview of EU Crypto Regulations

The European Securities and Markets Authority (ESMA) has introduced proposals aiming to regulate non-EU crypto companies that wish to serve customers within the European Union. These measures are part of the broader framework established by the Markets in Crypto-Assets (MiCA) regulation, which represents the first comprehensive set of rules for crypto markets globally.

Limited Conditions for Non-EU Firms

Under the new guidelines, crypto firms based outside the EU can only provide services directly to EU customers under very specific conditions. This approach is designed to prevent unfair competition and ensure a level playing field for EU-based companies. The concept of 'reverse solicitation' is central to this regulation, allowing services only when initiated by the client.

Reverse Solicitation Explained

Reverse solicitation refers to instances where the service is requested solely by the customer, without any marketing or solicitation from the non-EU firm. This principle, already present in other EU financial regulations, has been further restricted, pressuring foreign firms to establish a physical presence within the EU.

Protecting EU Investors

ESMA emphasizes the need to protect EU investors and MiCA-compliant service providers from undue influence by non-EU entities. Any direct marketing or active solicitation by non-EU firms within the 27-member bloc is strictly prohibited. Additionally, the exemption allowing initial service provision does not extend to subsequent services unless they occur in the same context as the original transaction.

Financial Instrument Classification

The proposed guidance also outlines criteria for classifying certain crypto assets as "financial instruments" akin to stocks or bonds. This classification means such assets would also fall under the EU's Markets in Financial Instruments Directive (MiFID) rules.

Conclusion

These proposals, open for public consultation until April, aim to ensure robust protection for EU investors while maintaining fair competition. The final text is expected by the end of 2024.