ESMA Proposes Strict Guidelines for Non-EU Crypto Companies Serving EU Customers

The European Securities and Markets Authority (ESMA) has introduced proposals that could significantly restrict crypto companies based outside the European Union (EU) from directly serving customers within the bloc, except under limited conditions. These proposed guidelines aim to prevent unfair competition and apply to crypto asset firms from non-EU countries seeking to offer services directly to EU customers without a physical presence within the EU.

ESMA’s proposal aligns with the EU’s MiCA (Markets in Crypto Assets) regulations, which were approved last year as the world’s first comprehensive rules for crypto markets. MiCA represents a groundbreaking move in the online sector, where national borders have historically been challenging to police.

According to ESMA’s statement, the proposed guidance reiterates the restriction under MiCA, emphasizing that the provision of crypto-asset services by a third-country firm is limited to cases where the client initiates the service exclusively. The concept of ‘reverse solicitation,’ where the customer initiates the service, is recognized, but the proposed exemption is described as narrowly framed and an exception rather than the rule.

ESMA’s proposal is open for public consultation until the end of April, and the final text is expected by the end of 2024 at the latest. The authority highlighted that it, along with national regulators in the EU, would take all necessary measures to actively protect EU-based investors and MiCA-compliant crypto-asset service providers from undue incursions by non-EU and non-MiCA compliant entities.

Under the proposed guidelines, actual solicitation of business in the EU by a third-country firm, including undertaking a marketing campaign in the 27-country bloc, is prohibited. Additionally, a non-EU firm cannot rely on the exemption to offer further services unless in the same context as the original transaction.

The proposals also include a set of guidance outlining circumstances in which a crypto asset can be considered a “financial instrument,” akin to stocks or bonds, subjecting it to the EU’s separate MiFID (Markets in Financial Instruments Directive) rules.

While the United States grapples with uncertainty regarding crypto regulation, Europe takes a significant step forward with the implementation of MiCA. Passed in April and set to be fully in effect by the end of 2024, MiCA aims to bring clarity to the crypto space, focusing primarily on crypto assets initially but signaling a broader move toward regulating the entire decentralized finance (DeFi) sector within the EU.

The introduction of MiCA regulations has been largely welcomed, providing legitimacy to digital assets and the involved companies. However, it also serves as a wake-up call for unregulated providers and exchanges, and a turning point for entities already regulated under traditional financial requirements, such as banks and institutional investors. As Europe forges ahead with regulatory frameworks, the global crypto landscape continues to evolve, with increasing emphasis on compliance and investor protection.

Digital Assets Desk