26 February 2019

ESMA's Maijoor: Crypto-Assets: time to deliver

I will offer some thoughts about crypto-assets, a topic whose importance is reflected in the conference agenda. Crypto-assets and the underlying Distributed Ledger Technology, or DLT, command our attention because they are at the frontier of innovation. They therefore pose a challenge to firms, who seek to turn the promise of the frontier technology into workable business models. Likewise, crypto-assets and DLT pose a challenge to regulators, because they are partly in uncharted territory. We need to ensure our rules are clear and fit for purpose. We have seen many interesting projects relating to DLT in financial markets. But increasingly, commentators and analysts are saying that it is time for firms to deliver on the technology’s early promise. For regulators such as ESMA, our task is to ensure that this happens in a clear regulatory framework that supports our objectives of investor protection and orderly markets. Crypto-assets tend to attract media hype. This can heighten risks for investors, and also complicates the work of regulators. Despite the hype, we have to remain objective, with an open mind but a critical eye.

By 2018, ESMA had published a report on DLT and made statements and warnings about various crypto-assets. We had addressed different aspects of the same underlying technology, highlighting both benefits and risks as appropriate.

But there was now a clear need for a more systematic approach, as a full crypto-asset ecosystem was starting to emerge. With this in mind, and in line with the European  Commission’s FinTech Action Plan, we started to assess the applicability of the existing rules to the emerging and very diverse population of crypto-assets. Our work highlighted a number of gaps and issues in the rules in this regard. In January this year, we published Advice to the European Commission, Parliament and Council and recommended that they consider these gaps and issues and address them where relevant.

It turns out that most of our national authorities agree that some crypto-assets, such as those with attached profit rights, are likely to qualify as MiFID financial instruments, in which case they should be regulated as such. However, we will have to see whether the phenomenon is sustainable once brought within the regulatory remit. Many ICOs have raised large volumes because they have evaded certain regulatory requirements.

I will conclude by noting that ESMA’s work will not stop with the publication of our Advice. As I have described, the history of DLT has revealed inherent challenges relating to governance, security, privacy and interoperability. We will continue to monitor markets closely to see whether firms are able to meet these challenges, enabling them to deliver DLT applications in securities markets at scale.

We will also continue to work closely with our national authorities to support a convergent approach to the supervision of crypto-assets, including in relation to their legal qualification, and other forms of financial innovation. As we heard this morning from Vice President Dombrovskis, an important new initiative is the EU Innovation Network, to be launched in April 2019 by the European Commission and the three ESAs. This follows a joint report on innovation hubs and sandboxes in the EU, which the ESAs published in January. The Network will bring together the national innovation hubs and regulatory sandboxes from the Member States to share best practices and promote regulatory and supervisory convergence for innovative businesses in the EU. Finally, because innovations are often global, ESMA will continue to actively cooperate with other regulators internationally, including through the FSB and IOSCO.

Full speech

© ESMA