In a significant development, on October 19, 2018, the European Securities and Markets Authority (ESMA) came out with its Securities and Markets Stakeholder Group 35 pages report on crypto and initial coin offerings (ICOs).

The objective of the stakeholder’s group is to offer advice to ESMA on the steps to be taken to deal with the risks attached in respect of ICOSs and digital coins apart from regulations. Some of the member countries are eager to promote the emerging asset class, and the move comes at the right time for them.

Guidelines

The stakeholder group has provided its advice after analyzing the possible regulation rules following its fact-finding activities on cryptos and ICOs. In the first place, it has offered three guidelines, and one among them is the MiFID II definition interpretation on transferable security. This should include a clarification whether they have any features that come up with transferable security. Similarly, the interpretation of the ‘commodities’ definition and assess whether it would have features that are typical of a derivative financial instrument.

The third among the first place is an interpretation of organized trading facility (OTF) and multilateral trading facility (MTF) concepts. There should be clarification whether a secondary market in digital coins quality under this category. The fourth is to consider whether asset token issuers are to be considered to arrange an OTF or MTF. The last in the first stage is whether asset token should be termed as a financial instrument and whether anyone is issuing or executing orders with the help of such tokens to be known as investment firms. In such a case, there should be a license unless there is an exemption.







Use of Sandboxes

Under the second stage, the stakeholders have urged ESMA to communicate the European Commission and make a request to add digital tokens in the list of financial instruments under the MiFID II. In case, those virtual assets are added to the list of financial instruments, then advisers of such tokens would become under the purview of MiFID II automatically.

The last stage of the guideline is that the stakeholders wanted the ESMA to offer instructions with minimum criteria for national authorities. This is due to the use of innovation hubs and sandboxes during the digital coin and ICO development. It might suggest that the advice covers nearly every aspect that most of the financial or crypto experts are seeking from the regulators or the concerned authorities. Now, the ball is in ESMA’s court to take it further.

Payment tokens and positiveness

In general, there is a number of positive statements in the document and we share one of these which related to payment tokens. Document says,

“Payment tokens may increase competition in the payment markets, and inspire traditional payment

methods to increase efficiency in respect of cost, speed, user-friendliness and security and thus be

beneficial to all users of payment systems in general.”

Such statement forms positive thoughts regarding the future of payment tokens. Find the full document here.

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