ESMA proposes strict guidelines for non-EU crypto firms

The European Securities and Markets Authority (ESMA) has put forward a proposal that could affect how non-EU based crypto companies operate within the European Union.

Under the new guidelines, these firms would face stringent limitations when directly serving EU customers, a move aimed at preventing unfair competition.

This proposal follows the EU’s enactment of the world’s first comprehensive crypto market regulations last year, known as the Markets in Crypto-Assets (MiCA) framework. MiCA represents a major step in regulating the online crypto sector, which has traditionally been challenging to police due to its cross-border nature.

ESMA’s recent proposals, which are currently open for public consultation until the end of April, are intended to clarify how MiCA should be applied in practice, especially concerning crypto asset firms outside the EU. According to ESMA’s statement, non-EU firms can only provide crypto-asset services to EU clients if the client exclusively initiates the service. This concept, known as ‘reverse solicitation,’ is already a part of other EU financial laws.

The authority explains that this exemption is to be interpreted narrowly and considered an exception rather than the norm. This stance could compel many foreign crypto firms to establish a physical presence within the EU, such as opening a branch or subsidiary, to comply with the bloc’s regulations.

ESMA and national regulators in the EU are committed to protecting EU-based investors and MiCA-compliant crypto-asset service providers from non-EU entities that do not adhere to the same standards. Direct solicitation of business within the EU by non-EU firms, including marketing campaigns, is strictly prohibited under these proposals.

Furthermore, the use of the exemption by non-EU firms is restricted and cannot be extended to offer additional services, unless they are in the same context as the original transaction.

Additionally, ESMA is proposing guidelines to determine when a crypto asset should be classified as a “financial instrument,” like stocks or bonds. If classified as such, these assets would also fall under the EU’s Markets in Financial Instruments Directive (MiFID) rules, adding another layer of regulatory oversight.