On January 29, the European Securities and Markets Authority (ESMA) released two consultation papers related to its responsibility for developing standards and guidance for the regulation of markets in crypto-assets (MiCA). The papers assert that reverse solicitations and crypto-assets qualify as financial instruments.
Reverse solicitation refers to the practice of potential clients approaching companies seeking crypto asset services. Exemptions from the MiCA framework allow third-country cryptoasset firms to serve EU clients exclusively through this mechanism.
According to the report, "Third-country companies are not allowed to solicit clients in the EU because they are not authorized to provide CASP (presumably cryptoasset service provider) services in the EU unless customers themselves and exclusively proactively contact the company and request services, which the third-country firm can provide." ESMA considers reverse solicitation as a narrow exemption for third-country companies, and it aims to proactively protect EU investors and MiCA-compliant cryptoasset service providers from inappropriate intrusions by non-EU and non-MiCA-compliant entities.
ESMA has proposed guidance for national supervisors under the Markets in Financial Instruments Directive 2014 (MiFID II), which has similar provisions. Direct solicitation methods covered by the guidance include online banner ads, sponsorship deals, influencer and celebrity endorsements, as well as follow-up services to CASPs in third countries. The deadline for comments on this guidance is April 24, 2024.
ESMA is also seeking opinions on "qualification conditions and criteria for crypto-assets as financial instruments." Financial instruments, under MiCA, are regulated under MiFID II. The lack of common definitions and standards for all financial instruments makes it challenging to adopt a holistic approach, but ESMA aims to promote a convergent approach. To be considered a financial instrument, a crypto-asset must fall under the categories of transferable security, money market instrument, collective investment commitment unit, derivatives contract, or emissions allowance. Comments on this matter are due by April 19, 2024. MiCA was overwhelmingly adopted by the European Parliament in October 2022.
