MiCA Webinar 2 – Crypto-assets caught by TradFi regulation in the EU – 22 February 2024
Summary
TLDRThis webinar, presented by XR's Ernest Lima and Anna James, delves into ESMA's new guidelines on classifying crypto assets as financial instruments, addressing a long-standing area of uncertainty within the EU. It outlines the aim to aid market participants and regulators in assessment processes, discussing the implications of MICA and MiFID on crypto assets. The webinar covers various asset types, including transferable securities, derivatives, and hybrid tokens, highlighting the need for a nuanced approach in classification. Key challenges, such as regulatory inconsistencies and the potential for harmonization, are examined, emphasizing the importance of industry feedback during the consultation period. This session is crucial for stakeholders navigating the evolving landscape of crypto asset regulation.
Takeaways
- 📜 The webinar discusses ESMA's guidelines on classifying crypto assets as financial instruments, part of the ongoing Maika webinars.
- 🔍 The guidelines are intended to aid market participants and regulators in the EU in understanding and assessing how crypto assets should be categorized under existing financial frameworks.
- 📅 A historical context is provided, noting that there has been a lack of agreement among regulators regarding the classification of crypto assets, leading to the current consultation.
- 🏢 Xreg Consulting, specializing in crypto assets, hosts the webinar, with speakers Ernest Lima and Anna James, focusing on regulatory compliance and EU markets.
- 🇪🇺 Mika, an EU regulation, is highlighted as a comprehensive framework for crypto assets in the EU, aiming to include issuers and intermediaries not covered by other regimes.
- 📈 MiFID, the EU's regulatory framework for investment services, is mentioned, particularly regarding the variation in the interpretation of 'financial instruments' across EU member states.
- 🔑 The importance of understanding the technological wrapper and substantive features of assets is emphasized, rather than just their legal form or structure.
- 💡 The webinar points out various asset categories like transferable securities, derivative contracts, and hybrid tokens, discussing their characteristics and regulatory implications.
- 🌍 The need for global harmonization in crypto asset categorization is acknowledged, emphasizing the borderless nature of these assets.
- 📊 The webinar concludes with a call to action for participants to engage with the ESMA guidelines and stresses the importance of uniform regulatory clarity in the EU.
Q & A
What is the purpose of the ESMA's recent guidelines on crypto assets?
-The guidelines aim to assist market participants and regulators in determining whether crypto assets should be considered as financial instruments, providing much-needed guidance in a sector with varying interpretations across the EU.
Why was there a survey conducted six years ago about crypto assets?
-The survey was conducted to address the debate on whether crypto assets should be considered financial instruments, as regulators did not agree on their qualification at the time.
What are the primary objectives of the MICA regulation?
-MICA aims to establish a comprehensive framework for crypto assets in the EU, capturing issuers and intermediaries (CASPs), and to ensure uniform application of regulations across the EU.
What distinguishes MiFID from MICA in terms of applicability?
-MiFID is a directive requiring transposition into national law and is subject to interpretation, while MICA is an EU regulation that is directly applicable across the EU for uniformity.
How do the guidelines address the technological wrapper of crypto assets?
-The guidelines clarify that the technological wrapper is not a key factor for an asset's classification. Instead, the focus is on the assets' features, design, and rights.
What does a 'substance over form' approach mean in the context of these guidelines?
-It means assessing the true substance and economic impact of an asset beyond formalities, emphasizing commercial reality over legal structure.
Why is the classification of crypto assets as transferable securities significant?
-This classification is significant because it determines whether a crypto asset falls under the MiFID regime, influencing the rights and obligations of issuers and holders.
How do the guidelines approach hybrid tokens?
-Hybrid tokens are assets with both financial instrument and crypto asset characteristics. The guidelines state that if a token has a financial instrument component, it takes precedence and falls under MiFID rules.
What challenges do regulators face in classifying crypto assets according to the guidelines?
-Regulators may lack capacity or expertise for accurate assessment, might err on the side of caution by treating crypto assets as financial instruments, or face challenges due to unclear areas in the guidelines.
How does the EU aim to achieve harmonization in the classification of crypto assets?
-The EU aims to achieve harmonization through the guidelines and potential updates to existing financial regulations, ensuring a common understanding and avoiding divergent interpretations across member states.
Outlines
🚀 Introduction to ESMA's Crypto Asset Guidelines
This paragraph introduces a webinar hosted by XR on ESMA's recent guidelines regarding the classification of crypto assets as financial instruments, highlighting the significance of these guidelines in clarifying uncertainties across the EU. The webinar aims to delve into the specifics of the guidelines, address market participants and regulators' needs for clarity, and discuss the agenda including a brief on XReg, MAIKA, MIFID, and the guidelines themselves. It also mentions housekeeping details about the webinar's duration and the Q&A session.
🔍 Understanding ESMA's Guidelines and the Need for Clarity
The second paragraph focuses on the rationale behind producing ESMA's guidelines to supplement EU legislation, aiming to offer clarity on crypto asset classification as financial instruments. It highlights the draft stage of these guidelines, the consultation process, and the significant impact of feedback from affected parties. The paragraph emphasizes the guidelines' intent to resolve uncertainties in treating crypto assets across regulators, aiming for a harmonized approach in asset classification and regime application, excluding stable coins.
📈 Crypto Asset Categories and Criteria for Classification
This paragraph explains how ESMA's guidelines propose to classify crypto assets, emphasizing the lack of a standardized test but providing criteria for classification. It clarifies that technology is not a primary consideration; rather, the focus is on the assets' features, design, and rights. A case-by-case assessment is necessary, looking beyond formalities to understand the true substance and economic reality. It highlights the responsibility of those seeking to list assets for trading to adhere closely to these guidelines, and introduces various asset categories to be discussed further.
💼 Detailed Examination of Transferable Securities
Paragraph four dives into the specifics of classifying crypto assets as transferable securities, detailing the criteria that must be met for such classification. It addresses the challenges in differentiating between financial rights linked to company profits versus other rights, and the ambiguity surrounding the definition of negotiable capital markets. The discussion emphasizes the nuanced differences between traditional securities and crypto assets, suggesting the complexity in applying existing financial regulations to emerging crypto asset classes.
🌐 Derivatives and Challenges in Crypto Asset Classification
The fifth paragraph focuses on derivative contracts in the context of crypto assets, outlining the criteria for classification as derivatives and the specific challenges faced, particularly regarding settlement in crypto assets versus traditional means. It underscores the lack of clarity and potential regulatory implications for crypto exchanges offering derivative products, hinting at the necessity for more explicit guidelines to navigate the intersection of crypto assets with established financial instrument frameworks.
🔑 Hybrid Tokens and Classification Challenges
This paragraph discusses the concept of hybrid tokens, which possess qualities of both financial instruments and crypto assets. It explains that financial instrument components take precedence in classification, underscoring the potential complications arising when the characteristics of a token change over time. The discussion reflects on the practical implications for issuers, regulators, and trading platforms, stressing the importance of accurate classification to ensure compliance with relevant financial regulations.
🏦 Other Asset Categories and Classification Criteria
The seventh paragraph expands on other financial instrument categories under the guidelines, including money market instruments, collective investment undertaking units, and emission allowances. It explains the criteria for each category, discussing the potential for certain crypto assets to fall within these classifications and the implications thereof. The paragraph also touches on the classification of non-fungible tokens (NFTs) and their current exclusion from the scope of financial instruments regulation.
📝 Concluding Remarks and Regulatory Considerations
The final paragraph encapsulates the webinar's key points, highlighting the ongoing challenges and uncertainties in classifying crypto assets as financial instruments. It acknowledges the efforts by ESMA to provide clarity through guidelines but notes remaining ambiguities and the potential for regulatory discrepancies across the EU. The paragraph also mentions the upcoming consultation deadline, urging affected parties to contribute feedback, and hints at the need for further harmonization and updates in financial regulations to accommodate the evolving crypto asset landscape.
Mindmap
Keywords
💡ESMA
💡Crypto assets
💡Financial instruments
💡MiCA
💡MiFID
💡Regulatory technical standards
💡Consultation period
💡Classification criteria
💡Hybrid tokens
💡Regulatory compliance
Highlights
These guidelines aim to help both Market participants and Regulators in their assessments of whether crypto assets should be considered a financial instruments much guidance which the sector has been asking for a number of years now.
The aim of this consultation is to clarify that before we go into um the the slides um I'm going to uh run through a couple of housekeeping matters, the webinar will run for approximately 40 45 minutes we're believeing 10 15 minutes at the end for questions and answers so if you have any questions, please post them in the Q&A button if we have time at the end we may keep the webinar open for for for a short while longer to have a post webinar discussion, or answer any outstanding questions.
Miker is a a very comprehensive framework for crypto Assets in the EU uh capturing issuers of crypto assets and uh crypto asset intermediaries known as casps, these include exchangers custodians, operators of trading platforms for crypto assets, Etc the intention of Miker is to capture all crypto assets that currently fall outside the scope of any other uh EU regime.
Methid is a marketing financial instruments directive it's the EU regulatory framework for Investment Services and activities regulating investment inter intermediaries, Securities markets trading venues all in relation to financial instruments as you all know financial instruments are considered Securities in many jurisdictions.
Guidelines aim to provide Clarity and guidance on the interpretation and implementation of EU regulations and are considered authoritative interpretations by regulators and Market participants alike, although not legally binding they carry significant weight having indirect legal effect and can be persuasive in court.
The guidelines are aiming to plug these holes and Ensure consistency or as much consistency as possible in asset classification.
The guidelines do not provide a standardized test for such classification which is what MAA had requested instead it provides criteria and condition to help determine such classification.
It is important to clarify that the technological rapper is not a key factor for an assets classification, instead what matters and what needs to be considered at all time are the assets features design and rights.
Transferable Securities are the first the first asset class that may be a little bit problematic a transferable Securities are defined under miid as those classes of securities which are negotiable on the capital market with the exception of instruments of payment.
Derivative contracts are are are a type of financial instrument which, um ref makes reference to an underlying asset so the criteria that needs to be met by a crypto asset for it to be brought under under this category is that the crypto asset is a digital representation of a contract um the value of which is determined by an under underlying reference.
Hybrid tokens are assets that have both the qualiity components and property um purposes of a financial instrument and a crypto asset um and the guidelines make it clear that wherever there is the financial instrument uh quality purpose component that that one will take precedence always so hybrid tokens if if they're at any point considered hybrid meaning that it they have both H characteristics they will always be dealt with uh as a financial instrument, and subject to methid rules.
Money market instruments represent short-term uh debt commitments and that are negotiable um and are issued by either governments or firms the criteria that money market instruments um must meet is that they have legal and residual maturity their value is stable with minimum volatility and they align returns with short-term interest rates.
Units in Collective investment undertakings um if a a crypto asset is deemed to be a unit in a collective investment undertaking then one crypto asset would be one unit in the collective investment undertaking, representing the investors's rights to in that Collective investment scheme and the issuer would be the the the investment scheme.
Non-fungible tokens are not uh a financial instrument and don't fall under the scope of niid H but they're not a crypto asset either and are currently outside the scope of of MAA, also uh this doesn't mean that they will not be brought under the scope of Regulation at some points in in the future um which is could be likely but, in order for naset to be um deemed a nonf funable token it has to have unique characteristics and not be interchangeable so one uh non-f funable token should not be able to be traded for another uh similar token because their value ER shouldn't be equivalent.
I urge you to to have a look at it if it can affect you and respond don't underestimate the power of of of having a lot of people responding on particular issues because it will be taken into account especially if it helps achieve the desired outcome of providing regulatory certainty and avoid Divergent interpretations across the EU.
Whilst MAA does provide a lot of regulatory Clarity in the area of crypto assets it doesn't resolve all the issues, especially the ones raised today instead, it has passed the ball to esma uh for esma to provide the clarity and although esma has tried to provide the much needed uh clarification in some of these areas it does not fully achieve it in these guidelines in our view and the clock is ticking as we said MAA starts applying us from June this year for stable coins and, um uh later on at the end of the year for casps.
Transcripts
okay I think we're going to make a start
now welcome everyone to xr's webinar on
the recent guidelines issued by esma on
the qualification of crypto assets as
financial instruments this is part of
our series of maika webinars thank you
everyone for joining us for those of you
who have not come across it we produce
to summary with an initial analysis of
the guidelines uh and we will be posting
a link in the chat in case you want to
have a look at it as we all know this is
an area of a lot of uncertainty with
different interpretations across the EU
um these guidelines aim to help both
Market participants and Regulators in
their assessments of whether crypto
assets should be considered a financial
instruments much guidance which the
sector has been asking for a number of
years now
we know that there has been debate going
on for a while on this topic a survey
was undertaken approximately six years
ago where the conclusion was that
Regulators did not agree as to the
qualification of um whether crypto
assets should be considered financial
instruments the aim of this consultation
is to clarify that before we go into um
the the slides um I'm going to uh run
through a couple of housekeeping matters
the webinar will run for approximately
40 45 minutes we're believeing 10 15
minutes at the end for questions and
answers so if you have any questions
please post them in the Q&A button if we
have time at the end we may keep the
webinar open for for for a short while
longer to have a post webinar discussion
or answer any outstanding
questions in terms of the agenda I'll
give a quick introduction to xreg then a
quick overview of MAA miid and the these
guidelines uh then we'll um have a
couple of slides on the different assets
uh that are covered by these guidelines
at that point I'll pass on to my
colleague Anna who will be talking
through some of the key categories of
assets that are more problematic uh and
uh raise a lot of issues uh then she
will take you through some of the other
less contentious uh categories of assets
and finally we'll have next steps and
conclusion before we move on to the Q&A
so act Consulting we are a global public
policy and Regulatory Affairs
consultancy specializing in crypto
assets with a team of mostly former
regulators and policy makers uh with
practical experience in the development
of Regulatory Compliance strategies I am
Ernest Lima one of the founding partners
of xreg and um I am joined by my
colleague and senior consultant Anna
James who is part of the EU and M
team so a quick recap on on M in short
Mika is a a very comprehensive framework
for crypto Assets in the EU uh capturing
issuers of crypto assets and uh crypto
asset intermediaries known as casps
these include exchangers custodians
operators of trading platforms for
crypto assets
Etc the intention of Miker is to capture
all crypto assets that currently fall
outside the scope of any other uh EU
regime it is an EU regulation so it's
directly applicable so it achieves
uniformity as much as possible across
the EU mikar applies for
issuers as at uh the 30th of June of
this year and for casps as from the 30th
of December this
year a quick overview of methid so
methid is a marketing financial
instruments directive it's the EU
regulatory framework for Investment
Services and activities regulating
investment inter intermediaries
Securities markets trading venues all in
relation to financial instruments as you
all know financial instruments are
considered Securities in many
jurisdictions miid is an is a directive
and not a regulation meaning that the
text is not directly applicable as as
mik will be uh but rather member states
will need to transpose them into
national law it is therefore subject to
interpretation and different uh
approaches taken by jurisdictions Across
the EU one key area of discrepancy is
around the definition of financial
instruments which is the assets that are
covered by
miid so moving on to a quick explanation
of standards and guidelines that are
issued by uh the European supervisory
authorities in in the EU EU so these
standards and guidelines are are
produced to supplement EU
legislation they are normally made in
the form of regulatory technical
standards implementing technical
standards or
guidelines guidelines aim to provide
Clarity and guidance on the
interpretation and implementation of EU
regulations and are considered
authoritative interpretations by
regulators and Market participants alike
although not legally binding they carry
significant weight having indirect legal
effect and can be persuasive in
court the process after they are issued
in draft form normally follows a
consultation period during which a
industry can provide feedback and their
comments in this case esmer is
Consulting on the proposed guidelines
for the qualification of crypto assets
as financial instruments so it's
extremely important that if you're
affected by these that you respond to
the to the
consultation
so this is talking about the
consultation to date we all know that
there has been very little guidance uh
in this area leading to Regulators
treating crypto assets differently with
some considering finan considering some
crypto assets as financial instruments
and others not so a lot of uncertainty
for Market participants and not knowing
which regime would apply one of the main
objectives of these guidelines is to
provide this needed Clarity particularly
on whether it's methid or me that would
apply depending on the asset in
question just a point of clarification
these guidelines apply to all crypto
assets apart from stable coins so it
doesn't apply in relation to asset
reference tokens or e-money tokens once
finalized we hope that these guidelines
will promote convergence across the EU
and will be widely used by market
participants and Regulators to help in
their assessment of the assets in
question and determine which regime
should apply
so why are the guidelines needed in this
slide you can see that there are several
terms which are relevant for both
regimes either MAA or miid and they are
not defined in either that obviously
creates problems the guidelines are
trying to provide more clarity as to
what these terms
mean the holes in the boats that you see
on the slide represent these
definitional gaps so the guidelines are
aiming to plug these holes and Ensure
consistency or as much consistency as
possible in asset
classification another issue is that the
definition of crypto Assets in MAA is
very broad so a lot of assets could fall
within that
definition uh which does uh create an
issue and
uncertainty um since MAA since sorry
going on to miid 2 as I mentioned before
was transposed uh differently by each me
member State what encompasses a
financial instrument
has been interpreted and defined
differently by EU
countries so the guidelines are looking
to to provide that needed Clarity in
this
area
so in terms of classification of crypto
assets the guidelines do not provide a
standardized test for such
classification which is what MAA had
requested instead it provides criteria
and condition
to help determine such classification
Anna is going to be taking you through
some of these assets later on and going
through such
criteria it is important to clarify that
the technological rapper is not a key
factor for an assets classification
instead what matters and what needs to
be considered at all time are the assets
features design and
rights it is also important to emphasize
that a case-by casee assessment is
necessary taking into into account a
substance or form approach so you need
to look beyond the surface of the
formalities to understand the true
substance and economic impact giving
more waiting to the commercial reality
over the legal form or
structure so offerers or persons seeking
to admit admit sorry uh such assets to
trading who are primarily responsible
for the correct classification of the
assets will need to be looking very
closely at these guidelines
however also important to not is that
the classification can be challenged at
any point including
Regulators before I pass on to Anna I
just want to wanted to illustrate in
this Slide the different types of assets
that are relevant and are covered by
these gu guidelines and you can see
which ones apply under methid or under
MAA and which are outside of scope of EU
regulation at the
moment
on the in the next slide you will see a
visual representation of why these
guidelines are
necessary so miid is a starting point
the top level if assets if assets are
considered financial instruments they
obviously fall under the miid regime and
methid applies however because of the
different interpretations and the
different definitions that we've been
talk mentioned earlier on of financial
instruments specifically there is an
inconsistent classification of assets
meaning that the same asset could be
dealt with under miid or if not it falls
onto the next level and would be
captured by
MAA so this means that there there is an
inconsistent approach currently in place
in the
EU and now I hand over to
Anna thank you thank you very much erest
and good afternoon
everyone from the assets that are
covered by the guidelines we have
identified three that are that are the
most significant for for the assessment
and the correct classification given
that the conditions and criteria set out
in the guidelines would quite easily be
met by most or many crypto assets H but
before we look at at the key categories
identified and the rest of of asset
categories I thought it would be
important to look at the definition of
crypto assets under maika given
that the the guidelines build on from
that so crypto assets are defined in
maik as being a digital representation
of value of a value or a right that is
able to be transferred and stored
electronically using a DT or similar
technology as Ernest has already
mentioned uh very very wide um well the
definition is so wide that it could
apply to many many
assets and so the the classification of
these as financial instruments or other
types of assets is so
important H the criteria that would have
to be met in order for an asset to fall
under the the definition of a crypto
asset would
include that the asset is transferable
to other holders that it can be accept
that is accepted by players other than
the issuer or the
offerer that it is fundable so it can be
ER exchanged one token for another
without the value being different and
importantly that these types of assets
do not Grant Financial rights that are
linked to company profits capital or
liquidation
surpluses or voting rights in a
company's decisionmaking process we will
see how these criteria will very likely
be tricky given that it is not always
entirely clear what types of rights are
um linked to company profits and
likewise voting rights in a company's
decisionmaking
process H just to note that crypto
assets may be linked to certain profit
or government
rights and they could also provide
consumption and utility
rights so moving on to the to the
categories that we identified as as as
the most significant or the or the key
categories um transferable Securities
are the first the first asset class that
may be a little bit
problematic a transferable Securities
are defined under miid as those classes
of securities which are negotiable on
the capital market with the exception of
instruments of payment from this uh
definition a lot of the key terms
haven't been defined aren't defined
under mid or other um EU legislation or
or measures uh including for example
classes negotiability Capital markets
and instruments of payment which
highlight the importance of this type of
measure the guidelines
to provide more clarity and ensure that
all member states understand the same
thing for the same terms and and
definitions so in order for a crypto
asset to be deemed to be a transferable
security the criteria that has to be met
cumulatively is for it to be a part of a
class of Securities which would mean
that it is that the the token or the
asset has been issued by the same issuer
that it is interchangeable so the same
type of asset can be exchanged for
another of the same um unit or
or asset and that it provides access to
equal rights uh the rights that a
transferable security would normally
provide access to would include for
example dividend rights or um decision-
making rights in the company's um in
company Rel ated matters or a rights to
um liquidation surpluses or or
Capital the second Criterion for for a
transferable security classification to
be assigned is that the asset is
negotiable on the capital markets this
would mean that the asset can be
transferred or traded on Capital markets
and that it is funable so that it that
it can be exchanged for other of the
same types of
assets and lastly that it is not an
instrument of
payment H here the guidelines note that
the notion of an instrument of payment
which is not a defined term under miid
is not the same as the as that of a
payment instrument under another EU
legislation H which could make it diff
difficult to to to
differentiate
however not to meet the criteria to be a
transferable security this would be
applied in quite consistently throughout
different crypto
assets some of the some of the
challenges that we have identified for
this type of asset includes that the so
the criteria to the criteria that would
make an asset a transferable security
would quite easily be met by by crypto
assets and also there are areas where
distinguishing between one type of um
right and another one may not be as
straightforward so specifically in
relation to the types of rights that may
be granted by certain assets we have for
example it rights that are granted by as
a dividend
um which should be distinguished from
Financial rights that are not related to
a company's profits or liquidation Pro
surpluses if if a crypto asset grants
certain Financial rights that are not
related to company profits then that
would not bring it under the the the
scoper definition of a financial
instrument however the differentiation
there is not entirely clear or
straightforward as I just mentioned
similarly the voting rights that may be
granted by by an asset or a by a
financial instrument or a crypto asset
may also not be as clearly distinguished
so voting rights in the company's
decision-making process um compared to
voting rights on a project what is what
what is the difference between a
company's decision-making process and
decisions on a specific project in some
instances maybe quite clear cut but in
other instances uh the lines may be
quite
blurry moving on to the second Criterion
which is the one on negotiability on
Capital
markets ER most crypto assets will meet
the the the notion of negotiability
given that ownership of these types of
assets can be transferred quite easily
because of of the way they're issued um
on a
DLT and importantly the the concept of
capital markets which is not defined it
is it is unclear whether it is the type
of asset being traded in these types of
venues which defines whether the the
venue is um defined as a as a capital
Market or not meaning that incorrect
classification of assets could mean that
um financial instruments or crypto
assets that are not financial
instruments are in some instances traded
in capital markets so uh Clarity around
that would would be beneficial and
lastly on the on the on the ER concept
of capital raising and how this needs to
be a consideration to determine whether
something is available to be traded on a
capital Market Capital raising in the
traditional World um could be similar to
fundraising through uh crypto asset
issuance so a little bit more clarity
around this area would be would be
beneficial for for Market participants
and for National competent
authorities um I think we can move on to
the next Slide the second asset category
that we we identified as significant are
derivative
um derivative contracts are are are a
type of financial instrument which
um ref makes reference to an underlying
asset so the criteria that needs to be
met by a crypto asset for it to be
brought under under this category is
that the crypto asset is a digital
representation of a contract um the
value of which is determined by an under
underlying reference and that underlying
reference may be an asset a rate an
index an industry an instrument sorry a
commodity including a crypto asset a
basket of crypto assets and um indexes
on crypto assets H so the guidelines do
clarify that crypto derivatives were the
only um aspect of a crypto asset is the
underlying asset remain Financial
instrument
and the other criteria is that the value
when the value of the reference changes
the value of the derivative contract
changes in line with those
changes and finally these types of
assets are are settled um in either cash
or physically and this is the this is
the point where where industry was
expecting a lot more clarity around H
however as we will see now this this
point remains unclear where settlement
is neither in cash or
physically H but crypto derivatives are
settled in crypto assets and just
quickly to note that an indicator which
is not strict criteria for the
classification of assets as derivatives
is whether an agreement with terms
maturity and and other um elements are
are present then this would be a an
indicator that an asset could
be deemed to be a a
derivative the challenges we've ENT with
the challenges and and the point that I
just mentioned around settlement is a
big one and an issue that has been ER
problematic for for a long time now most
uh crypto exchanges make crypto
derivatives available to be traded and
given this uncertainty crypto
derivatives settled in crypto assets
have continued to to not necessarily
fall outside the scope of mythd but
haven't been captured by by myid and the
guidelines don't provide Clarity around
whether they will fall under myid or
whether they will be considered crypto
assets the a crypto asset of course does
not meet the notion of cash and uh or a
physical asset and there is um there is
no appetite for for crypto assets to be
brought under the notion of cash so this
will continue to be um a a tricky aspect
and and something that will require a
lot more clarity and guidance
on if the guidelines if if guidelines in
future which which are expected to to
deal with this point specifically it
deem that crypto asset derivatives
settled in crypto assets are financial
instruments then that will have a huge
impact given that most crypto exchanges
operating in Europe will be at present
in breach of of um EU requirements given
that these types of assets would
necessarily require a a myid license to
be made available or in traded in in
these
platforms so if uh just to to wrap up
that the the challenges on derivatives
if a crypto um exchange offers spot um
exchange and also derivatives as a Casp
will it then need to apply for a myid
license or what will the the Practical
issues U
be moving on to to hybrid tokens and the
third key category identified from from
the asset categories available
and H hybrid tokens are assets that have
both the qualiity components and
property um purposes of a financial
instrument and a crypto asset um and the
guidelines make it clear that wherever
there is the financial instrument uh
quality purpose component that that one
will take precedence always so hybrid
tokens if if
they're at any point considered hybrid
meaning that it they have both H
characteristics they will always be
dealt with uh as a financial instrument
and subject to methid
rules er issuers um should not use
marketing materials or other materials
to misrepresent these assets and er if
in cases where there are characteristics
akin to crypto assets those must not be
PR presented as the predominant ones and
National competent authorities are
reminded that they should not rely on
labels assigned by
issuers some of the challenges with uh
hybrid tokens include um the the primary
uh challenge would be where the
token changes through its life cycle so
not so much for assets that are deemed
as fincial instruments from the outset
so if something is issued as a financial
instrument and then somewhere down the
line it's properties change that
wouldn't be as problematic because it
would already be um complying with with
mhid rules however if a crypto asset is
issued as a crypto asset because it
doesn't meet the the criteria or
conditions to be seem to be a financial
instrument and it changes over time then
this could be quite problematic because
uh if at any point the asset is deemed
to be a financial instrument but it has
already been issued and it's already
been admitted to trading in crypto asset
trading platforms then what are the
practical issues if the asset has to be
delisted what will be the impact on on
holders H and importantly access to
crypto assets and trading and access to
traditional uh market trading isn't the
same so some holders May no longer be
able to access these uh assets that are
now available
under traditional uh trading
venues uh
another important question that hybrid
tokens and their classification their
correct classification percent is
whether crypto asset service providers
that operate Trad platforms will be
willing to take the risk of listing
certain things that may change over time
and whether they will have the the
appetite to build processes for to
monitor the types of assets traded on
their platforms on an ongoing basis to
make sure that at no point these assets
are more um akin to a financial
instrument and therefore should no
longer be offered under those types of
of trading trading V in sorry um
platforms crypto asset trading
platforms moving on to the other asset
categories which are still relevant
however it may not the the criteria and
conditions set out in the guidelines um
leave not as much room for
interpretation as the others and um
meaning that crypto assets that need to
fall under this criteria would would be
would be categorized as such
with with less issues the first are
money market instruments so money market
instruments represent short-term uh debt
commitments and that are
negotiable um and are issued by either
governments or firms the criteria that
money market instruments um must meet is
that they have legal and residual
maturity their value is stable with
minimum volatility and they align
returns with short-term interest rates
examples of money market instruments are
treasury bills certificates of deposit
and Commercial paper um and as mentioned
uh crypto assets that have these uh
characteristics would quite easily be
brought under the money market
instruments it's it's unlikely that many
would would meet this
criteria the second the second asset
type that is covered by the guidelines
and that could also be be one under
which certain crypto assets fall under
are units in Collective investment
undertakings um if a a crypto asset is
deemed to be a unit in a collective
investment undertaking then one crypto
asset would be one unit in the
collective investment undertaking
representing the investors's rights to
in that Collective investment scheme and
the issuer would be the the the
investment
scheme the criteria that a crypto asset
would need to meet in order to be deemed
to be a usit is that the cap that
capital is raised from from token
holders or or issuance and is pulled to
be invested with the objective of
generating a pulled return for the token
holders or the investors the the scheme
would have no other commercial or
Industrial purpose but to invest the
pulled funds and generate a pulled
return and the token holders or
investors would not have a say in the
day-to-day management of the of the
scheme uh a CIS manager would invest the
funds as defined as defined in an
investment policy and there would be no
other uses for the for the
entity um the guidelines clarify that
diversification or liquidity are not
strict criteria for an asset to be
classified as a unit in a collective
investment
schem there is a a there's a point to
raise here and it is that there has been
some um there has been a bit of lack of
clarity or a potential risk raised when
it when it when it comes to staking so a
lot of companies companies offer staking
services with other companies and
there's always been the question of
whether pulling um token
holders' assets to then stake with a
with a separate entity could be
considered or could be bring the assets
under this category but um given the
criteria and conditions set out in the
guidelines we think that it is less
likely that um questions remain so
so the criteria is quite helpful in that
sense the last uh Financial instrument
um asset type covered by the guidelines
are emission
allowances and the guidelines specify
that it's quite unlikely that a crypto
asset would be deemed to be an emission
allowance uh the criteria to be met in
order for a an a cryptoasset to
be considered an emission allowance
would be that it represents a right to
emit a specified volume of greenhouse
gases that it is tradable and complies
with EU emissions trading scheme or
equivalent they are endorsed by the EU
or member states and they symbolize an
approved
unit um again these are not this one is
not um too Troublesome and although we
we see that
anything relating to energy will become
more tradable and there will be more
markets of for for the these types of
assets and also that tokenized emission
allowances may may be the most efficient
way to to trade these types of assets um
as erist has mentioned before the
technology the technological rapper is
not a key consideration and tokenized
emission allowances would remain uh
financial instruments under
myth and now
non-fungible tokens are not uh a
financial instrument and don't fall
under the scope of niid H but they're
not a crypto asset either and are
currently outside the scope of of MAA
also uh this doesn't mean that they will
not be brought under the scope of
Regulation at some points in in the
future um which is could be likely but
in order for naset to be um deemed a
nonf funable token it has to have unique
characteristics and not be
interchangeable so one uh non-f funable
token should not be able to be traded
for another uh similar token because
their value ER shouldn't be equivalent
the value of a non-f funable token must
be linked to the individual
characteristics and utility conferred by
that specific asset and the value should
not be influenced by other non- funable
tokens in particular when we talk about
a collect ction of assets um where nonf
funable tokens are issued as part of a
collection this may be an indication
that the that the assets are not not
funable uh particularly when it's a a
big collection and also importantly the
the guidelines specify that where the
utility or access rights by a
non-fungible tokens are equal regardless
of of one nonf funable token and its
value being different to another if that
utility and access rights are exactly
the same for practical purposes it could
be considered to be
fundable so uh lastly just to to finish
off on on nfts if a if a if a nonf
funable token is fractionalized then
those fractions of the token are deemed
to be fungible and should be dealt with
as crypto assets under
M I will hand back over to to Ernest who
will talk to us about next steps and
just some concluding remarks thank
you thank you very much Anna that's
really interesting um so we've heard
Anna highlight some of the key
challenges and impact that are specific
to to some type of assets particularly
derivatives transferable Securities and
hyb hybrid tokens but we know there are
others
um there's also other challenges for
example challenges for Regulators uh
there are some that will lack capacity
or expertise to make their assessment as
to what is what and um how how they
should be classifying such assets
particularly if some areas of guidance
uh some of the the the less clear areas
that have been uh identified in today's
webinar are not clarified or updated in
the revised
guidance um another issue would be that
Regulators may be inclined to ear on the
side of caution and
um and consider um or treat crypto
assets as financial instruments because
that is what they they are more
comfortable with um and then that that
would be a wrong classification in some
cases um the MAA also uh provides the
ability for competent authorities
Regulators who that are unsure about the
classification of an asset to request an
opinion from the European supervisory
authorities this could be a challenge
for European supervisor authorities who
may be flooded with such requests and
they would only have 15 days to provide
such an opinion to to the regulator that
has requested it um there's obviously
also challenges for issuers of of assets
and uh and crypto asset service
providers when required to make their
own assessment and and when looking at
changes of of a particular assets like
an I was mentioned before if it's a
hybrid token
um how do you classify it uh when when
there are changes to a particular one
and what what when when does it trigger
uh what regime should apply um we all
know that uh lawyers will get involved
and uh lawyers will inevitably be be
creative when interpreting some of these
um particularly some of the more
subjective elements of these guidelines
which will inevitably lead to um a lack
of harmonization in in some of these
areas um there's also challenges around
passporting so if you're a firm that is
authorized under MAA in a particular
jurisdiction because your assets have
been classified as crypto Assets in that
jurisdiction can you passport into a
jurisdiction where that might be
considered a financial instrument that
particular asset that is a a risk that
the host state in that case might not be
comfortable with an inward passporting
of a firm where it is not licensed under
under Ma so there is scope for
regulatory Arbitrage because of this
unless all of this is clarified um
there's also questions of whether firms
should seek a methid authorization
instead of a m authorization we all know
that there are challenges in in miid
there are some areas that don't work um
for crypto assets
hence a creation of the pilot regime
regulation um there are also some
requirements in miid that are very owner
for example around transaction reporting
but if you get a miid license uh you
could notify your home state regulator
and top up your your authorization to
provide crypto Asset Services so that's
an advantage so there's pros and cons uh
but there are risks of of only having a
m license where a crypto asset could
then be considered a um a financial
instrument as Anna has
highlighted um so in terms of next steps
I think everyone agrees that there is a
need for a common understanding in the
EU uh on on this subject um The Hope was
that esma um clarifies some of these
points in in the guidance which which it
does to some extent but as highlighted
today there are some areas of
uncertainty
um the consultation period closes by the
29th of mar of April sorry this year so
I urge you to to have a look at it if it
can affect you and respond don't
underestimate the power of of of having
a lot of people responding on particular
issues because it will be taken into
account especially if it helps achieve
the desired outcome of providing
regulatory certainty and avoid Divergent
interpretations across the EU
will we see some updates to to Mii too
I yet we're yet to see that um we know
that um the definition of financial
instruments we as we've said various on
various occasions D today is has been
defined differently uh by uh different
uh member states there is a need for
consistency on that so we are likely to
see some updates at some point on on
miid um and we are also expecting some
joint joint guidelines by the European
supervisory authorities on the content
and form of legal op and legal opinions
on the qualification of asset reference
tokens as I said before asset reference
tokens are outside scope of these
guidelines um but there will be
additional guidance which we are
expecting later this
year and
to to have some concluding remarks
whilst MAA does provide a lot of
regulatory Clarity in the area of crypto
assets it doesn't resolve all the issues
especially the ones raised today instead
it has passed the ball to esma uh for
esma to provide the clarity and although
esma has tried to provide the much
needed uh clarification in some of these
areas it does not fully achieve it in
these guidelines in our view and the
clock is ticking as we said MAA starts
applying us from June this year for
stable coins and
um uh later on at the end of the year
for casps you need to consider if you're
a Casp and if you are a Casp which
license would you go for do you need a
miid license do you need a m license if
you are an issuer what do you what do
you do do you follow the issuance regime
and the MAA or the traditional
Securities issuance regime following the
prospectus regulation and other existing
Financial Services legislation there are
clearly some fundamental questions which
remain
unanswered so have a look at the
guidelines have your say respond to the
consultation because it's extremely
important and that's the end of the of
the
webinar I think we got a few questions
um if you have any other questions
please pose them on the
Q&A we've got well we've got one
question here from an anonymous ATD he's
asking or she's asking on the global
stage postm we might find that
jurisdictions will handle crypto assets
as financial instruments and others
don't that don't do you see a need for
greater harmonization in the
categorization of crypto assets by
financial
markets definitely right Anna absolutely
I I think that's that's that we've been
talking about it in the context of the
EU uh but it equally applies in in a
global stage crypto assets as everyone
knows have no borders um transactions
are are happening every day across
multiple jurisdictions numerous
transactions very quick transactions so
there is a need for a greater Global
harmonization in this area
definitely I agree there's another
couple of questions we do y let me just
check uh second question
uh we've got another question here is
there a risk that decision making rights
provided by defi governance tokens makes
some of the financial instruments do you
want to take one yes absolutely this is
um this is one of the the interesting
ones and very um relevant because where
where there are certain rights attached
including the decision making making um
rights uh some some of these um
governance tokens issued that may be
cryptos at some point H the rights that
are are granted may change over time and
spe specifically in in dii platforms if
a governance token then um it allows
holders to make votes regarding certain
things uh
including certain decision making that
is not clearly delineated between um
a company specific decision making and
other decision making then this this may
bring them under the category of of
financial instruments and it absolutely
more clarity around this point would be
would be very
welcome thank you Anna um we got another
question from from Patrick um uh given
that the financial instrument
classification is contained in several
pieces of national legislation how will
European author authorities provide
feedback on rules that may apply very
differently across the EU that's a very
good question and which is why uh we
mentioned that there will be a need for
some consequential amendments to some
pieces of legislation for example we
talked about miid 2 and it's a directive
and it allows for uh National
legislation to to interpret things
differently and and Define things
differently which is exactly what's
happened so we are likely to see um more
EU regul more um EU Frameworks for
financial
services converted into EU regulation so
that there is that level of consistency
particularly in some key areas such as
defined terms which have a major impact
on whether or not a particular
instrument Falls within one regime or
another um so I think there was there
has been some debates about some of
these areas of discrepancy for for a
number of years now with MAA coming in
into play very soon there's going to
have to be some changes to make sure
that we we we plug whatever gaps are
there and ensure as much consistency as
possible and thank you elizabeta for
posting the the link to the to the
guidelines um to the consult yeah the
guidelines for consultation that's
right um we've got another question here
um has the EU issued any specific
guidance on the oranization of real
world assets or risk weighted assets I
think maybe maybe the the I I'm not sure
that there has been anything on on risk
uh real world assets uh the I don't
think that guidelines have been
in
published on on real world assets H
there have been a few um papers perhaps
um but nothing nothing specific that we
could point at at this
point another question has come through
from Patrick again so how will nca's in
common law jurisdictions adapt their
Frameworks to comply with the EU civil
law harmonization of Financial Services
legal framework um again another another
very good question and
um coming back to a point that I
mentioned earlier on I think even in
common law jurisdictions um if uh the EU
changes their approach in the way that
they Implement some of these um
Frameworks they will have to implement
um regulation regulations for example
and won't have the ability to to
derogate from certain provisions and
apply or or take a different stance I
think that that will help um there are
there is that conflict between common
law and civil law jurisdictions which is
which might be a sticking point um but I
think the best way to resolve that is to
ensure that things are done by by way of
directly applicable regulations uh which
will avoid um uh that that level of of
discrepancy
anybody any other I think that that's
the last question that we had um but um
if anyone has any any other question
feel free to raise your hand very happy
to give you the floor to ask uh any any
any further
questions likewise um we said we were
going to post the the link to our mini
explainer of the of the um of the draft
guidelines I can't see it yet but if not
we will um we will we will post it
shortly anything else
anyone
no
great there's sorry this's been a
another
post resar tokenize this yeah thank you
very
much yeah there's
a some research on on token I Europe
2025 which has been posted and we've
just posted the link to our our
explainer which you can you can have a
look at thank you very much everyone
once again for attending thank you
Anna thank you
everyone
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