European securities authority proposes strict rules for crypto firms based outside of the EU

The European Securities and Markets Authority (ESMA) recently presented a proposal that could have a heavy impact on how crypto companies based outside of the EU member nations might operate within its borders moving forward.

If the new guidelines end up being accepted, crypto companies headquartered in non-EU countries could face extremely strict limitations if they attempt to provide their services to EU customers. The newly proposed guidelines were designed to prevent unfair competition, and they come after the European Union enacted the world’s first comprehensive crypto market regulations last year.

The framework introduced in 2023, known as the Markets in Crypto-Assets (MiCA), represents a big step for the EU’s efforts to regulate the crypto sector. Historically, the sector avoided past attempts to establish firm rules thanks to its cross-border nature and decentralization of crypto projects.

EU begins sorting MiFID-regulated securities out of crypto assets

The European Securities and Markets Authority (ESMA) released two consultation papers on Jan. 29 pertaining to its mandate to create standards and guidelines for the implementation of the Markets in Crypto-Assets…

— Ashley Ord (@ashord69) January 30, 2024

Foreign crypto firms’ capabilities in the EU will be quite limited

For the time being, ESMA’s new proposal remains open for public consultation, and it will remain open until the end of April 2024. ESMA intends to use it to clarify how the MiCA framework can and should be applied in practice, particularly for non-EU crypto firms that wish to operate in EU countries.

ESMA also said that these firms can only provide crypto asset-related services to EU customers if the clients exclusively initiate the service. This is known as reverse solicitation, and it actually already exists as part of the financial laws in the European Union.

The regulator further explained that this exemption should be interpreted narrowly and that it should be considered an exception and not the norm. The stance could result in foreign crypto companies establishing a physical presence in one of the EU member nations, most likely by opening a new branch or establishing a subsidiary.

This would be the easiest and most effective way to comply with the new rules if they are adopted into the EU financial law.

ESMA to remain focused on protecting the EU-based companies and investors

In the meantime, ESMA and individual national regulators remain committed to protecting EU investors and crypto asset service providers compliant with MiCA from foreign crypto service providers until the foreign firms adhere to the same standards.

For now, direct solicitation of businesses within the EU by non-EU companies is strictly prohibited, and that includes even marketing campaigns.

Also, the use of the exemption by foreign crypto service providers in EU countries is, and will remain restricted, without the possibility of extension to add more services unless if they are in the same context as the original transaction.