The bloc also moves to tighten rules for outsider firms.

The European Securities and Markets Authority (ESMA) is seeking public input to shape the criteria for categorizing cryptocurrency assets as financial instruments, as part of the ongoing regulatory efforts in the European Union.

This decision to put the issue for public consultancy comes in the wake of the EU Parliament's approval of the Markets in Crypto Assets (MiCA) regulations in August last year, signaling a significant advancement in crypto market regulation within the bloc. 

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The ESMA acknowledges the challenge of applying a standardized test to define what qualifies as a financial instrument, especially given the absence of a universally applicable definition in the Markets in Financial Instruments Directive (MiFID). 

The authority underscores the need to assess whether a crypto-asset represents a digital form of value or rights, transferable and storable through Distributed Ledger Technology (DLT), and whether these aspects establish a right in relation to the issuer.

This regulatory consultation coincides with a period of substantial growth in the European crypto market, with projections suggesting a potential annual revenue of 18.5 billion US dollars by 2028. A Binance survey indicates a robust optimism among European citizens about the future of crypto, with approximately 73% expressing positivity and nearly 55% incorporating crypto into their everyday transactions. 

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ESMA's initiatives align with the broader EU goal of achieving regulatory clarity in the crypto space. Recent amendments to anti-money laundering laws require entities to report crypto transactions exceeding 1,000 euros.

The proposal is currently open for public consultation until late April and is expected to be finalized by the end of 2024. It explicitly prohibits active business solicitation in the E.U. by third-country firms, including marketing campaigns within the 27-country bloc.

Additionally, a non-EU firm cannot use any exemption to offer further services beyond the original transaction’s context.

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