This article first appeared as Blog post at FIN-LAW.
With the Markets in Crypto Assets Regulation (MiCA), the European Union has created an independent set of rules for the commercial handling of crypto assets that is directly applicable in all EU member states. The text of the regulation is already very comprehensive and detailed. Nevertheless, in many places it is necessary to develop a common approach to ensure uniform interpretation by the authorities in the member states. For this reason, many provisions of MiCA require the European Securities and Markets Authority (ESMA) to develop interpretative guidance, consult with market participants and publish it. ESMA also has such an obligation with regard to the exemption regulation that sets out the alternative relationship between MiCA and MiFID2.
The exemption stipulates that the provisions of MiCA should not apply to a crypto asset that meets the requirements of a financial instrument within the meaning of the MiFID2 regulation. The problem is that in the period before the MiCA was adopted, the member states developed and applied very different administrative practices in their interpretation of when a financial instrument exists under MiFID2. The fundamental question of whether the MiCA or the MiFID2 regulation should apply to a token in the future therefore requires a uniform interpretation, which should be made possible with the guidelines to be developed by ESMA.
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Technology-neutral approach and “substance or form” principle for determining the relevant regulatory regime
ESMA had already published a draft of the guidelines to be developed in this regard in January 2024. ESMA had given market participants the opportunity to comment on its draft by the end of April. ESMA must have published the final guidelines by December 30, 2024, i.e. by the day on which MiCA is fully applicable. In its consultation draft, ESMA first makes it clear that the question of classifying a token as a financial instrument should in any case be technology-neutral. The type of tokenization and the technical design are therefore in the background. Rather, the decisive factor should be the properties, design and rights associated with the token.
According to ESMA, this “substance over form” approach, which is also reflected in Recital 14 of MiCA, makes it clear that the determination of the legal nature of a token as a MiCA or MiFID2 product must not be based on the technical shell of the product. However, the technical design will still be relevant for legal practice. This is because it will still play a role in the assessment of whether a product is actually a crypto asset within the meaning of MiCA. Only then can it be examined in the second step whether this crypto asset is a MiFID2 product in terms of its substance.
When can tokens be classified as transferable securities under MiFID2?
Financial instruments within the meaning of the MiFID2 regulation are, in particular, transferable securities. The term primarily refers to bonds, shares and other securities, for example for embedding derivatives. MiFID2 itself sets out three criteria to define a transferable security that a product must meet in order to be classified as a transferable security. Firstly, the product must be part of a “category”. This means that the product must be part of an overall issue, which ultimately justifies its interchangeability and thus its tradability on the capital market. The latter is the second prerequisite for the existence of a transferable security.
ESMA does not only want to understand this to mean traditional stock exchanges and regulated markets, but also, like BaFin in Germany, all trading venues where corresponding products can be traded. Finally, according to the definition contained in MiFID2, the product must not be a payment instrument. If these requirements are met, tokens should be classified as transferable securities according to ESMA and thus subject to MiFID2 regulation. The provisions of MiCA are then not applicable to such tokens, even though they also meet the definition of a crypto asset according to MiCA.
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