The European Securities and Markets Authority (ESMA) has proposed new guidelines that could significantly affect the activities of non-EU-based Bitcoin and crypto companies within the European Union.
The proposal aims to prevent unfair competition by imposing strict restrictions on these companies when providing direct services to EU customers.
The move comes after the EU introduced the world's first comprehensive crypto market regulations, known as the CryptoAsset Markets (MiCA) framework, last year. The MiCA framework represents an important step in regulating the online crypto sector, which has traditionally been difficult to regulate due to its cross-border nature.
ESMA's latest proposals, currently open for public comment until the end of April, aim to clarify how the MiCA framework should be applied in practice, particularly in relation to cryptoasset firms outside the EU. According to ESMA's statement, firms outside the EU can only provide crypto asset services to EU customers if the customer initiates the service exclusively; this is a concept known as 'reverse demand', which is already part of other EU financial laws.
The agency explains that this exemption should be interpreted narrowly and seen as an exception rather than the norm. This stance could force many foreign crypto firms to establish a physical presence within the EU, such as opening a branch or subsidiary, to comply with the union's regulations.
ESMA and national regulators in the EU have said they are committed to protecting EU-based investors and MiCA-compliant crypto asset service providers from non-EU entities that do not comply with the same standards. Direct solicitation of business within the EU by non-EU companies, including marketing campaigns, is strictly prohibited under these proposals.
Additionally, ESMA proposes guidelines for determining when a crypto asset should be classified as a “financial instrument” such as a share or bond. If classified in this way, these assets would also fall under the EU's Markets in Financial Instruments Directive (MiFID) rules, adding another layer of regulatory oversight.
*This is not investment advice.