EU strengthens control over crypto companies outside borders

The European Union (EU) is taking strong action with new directives for cryptocurrencies. From now on, firms based outside the EU will have to adhere to strict conditions to serve European clients. These measures aim to prevent unfair competition and to enhance the security of investors.

Crypto: A New Rule within the Bloc

The European regulator, ESMA, is setting up precise rules for crypto services. Non-European companies can now operate in the EU only if the client expressly requests it. This initiative, known as “reverse solicitation“, is already familiar in other EU financial laws. It indeed forces foreign firms to consider opening a branch within the bloc.

The goal? Protect investors based in the bloc and crypto service providers that comply with the MiCA regulation.

The proposal is open for public consultation until the end of April. Then, the final text is expected to be published by the end of 2024 at the latest.

The ESMA proposals underscore a limited application of crypto services by third-country firms. Only direct client requests will allow circumventing these restrictions. This exemption is considered an exception. This demonstrates the bloc’s firmness in the face of external competition.

Towards Regulatory Integration

ESMA and national regulators are committed to taking all necessary measures. Their goal? Protect EU investors against unwanted incursions by firms not complying with the MiCA regulations.

Active solicitation, including marketing campaigns in the EU, remains prohibited for third-country companies. Thus, the bloc strengthens its regulatory framework for cryptos, with a clear vision of protecting its citizens and financial markets.

A second part of the proposal sheds light on the classification of crypto assets. Indeed, some could be considered as “financial instruments“, just like stocks or bonds. The EU would then subject these assets to MiFID rules. This illustrates the bloc’s desire to effectively regulate the crypto market and ensure flawless oversight.

The European Union is determined to protect its market. External companies will thus have to abide by these rules or consider physically establishing themselves within the bloc. This major change will likely have a profound impact on the crypto industry.