On 19 October 2018, the European Securities and Markets Authority (ESMA) published its Securities and Markets Stakeholder Group (the Stakeholders) own initiative report on initial coin offerings (ICOs) and crypto-assets. The report has been produced by the Stakeholders to advise ESMA on steps it can take to manage the risks of ICOs and crypto-assets on top of existing regulation.

Following a fact-finding exercise on ICOs and crypto-assets, and a cost-benefit analysis of potential routes of regulation, the Stakeholders provide ESMA the following advice.

Firstly, level 3 guidelines should be produced to enhance supervisory convergence on the:

• interpretation of the MiFID II definition of ‘transferable securities’, and clarify whether transferable asset tokens which have features typical of transferable securities are subject to MiFID II and the Prospectus Regulation;
• interpretation of the MiFID II definition of ‘commodities’, this is key to determine whether an asset token with features typical of a derivative is a MiFID II financial instrument;
• interpretation of the multilateral trading facility (MTF) and organised trading facility (OTF) concepts, clarifying whether the organisation of a secondary market in asset tokens which qualify as MiFID II financial instruments is indeed an MTF or an OTF;
• fact that when issuers of asset tokens are to be considered to organize an MTF or an OTF in accordance with the above, the market abuse regime applies, to such MTFs and OTFs; and
• fact that in all situations where an asset token is to be considered a MiFID II financial instrument, persons giving investment advice on those asset tokens or executing orders in those asset tokens, are to be considered investment firms, which should have a licence as such, unless they qualify for an exemption under MiFID II.

Secondly, the Stakeholders urge ESMA to send a communication to the European Commission requesting that asset tokens (as outlined in chapter IV.2.c of the report) be added to the MiFID II list of financial instruments. If such tokens were added to the MiFID II list of financial instruments, advisors in respect of such tokens would consequently become subject to MiFID II.

Finally, given the use of sandboxes and innovation hubs in the development of the ICO / crypto-asset sphere, the Stakeholders urge ESMA to provide guidelines with minimum criteria for national authorities which operate or want to operate a sandbox or innovation hub.