The Financial Services and Markets Authority (FSMA), the Belgian regulator, is seeking comments on its communication on the classification of crypto assets as securities, investment instruments or financial instruments. Aimed at issuers, offerors and service providers, the agency’s communication will serve as guidance to the existing order until European regulatory harmonization is achieved.
The communication is meant to address frequently asked questions and is not exhaustive. It is accompanied by a stepwise chart to help its readers determine the classification of an asset.
Crypto assets that are incorporated into an instrument, as is generally the case for assets that are exchangeable or fungible, may be classified as securities under the European Union (EU) Prospectus Regulation or as investment instruments under the EU Prospectus Law. In those cases, MiFID (Markets in Financial Instruments Directive) rules of conduct apply.
If an asset has no issuer, as in the case of Bitcoin (BTC) or Ether (ETH), where the instruments are created by a computer code that does not give rise to a legal relationship, then in principle the Prospectus Regulation, Prospectus Law and MiFID rules do not apply. When the European Union Regulation on Markets in Crypto Assets (MiCA) takes effect, trading platforms will be required to issue white papers for issuer-less tokens.
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The classification chart is straightforward, if not conclusive. An asset incorporated into instruments that represents the rights equivalent of a share in profits or losses or a payment is a security if it is transferable and an investment instrument if nontransferable. If the asset represents the right to delivery of a service or product, it is an investment instrument if it has investment characteristics, according to case-by-case analysis.
FSMA also warned that, regardless of the classification of an asset, it will be subject to additional laws as well, such as rules governing virtual asset service providers. Comments on the communication and chart are welcome through July 31.