The Markets in Crypto-Assets Regulation (MiCA) came into force on 1st January 2025. To ease the application of MiCA, ESMA published some final guidance on the conditions and criteria for the qualification of crypto assets as financial instruments, on 17 December 2024 (the ESMA Report).
Pursuant to article 3.1 (5) of MiCA, a crypto asset is “a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology”.
The regulation also clarifies that it does not apply to crypto assets that qualify as financial instruments.
A straightforward initial approach would be to consider that where crypto assets do not fall within the scope of other EU legal frameworks applicable to financial instruments, such crypto assets are likely subject to the MiCA framework. However, whilst MiCA aims at providing a regulatory regime for crypto assets, it does not cover all types of crypto assets.
One of the key issues is that there is no uniform definition of financial instrument. The concept is determined through a specific list of instruments outlined in Annex I Section C of the Markets in Financial Instruments Directive II (MiFID II), rather than a distinct set of conditions and criteria to be applied to any given instrument. This leads to different approaches as to what qualifies across the Member States and means that certain “crypto assets” qualify as “financial instruments” under MiFID II and are therefore excluded from MiCA.
So, to try to provide some clarification and to help the market distinguish the two, the ESMA Report sets out guidelines which can be applied to determine which crypto assets should be considered as financial instruments (and therefore should be subject to MiFID II) and which are not (and therefore may be governed by MiCA). The clarification is crucial as the applicant to a MiCA licence has to determine which regime applies.
The ESMA Report emphasizes the principle of technological neutrality, which should always take precedence, to ensure that equivalent activities and assets are subject to the same or very similar standards regardless of their form and to ensure that the classification of crypto assets is based on their inherent characteristics. For example, based on this principle, the process of tokenisation of assets which fall within the definition of “financial instruments” should not affect their classification. Tokenised financial instruments should generally continue to be considered as financial instruments for all regulatory purposes
In addition, the ESMA Report states that whether or not an instrument is a “transferable security” (for the purpose of MiFID II) should be taken into account when assessing a crypto asset.
To qualify as a transferable security, three cumulative conditions need to be met: the asset must (i) not be an instrument of payment; (ii) form a class of securities and confer on its holders similar rights to those attached to securities; and (iii) be negotiable on the capital markets.
Taking each of these in turn:
Whilst MiFID II does not provide a definition of “instrument of payment”, a crypto asset which is used as a medium of exchange should be considered to be an instrument of payment.
To determine whether crypto assets form a “class” for these purposes it needs to be determined whether: (i) they are all issued by the same issuer; and (ii) they are interchangeable, i.e. giving access to the same rights (the ESMA Report gives the example where tokens are interchangeable and grant holders equivalent voting rights and dividend entitlements, but other rights may also include rights over a portion of company’s assets or rights to liquidation proceeds).
A crypto asset should be considered to be negotiable where it is capable of being transferred or traded freely; it does not actually have to be traded.
Whilst the ESMA report has undoubtedly brought some clarity and provided much needed guidance to national competent authorities when determining whether a digital asset comes under the “crypto asset” definition in MICA, or the “financial instrument” concept of MiFID II, there is room for interpretation, meaning that the classification of certain digital assets may still be unclear.
Dorothée Ciolino is counsel at Norton Rose Fulbright Luxembourg. The law firm is a member of the panel of experts of Investment Officer Luxembourg.