New cryptocurrency watchdog in the European Union

The European Securities and Markets Authority (ESMA) added a line for over 1MM euros in its 2019 budget. This budgetary provision will be used to monitor the fintech and cryptocurrency industry in Europe. This announcement was made via a 34-page report entitled “2019 Annual Work Programme”.

Under section 4.2.3 – Financial Innovation and Product Risk Analysis, ESMA explains the two objectives for the budget:

“Achieve a co-ordinated approach to the regulation and supervisory treatment of new or innovative financial activities and provide advice to present to the EU institutions, market participants or consumers. Implement the framework for the use of the product intervention powers provided by MiFIR.”

To achieve its goals, ESMA will specifically monitor the financial activities of retail investors, “with a particular focus on financial innovation, including fintech and crypto assets”. As such, the organization will also be in a position to identify problems or risks in these areas.

Armed with new information and research, the Authority will be well-poised to develop decision-making and intervention strategies.

ESMA’s past relationship with cryptocurrencies

ESMA has passed official policies on cryptocurrencies throughout 2018. Notably, in March 2018, the institution agreed on a temporary regulatory document that contained intervention measures. These were highlighted in the provision of Contracts For Differences (CFD), which included cryptocurrencies.

Earlier this year, ESMA also indicated that both cryptocurrencies and Initial Coin Offerings (ICOs) would be part of the European Union’s regulatory agenda. It has previously issued warnings to investors and companies about ICOs, stating, “there is a risk of losing all the capital invested because ICOs are a type of speculative and high-risk investment.”

With the announcement of this new budget line, ESMA will gain a closer understanding of how the crypto market evolves as well as the behavioural tendencies of European crypto investors. As such, it will look to establish a viable legal framework for digital currencies in the region.