The Financial Service and Markets Authority (FSMA), Belgium’s chief financial regulator, has called for comments on its proposed step-by-step guidelines to determine which digital assets are securities, investment instruments, or financial instruments.
In a communique, the regulator laid out its thoughts on how to go about the classification. The paper also suggests which existing regulations each classification of the assets will fall under.
The first step to classifying a digital asset, as laid out by the FSMA, is to determine if they are “incorporated into an instrument”—if they are fungible or exchangeable. Assets that are not incorporated into an instrument are not securities and fall under the EU’s Prospectus Regulation.
Where they are incorporated into an instrument, their categorization may depend on one of two situations in relation to their issuer. For one, the instrument may represent an investor’s voting right in a project or a right to a certain amount of return.
In such cases, if the asset is transferable, it qualifies as both a security and a financial instrument. The Prospectus Law, which requires digital asset issuers to publish a prospectus for potential investors, and the Markets in Financial instruments Directive (MiFID), which regulates financial instruments in the EU, applies to such assets.
If the asset is not transferable, then it is an investment instrument and only regulated by the Prospectus Law. In this case, they are investment instruments if the asset has a primary or secondary investment objective. Without investment objectives, they do not fall under the scope of the Prospectus Law.
Meanwhile, the FSMA states that digital assets with no issuer do not fall under any existing EU regulations. The regulator cites BTC and ETH as examples of such assets.
“If there is no issuer, as in cases where instruments are created by a computer code that does not give rise to a legal relationship between two persons (e.g. Bitcoin or Ether), then in principle the Prospectus Regulation, the Prospectus Law, and the MiFID rules of conduct do not apply,” the report stated.
Belgium preparing for harmonized digital assets regulations in the EU
All stakeholders and representatives of investors can participate in the consultation until it closes on July 31. The regulator added that the consultation intends to provide clarity while awaiting the harmonized EU digital assets regulation.
Meanwhile, the consultation is also coming after the regulator published its guidelines for registering digital asset firms and exchanges back in May.
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