On April 22, 2015, the European Securities and Markets Authority (“ESMA”) – the European Union’s (“EU”) securities watchdog agency – issued a formal call for evidence regarding investments using virtual currency or distributed ledger technology.
ESMA is an independent EU authority responsible for safeguarding the stability, integrity, transparency, and efficiency of the EU’s financial system. Although in many ways ESMA is akin to the U.S. Securities and Exchange Commission (“SEC”) – e.g., both ESMA and the SEC have the authority to promulgate securities-related rules pursuant to enacted legislation – ESMA and the SEC are not mirror images of one another. Unlike the SEC, ESMA has not been vested with the authority to investigate and bring enforcement actions against individuals and entities. Rather, ESMA’s key responsibilities involve, among other things, gathering information and advising the European Parliament (i.e., the EU’s legislative body) and European Commission (i.e., the EU’s executive body, to which certain legislative functions are delegated) with respect to securities-related policies. In addition, ESMA has the authority to issue non-binding policy guidelines of its own. Finally, when legislation authorizes ESMA to do so, ESMA may ban products or restrict certain financial activities that threaten the orderly functioning of the markets or stability of all or part of the EU’s financial system. See, e.g., Court of Justice of the European Union, Press Release No 7/14 (Jan. 22, 2014) available at http://curia.europa.eu/jcms/upload/docs/application/pdf/2014-01/cp140007en.pdf (describing decision upholding EU Parliament’s legislation that permitted ESMA to restrict short-selling).
In its April 22nd call for evidence, ESMA stated that it has been monitoring and analyzing virtual currency investments for over six months, and is interested in the potential benefits and risks that virtual currency investments create for investors, market integrity, and financial stability. Among other things, ESMA is particularly interested in further information concerning: (i) derivative securities related to virtual currency; (ii) transactions involving typical securities (e.g., stock) that are bought or sold with virtual currency and that are recorded on a blockchain ledger; and (iii) all other uses of blockchain technology, including uses beyond transactions in virtual currency or virtual currency-related assets. ESMA has invited all interested parties to respond by July 21, 2015.
What ESMA’s April 22nd call for evidence means for the future of virtual currency in the EU remains unclear. It is conceivable – if not probable – that ESMA will use the information it gathers when advising the European Parliament and European Commission, and that this call for evidence might ultimately lead to more uniform regulation of virtual currency in the EU.