Regulation (EU) 2023/1114 on cryptocurrency markets regulates, among many other issues, the provision of cryptocurrency services on the sole initiative of the client, for which the service provider does not need any authorisation from a member state of the European Union. The article in question, Article 61, will be a sure source of interpretative difficulties, giving a lot of work to both European regulators and companies in the cryptocurrency sector. Firstly, the European regulation is not only highly complex, but also covertly seeks to raise barriers to entry for companies from third countries by forcing them to apply for authorisation to operate in Europe, which entails their establishment, having to open offices and hiring staff.
Secondly, there is the reality that the vast majority of these companies operate in cyberspace and in countries that are unregulated or very weakly regulated or with different criteria, as in the United States. There are a good number of Chinese, Indian, Hong Kong and Singaporean companies trying to access the European market under the guise of having been contracted on the sole initiative of the European client. Operations from unregulated countries such as the Bahamas have led to major frauds in other countries such as the United States, which resulted in prosecution and a likely jail sentence for Bankman-Fried, the owner of the FTX platform. Other service providers such as Finance have moved their offices from one country to another in search of more permissive regulations. In the European Union, the regulation will prevent or hinder all these manoeuvres or frauds.
The point is that the European regulation is not clear enough. It simply states that if a customer established in an EU country enters into a relationship with a company in a non-EU third country on its own initiative, the latter does not need authorisation to provide the service. In technical terms, this is called a "reserve solicitation exemption", which is a term that comes from English law.
As this is a somewhat vague concept, the ESMA or European Securities Market Authority has opened a consultation period with the affected sectors, from which for the moment it appears that this exemption should be interpreted restrictively and only for a limited period of time. This position seems logical given that there are thousands of Spanish residents who buy and sell cryptocurrencies daily on platforms established abroad, and cases of fraud that reach our courts are relatively frequent. The bad news is that ESMA has not yet reached a fixed criterion on the period of time during which it will allow the foreign company to operate without permits, although it does seem to be clear that cryptocurrency investment operations must be part of the same transaction.
On the other hand, exclusive contact should be understood according to ESMA in the broadest possible sense and cover any kind of advertising and marketing activity directed at potential customers residing in the European Union, in any form, i.e. phone calls, emails, online advertisements or via mobile applications. A highly debatable question is whether the fact that the website is translated into the language of an EU country can be a sign that the third country company is targeting people who speak that language. In this sense, languages such as Spanish, which are official languages in a good number of countries, should be excluded from any restrictions in this respect.
The fact that the website is in Spanish is not in itself proof that the product is to be sold in Spain. Interested parties may live in Argentina, Colombia or Equatorial Guinea. This risk can and should be mitigated with the typical warning that the services are not intended for citizens resident in Spain.
Finally, the CNMV has been distinguishing between cryptocurrencies that can be assimilated to investment products and those that cannot be assimilated to investment products because they do not provide a financial return in the form of dividends or interest. For the former, the Spanish securities legislation on exclusive initiative would be applied by analogy, so that what will be new is that the rules will now be European and probably more complex and therefore more restrictive than Spanish rules.