The financial sector is facing a true revolution brought about by the irruption of crypto-assets and the ill-described “decentralised finances” (as they are not so) due to both their degree of innovation and their disruptive nature. Greater efficiency and competition in the market are expected, but this forces regulators and supervisors to assess the risks, rethink the objectives and establish the necessary mechanisms to guarantee the stability of the financial system.

Regulation in this area is still in its infancy and the legal classification of the different types of crypto-assets is complex and entails a high degree of uncertainty as to how each type of crypto-asset fits in legally. The new MiCA Regulation greatly helps to clarify the legal framework and the applicable legal regime, but nevertheless, the sector is constantly evolving and extremely dynamic, which creates an area of legal uncertainty. So much so that, even though it has not even entered into force in all Member States, there are already voices advocating the need for a new Regulation to be adopted.

The advantages of crypto-assets (the definition of which we cannot dwell on now) are: reduced transaction costs or processing time; less interference by public authorities; and incipient regulation and supervision. But it is clear that they also present significant risks from the point of view of cybersecurity and investor protection (especially for retail investors), as well as the risks associated with the complexity of the technology, in addition to those related to the stability of the markets and the integrity of the financial system. This requires supervisory authorities to put in place initiatives to alert potential investors to the risks associated with their use as well as to money laundering.

The MiCA Regulation already regulates the issuance and provision of services related to crypto-assets and stablecoins. This regulation is unique in the world and is undoubtedly a benchmark setting the way for other jurisdictions that, logically, will emerge. In Spain, the new Securities Market Law (Law 6/2003 of 17 March) designates the National Securities Market Commission (CNMV) as the competent authority for supervising the issue, offer and admission to trading of financial instruments. Art. 2 of the Securities Market Law states that “financial instruments are also those that are issued, registered, transferred or stored using distributed registry technology or other similar technologies”. In addition, the Securities Market Law has incorporated a broad regime of sanctions and infringements for non-compliance with the obligations established in the issuance, offer, exchange or registration of crypto-assets and broadens the concept of financial instrument to include assets issued using decentralised ledger technologies.

The fact that these reforms have been introduced in Spain leads us to consider the extent to which the two markets can coexist and generate synergies: the traditional financial market and the crypto-asset market. To this end, the latter should be provided with safe, secure environments that mitigate or allow the risks associated with the crypto phenomenon to be mitigated. As of today, these environments (according to the CNMV/Bank of Spain joint communiqué on cryptocurrencies and initial cryptocurrency offerings of 8 February 2018) pose problems arising from the cross-border nature of the phenomenon, they are highly speculative investments, the markets pose problems of liquidity and extreme volatility, and for which information is insufficient.

Furthermore, we do not currently have a framework that regulates all the different categories and offers protection similar to that applicable to traditional financial products.

Thus, although with the approval of the MiCA Regulation and the crystallisation of its regulation in the legal systems of the member countries, a very significant leap has been made in terms of the legal security associated with crypto-assets, it is no less true that in the crypto-asset market there are well-known and fairly frequent cases of massive fraud and swindles that affect a good number of people.

But MiCA excludes from its scope new paradigms such as the DeFI industry or NFTs, security tokens or even the activity of financing with crypto-assets. All these activities either have their own regulation (security tokens) or have such a dimension and particularities that they require an in-depth analysis to configure an appropriate regulatory framework for them (in the case of DeFIs and, in particular, let us think of DAOs). Central bank currencies are also excluded. For all these reasons, there is already a strong demand for a MiCA II Regulation. MiCA I has laid the foundations for regulating blockchain-based finance, but it is necessary to go a step further and regulate governance tokens, utility tokens and liquidity provider tokens.

— Isabel Fernández Torres, Prof. Titular de Derecho Mercantil , Instituto de Derecho Comparado, Universidad Complutense de Madrid.

How to cite this post: Fernández Torres, I., ‘The challenges of regulating financial crypto-assets and non-fungible assets’, The Key of BAES, 14th February 2024, https://www.baeslegalcripto.eu/legalcripto/en/the-challenges-of-regulating-financial-crypto-assets-and-non-fungible-assets-by-isabel-fernandez-torres/

This work is licensed under CC BY-NC-SA 4.0