Syed Rahman considers the proposal
The European Union's financial markets regulator wants to introduce minimum knowledge standards for those working at crypto asset service providers.
The European Securities and Markets Authority (ESMA) said that crypto assets are increasingly available, often created quickly and can be more volatile than traditional financial instruments - yet many crypto advisers and information providers have only limited knowledge about them.
ESMA wants to see staff at crypto asset service providers that give advice or information possessing and maintaining “an appropriate level of knowledge and competence to fulfil their obligations."
National regulators are required to publish the criteria they use to assess the abilities of crypto asset service providers. With this in mind, ESMA has produced draft guidelines that are designed to ensure a minimum level of knowledge and competence.
The guidelines have been drafted to address what ESMA sees as features and risks of crypto assets that are not always present in traditional financial markets.
They are:
- Crypto asset service providers to ensure their staff apply internal policies and procedures to comply with MiCA (the European Union’s Markets in Crypto-Assets Regulation regime) and review those policies at least annually. This guideline requires staff to have greater knowledge and competence than merely giving information.
- Service providers should ensure that staff members giving information about crypto assets understand the key characteristics and risks of the assets, such as their possible volatility and cybersecurity issues. This guideline requires staff members giving information about crypto assets to have obtained a professional qualification of at least 80 hours' commitment and at least six months' experience under supervision or to have worked a year under supervision.
Staff members' knowledge and competence should be assessed by them sitting a compulsory exam. Crypto asset service providers should decide minimum hours of continuous professional development or training for staff members who give information about crypto assets. - Crypto asset service providers should ensure staff members that give advice should obtain a deeper understanding of crypto assets and their markets. One way of doing this would be through three years' study after high school and a year's experience under supervision. Crypto asset advisers should also have at least 20 hours in continuous professional development or training each year.
- Crypto asset service providers should ensure that the knowledge and competence of staff members giving information and advice is assessed, maintained and updated appropriately. Staff members' development should be reviewed at least annually and action should be taken whenever it is needed to comply with regulatory developments. A staff member without necessary knowledge and experience may work under supervision for a maximum of four years.
ESMA is inviting comments on the guidelines until April 22. It will then compile a final report before the end of September and submit the guidelines to the European Commission.
Timely
These guidelines are both timely and necessary. Crypto markets have matured beyond their initial speculative phase, and crypto asset service providers (CASPs) now play a quasi-institutional role in the financial ecosystem. ESMA is rightly recognising that consumer protection and market integrity depend not just on robust systems and controls, but also on the competence of those delivering services - especially when dealing with complex, fast-evolving, and often poorly-understood products.
But when it comes to implementing these guidelines, it is worth remembering that many CASPs are generally small players or new. They may not have robust HR or compliance structures in place that are capable of delivering professional qualifications. Developing credible exams, verifying qualifications across jurisdictions, and ensuring consistent supervisory experience will require time, cost and alignment across EU member states. There's a risk that these guidelines will raise the barrier to entry, particularly for start-ups or firms led by technically-gifted individuals with deep knowledge of blockchain but no formal training in finance.
There is no direct equivalent in the UK to these guidelines, although there have been regulatory developments, such as the Financial Conduct Authority’s financial promotion regime. It seems the UK so far has taken a flexible approach to regulating crypto, focusing on general principles like fairness, competence and protecting consumers rather than setting strict rules. In contrast, ESMA’s proposal sets out specific requirements such as minimum training hours, exams and supervised work. It is a more rigid and standardised system.
