Investments in crypto-assets: enhanced protection starting in 2025 (2)

Crypto-assets, such as Bitcoin, Ether, and other virtual currencies, are in high demand, as evidenced by the recent announcement from US President-elect Donald Trump regarding the launch of his own cryptocurrency platform. In Belgium, a study by ING reveals that three out of ten investors have already invested in such assets. Despite their high volatility and speculative nature, crypto-assets continue to generate interest.

A limited legislative framework

The risks associated with investments in crypto-assets are frequently highlighted by the Belgian Financial Services and Markets Authority (FSMA) whose mission includes protecting Belgian investors. However, the regulatory tools at its disposal to supervise companies active in the crypto-assets sector remain limited to date. Due to their inherent characteristics, cryptos indeed fall outside the legal definition of ‘securities’ within the meaning of the EU Prospectus Regulation or ‘financial instruments’ within the meaning of the EU Directive on markets in financial instruments (MiFID II).

Currently, the FSMA’s main regulatory tool is a set of rules governing the marketing of virtual currencies to Belgian consumers set out in the FSMA Regulation of 5 January 2023 placing restrictive conditions on the distribution of virtual currencies to consumers (as approved by the Royal Decree of 8 February 2023).

In short, this Regulation provides that any advertisement must include the short warning: ‘Virtual currency, real risks. In crypto, only the risk is guaranteed,’ along with a more extensive warning about the risks associated with such assets. These risks include the possibility of total loss of investment, the absence of deposit protection systems, and the unreliability of the technologies used, among others. The regulatory framework also covers influencers promoting crypto-assets on social media platforms (such as TikTok or Instagram) and provides stricter rules for mass media campaign (for instance, during sporting events) including a notification requirement vis-à-vis the FSMA prior to the launch of the campaign.

Additionally, the FSMA oversees compliance with anti-money laundering legislation by certain virtual currency service providers based in Belgium, in accordance with the Law of 18 September 2017 on the prevention of money laundering and terrorist financing and the limitation on cash payments (the AML Law).

A new European Regulation

Until recently, regulations governing crypto-asset markets were entirely fragmented at the European level, with each country being free to adopt its own laws on the matter. Given the increasing cross-border interactions in a digitalised financial world, such a situation failed to ensure legal certainty.

Rather than imposing a blanket ban on crypto-assets, European legislators have opted to regulate this new segment of the financial sector by adopting a regulation at the EU level (known as ‘MiCAR,’ or Markets in Crypto-Assets Regulation (Regulation (EU) 2023/1114)). This approach recognises the opportunities presented by cryptos: innovative financing methods, technological development (notably blockchain), and more cost-effective payment solutions than legal tender due to the reduction in intermediaries.

This new regulation, which will be directly applicable in Belgium from 30^th December 2024, significantly enhances investor protection.

Without aiming to be exhaustive, some key innovations under MiCAR include:

• White paper: the new rules seek to ensure greater transparency by requiring companies offering crypto-assets to the public to publish a crypto-asset ‘white paper’ containing detailed information about the cryptos and their associated risks.

• Marketing communications: marketing communications relating to an offer to the public of crypto-assets must comply with several requirements (e.g. they must be clearly identifiable as such and must be fair, clear, and not misleading).

• Withdrawal right: retail holders (non-professionals) will, in certain circumstances, have the right to withdraw from their crypto purchases without charge and without needing to provide any reason, within fourteen days.

• Supervision of CASPs: furthermore, the new regulation requires crypto-asset service providers (CASPs) to obtain approval and be subject to ongoing supervision by regulators (the FSMA in Belgium).

• Market abuses: MiCAR also establishes rules aimed at preventing and detecting market abuses (such as insider trading or market manipulation) on trading platforms.

This new legal framework will undoubtedly help professionalise the cryptocurrency sector and make it safer for Belgian investors. However, it will be interesting to assess whether it hinders the development of a sector that is still in its infancy.

Author

Pierre De Pauw, Partner Banking & Finance