Regulation of security tokens as financial instruments in the EU: is there a need for amendments?

Abstract

In 2020 the European Commission proposed laws on crypto-assets and DLT. The EU treats security tokens as financial instruments, provided that they fall into the MiFID II definition. This Thesis aims to provide classification for crypto-asset as a financial instrument, to identify regulatory gaps in the EU legislation applicable to crypto-assets that qualify as financial instruments (security tokens), and to provide recommendations in relation to security tokens regulation in the EU. The results indicate that Amending Directive will harmonize the procedure for classification of a crypto-asset as a financial instrument across the EU, but the requirement for the expected profit to be derived from the efforts of others should be added to the security tokens criteria. Only MiFID II authorization or specific permission under PilotR allows CASPs to deal with security tokens. PilotR exemptions might motivate more CASPs to become authorized DLT market infrastructures. Thesis recommends warning investors about the risks, and NCAs should assess the compliance of PSPs listed on DEXs’ websites. The application of PR to STOs is reasonable as issuers have non-costly options in relation to territorial limitations. SSR rules must be incorporated into MiCA.