ESMA aims to set crypto proficiency standards

In the paper, ESMA said increasingly easy access to crypto trading for retail investors, coupled with an apparent lack of knowledge by investors, and the added risks posed by cryptoassets (compared with traditional financial instruments), poses an increased risk of retail investor harm. As a result, it’s essential that crypto firms’ employees who give advice in this area are capable of fulfilling their obligations under the new crypto regime, “such as the requirement to act in the best interests of clients,” it said.

Among other things, ESMA said these employees should understand the key characteristics, risks and features of cryptoassets and services, including the added risks posed by the complexity and volatility of these assets; the fees and costs faced by investors; how crypto markets function and these assets are priced; and the potential impact of investor sentiment and social media on cryptoassets, which makes them highly volatile and unpredictable.

It also said that staff should be knowledgeable about the differences in investor protections that are available in the crypto sector, compared with the traditional financial sector; the market abuse, anti-money laundering and terrorist financing issues; and the cybersecurity and privacy risks posed by the sector.

Before providing information about crypto, firms’ staff should have a professional qualification that involves at least 80 hours of training and six months of experience under supervision, or at least one year of “appropriate experience” under their firm’s supervision, it said. Firms should also require at least 10 hours of continuing education annually, it said.

For staff that are giving advice on crypto, rather than just providing information, ESMA said the proficiency standards should be higher, given that “the provision of advice is a high value service that requires an enhanced level of investor protection.”

For these kinds of advisors, the paper proposes requirements, such as a relevant post-secondary degree, professional accreditation that involves at least 160 hours of work, along with a year of experience under supervisions; or at least two years of professional experience providing advice on traditional investments and six months of experience in crypto markets under supervision; along with at least 20 hours of continuing education.

The paper also seeks input on the requirements that crypto firms themselves should face in terms of assessing, maintaining and updating their staffs’ proficiency.

“The guidelines aim to ensure staff giving information or advising on crypto-assets or crypto-asset services have a minimum level of knowledge and competence, enhancing investor protection and trust in the cryptoasset markets,” the regulator said in a release.

The consultation is open until April 22.

ESMA said it will issue its final report, setting out is guidance in this area, in the third quarter.