Cryptocurrency Regulation in EU: ESMA’s Warning and Impact on Investment Firms

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Investment firms must ensure their clients are well-informed about the regulatory status of offered products, such as cryptocurrency, as mentioned in a recent notice from the European Securities and Markets Authority (ESMA). The European Union’s financial markets regulator expressed concerns about investment firms offering unregulated products and services, highlighting potential risks that investors may misunderstand the protections they are entitled to when investing in unregulated products and/or services.

Currently, cryptocurrencies remain unregulated in the EU until the Markets in Crypto-Assets (MiCA) regulator comes into force at the end of 2024. European Council adopted MiCA earlier this month, necessitating firms aiming to issue, trade, and safeguard crypto assets, tokenized assets, and stablecoins in the 27-country bloc, to obtain a license.

So, what does this mean for investment firms? ESMA urges them to “clearly disclose” when regulatory protections do not apply to clients and take necessary steps to ensure clients are aware of the regulatory status of specific products. This regulatory status must be openly communicated at every stage of the sales process, including marketing communications. Moreover, the information provided should not be misleading.

According to ESMA, “investment firms offering unregulated products and/or services that may be considered as alternatives to investing in financial instruments should act in the best interests of their clients.”

In 2021, ESMA, along with other EU regulators, alerted consumers about the high risks associated with cryptocurrencies. They argued that crypto might not be suitable for most retail investors due to the possibility of losing all their money and being exposed to seemingly impressive returns. The European Supervisory Authorities (ESAs) also cautioned consumers to consider the lack of recourse or protection available, as crypto-assets and related products and services generally fall outside the scope of protection under existing EU financial services rules.

As the regulatory landscape continues to evolve, investment firms’ responsibility to maintain transparency and act in their clients’ best interests is vital, particularly when providing both regulated and unregulated products and services. As a result, investors should stay informed about the regulatory status of offered products and services, and investment firms should act diligently in aligning their practices with regulatory expectations.

Source: Cryptonews

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