• The European Securities and Markets Authority (ESMA) warned that investment firms in the European Union that offer crypto alongside more traditional products could be misleading their consumers.
• ESMA recommends that these firms take necessary measures to ensure clients are aware of the regulatory status of the product/service.
• An upcoming regulation, MiCA, will bring MiFID-style rules to the crypto sector.
EU Investment Firms Warned About Misleading Crypto Consumers
The European Securities and Markets Authority (ESMA) has warned investment firms in the European Union that they could be misleading their customers who buy crypto assets alongside traditional securities. ESMA is concerned that some companies may use a seal of regulatory approval they have for traditional finance (TradFi) stocks or funds to make customers believe they’ll have access to sound financial advice or compensation schemes in the event of crypto mishaps.
Regulatory Protections May Not Apply
EU rules known as the Markets in Financial Instruments Directive (MiFID) ensure investment intermediaries promote only appropriate financial products to clients – but don’t always apply to more exotic investment opportunities like gold, real estate or non-transferable loans. To address this issue, ESMA recommends that investment firms take all necessary measures to ensure that clients are fully aware of the regulatory status of the product/service they are receiving and clearly disclose when regulatory protections do not apply.
MiCA Regulation for Crypto Sector
The EU’s Markets in Crypto Assets regulation (MiCA) is set to bring MiFID-style rules to the sector, but this regime will only take effect in around 18 months. In October 2020, ESMA issued a paper highlighting novel threats such as hacks and consensus manipulation associated with cryptocurrencies, and is currently consulting on detailed secondary laws which will put MiCA into effect.
Risks Involved With Cryptocurrencies
ESMA has previously warned people about the risks involved with investing in cryptocurrencies, emphasizing that investments can be risky due to price volatility and scams associated with them. Furthermore, investors should be made aware of potential liquidity issues which may arise if there isn’t enough demand for an asset at its current market price or if there aren’t enough buyers willing to purchase it at its current market price level.
It is important for investment firms offering crypto assets alongside more traditional products such as stocks or funds to make clear disclosures about which services are regulated by law and what consumer protections those regulations provide. Additionally, it is important for consumers themselves to understand both potential benefits and risks associated with investing in cryptocurrencies before making any decision regarding potentially investing in them..